Tuesday, January 21, 2014

17 Jan 2014 AMC - Market went flat to downside ahead of Martin Luther King's Day

Market Summary

The broader market ended the week on a down note, undercut by a spate of uninspiring earnings results and guidance from some widely-held companies that put a damper on the bullish sentiment seen in the middle of the week. There were some buying efforts on Friday that controlled the fallout, but generally speaking there wasn't a lot of conviction among buyers with the exception of some specific stocks. 

Those exceptions tended to reside in the price-weighted Dow Jones Industrial Average, which outperformed the other major indices on Friday. 

American Express
 (AXP 90.97, +3.19), which came up shy of consensus earnings estimates but spotlighted encouraging card member spending, was instrumental in the Dow's outperformance. It joined with Visa (V 232.18, +10.41) -- the highest-priced stock in the Dow -- to effectively account for all of the Dow's gains. Remarkably, 21 out of the 30 Dow components ended lower on Friday. 

Intel (INTC 25.85, -0.69) and General Electric (GE 26.58, -0.62) were among the Dow laggards. Both companies reported their results for the fourth quarter, yet neither wowed investors. Intel missed by a penny and said it expected FY14 revenues to be approximately flat. GE was in-line with expectations and said things were improving, albeit in a mixed environment. 

Morgan Stanley (MS 33.40, +1.40), which beat by eight cents, and Schlumberger (SLB 90.21, +1.60), which beat by two cents, enjoyed positive outings that provided a measure of support for the broader market and their respective sectors. 

Be that as it may, every S&P 500 sector closed in the red on Friday. The energy sector (-0.05%) was the relative strength leader while the consumer staples sector (-0.8%) was the biggest laggard. The latter was afflicted by a big earnings warning out of Elizabeth Arden (RDEN 27.96, -6.54). 

Other notable companies warning they expect to fall short of earnings expectations included Con-way (CNW 40.59, -0.81), Royal Dutch Shell (RDS.a 70.57, -1.17), and UPS (UPS 99.91, -0.58). The warning from UPS drew a lot of attention, yet the company came back nicely from a loss of more than three points during the day as investors seemed to warm to the notion that its shortfall was tied to the bad weather and the operational challenges of meeting increased demand during the holiday selling period. 

The earnings news was the focal point throughout the day and the week. There were some early economic releases, but they didn't have much bearing on Friday's proceedings. Overall, the economic news was good enough not to create any newfound concerns about the economic recovery. 
  • December housing starts slipped 9.8% to an annualized rate of 999,000 units, but the two-month average for starts was the highest since March 2008. 
  • Industrial production jumped 0.3%, which was the fifth consecutive month industrial production increased. 
  • The preliminary reading for the University of Michigan Consumer Sentiment report for January dipped to 80.4 from 82.5, but the downturn wasn't enough to cause any real concerns 
Friday was an options expiration day, so volume was heavier than usual with 880 mln shares having traded at the NYSE versus 641 mln on Thursday.

The early sense of things so far is that the fourth quarter wasn't a slam-dunk quarter despite the incoming signs of improving economic activity that were seen during the quarter.  Furthermore, there hasn't been a lot of table pounding either with respect to the first quarter and the year ahead.

The latter is owed in part to the fact that the financial companies factored prominently on this week's earnings calendar and they don't typically provide specific earnings guidance.  The coming week will provide some more clarity on the outlook when a larger number of industrial and technology companies report their results.

At the moment, the market is having some difficulty finding its way and has the semblance of being at a 'T' intersection, not knowing which way to turn.  That indecision has led to some choppy trading action.  The guidance from corporate America in the coming week may very well offer some navigational clues.  

For the week that just concluded, the S&P 500 declined 0.2%, the Dow Jones Industrial Average gained 0.1%, and the Nasdaq Composite increased 0.5%. 

As a reminder, the stock and bond markets will be closed on Monday in observance of Martin Luther King, Jr. Day.

Market Internals

Leaders & Laggards

Technical Updates

Weekly Analysis

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