MarketView for April 12

 

 

Summary

 

The major equity indexes scored a second day of solid gains on Thursday, led by materials and energy stocks, despite weak figures on the unemployment front. Rumors about strong growth figures due overnight from China helped remove some of the concerns that hit share prices during a five-day streak of losses that ended with Wednesday's rebound.

 

Basic materials shares led gains as commodity prices advanced. U.S. Steel ended the day up 7.5 percent to close at $29.36. Freeport-McMoRan Copper & Gold was up 5.9 percent to close at $37.89.

 

The rebound pushed the S&P 500 back above its 50-day moving average, a sign that could meant that the recent pullback of more than 4 percent is an opportunity to catch up with the benchmark's gains. The index is up more than 10 percent in 2012.

 

Concerns about the euro-zone's debt crisis were eased by lower Italian bond yields. Benchmark bond yields in Italy and Spain were lower following solid demand at this week's Italian debt auctions, while the euro hit a one-week high against the dollar, indicating a reduction in near-term concern about the euro zone's debt troubles.

 

The labor market's recovery may be stalling a bit. Government data indicated that new claims for unemployment benefits rose unexpectedly last week to their highest level since late January. However, the Easter holidays for the spike in claims, adding that they expected applications will keep declining in the weeks ahead.

 

Google saw its share price rise one percent to $657.67 in extended trading after the company reported its quarterly results and announced a proposal to effectively implement a 2-for-1 stock split.

 

After the bell, Dow Chemical watched as its share price moved up 1.8 percent to $33.25 after the company boosted its quarterly dividend by 28 percent and forecast earnings growth for the foreseeable future.

 

Early into earnings season, results are exceeding Street's expectations at a rapid pace. Expectations are that the various consensus numbers were lowered more than they should have been. In addition, share prices appear to be inexpensive after the S&P's recent pullback of over 4 percent.

 

Hewlett-Packard closed up 7.2 percent to $25.09 as first-quarter personal computer shipments came in at a higher number than had been previously estimated, said Gartner, a firm that keeps track of such numbers.

 

The Fed is running through data to determine if last month's soft non-farm payrolls report was a weather-related setback or a sign the recovery is losing momentum, said William Dudley, president of the Federal Reserve Bank of New York. As such, Dudley left the door open to additional stimulus measures if the economic recovery gets off track. Previous rounds of quantitative easing have given a boost to equities and other risk assets.

 

Trading volume was light among the three major equity exchanges, with about 6.14 billion shares changing hands, a number that was well below last year's daily average of 7.84 billion shares.

 

Jobless Claims a Disappointment

 

The number of new jobless filed last month hit a two-month high, while received in the prior week was revised upward, suggesting a slight pullback within the labor market. According to a report by the Labor Department, initial claims for state unemployment benefits increased by 13,000 claims last week to a seasonally adjusted 380,000 claims. The prior week's count was revised to show 10,000 more applications than previously reported. Problems adjusting the data for seasonal fluctuations around Easter may have pushed last week's figure higher.

 

The data comes in the wake of a report on Friday that showed the economy created only 120,000 jobs last month, the fewest since October. The unemployment rate fell to a three-year low of 8.2 percent, but largely as people gave up the search for work.

 

Initial claims tend to be volatile at this time of year due to shifts in the timing of Easter and school spring breaks, making it difficult for the Labor Department to adjust the data for seasonal variations. At the same time, new claims have been up in nine of the last 11 Easter holiday weeks and have over the past year tended to increase in the first full week of a quarter.

 

The four-week moving average for new claims, considered a better measure of labor market trends, rose moderately.

 

A report from the Commerce Department indicated that the nation's trade gap shrank 12.4 percent to $46 billion in February as exports hit a record high. It was the largest month-to-month decline in the trade shortfall since May 2009. The shrinking prompted a new round of higher estimates for first-quarter economic growth. Goldman Sachs now see U.S. gross domestic product expanding at a 2.5 percent annual pace instead of 2.3 percent estimated previously. The economy grew at a 3 percent rate in the fourth quarter.

 

A third report showed little sign of inflation pressures. The Labor Department reported that prices received by producers were unchanged in March after advancing 0.4 percent in February, while wholesale prices excluding volatile food and energy costs rose 0.3 percent. That should allow the Federal Reserve to keep interest rates ultra-low and even embark on a third round of asset purchases, or quantitative easing, should job growth completely stall.

 

New York Federal Reserve Bank President William Dudley said on Thursday the U.S. central bank was gathering more data to determine whether last month's weak employment report was just a weather-related setback or a sign the recovery is losing momentum again.

 

"The somewhat softer March labor market report that was released last Friday may reflect the earlier positive influence of the mild weather on job creation in January and February, although other less-sanguine interpretations are also plausible," he said.

Last month, over one-third of the rise in the core Producer Price Index was attributed to rising costs for light trucks. Higher prices for passenger cars, soaps and detergents also contributed to the advance. In the 12 months through March, wholesale prices rose 2.8 percent, the smallest increase since June 2010, after advancing 3.3 percent in February.

 

Google Announces Stock Dividend

 

Google announced a stock split designed to preserve the control of co-founders Larry Page and Sergey Brin, thereby asking investors to trust their long-term vision. The surprise decision, which its board unanimously approved, came as the company exceeded consensus profit expectations but revealed a worrying 12 percent drop in search advertising rates - the second consecutive quarterly decline.

 

Shares of Google, which finished Thursday's regular session at $651.01, rose to $653 in after-hours trading.

 

The announcement came just as Page completed a year in the chief executive's seat for the second time, during which he spearheaded the $12.5 billion acquisition of Motorola Mobility and launched a social network to take on Facebook.

 

Google said its board of directors has approved a 2-for-1 stock split. Investors will get a dividend of one share of the new, non-voting "Class C" stock for each existing Google share. The new shares, to be listed on Nasdaq under a separate ticker, will be available for corporate uses such as equity-based compensation for employees, in which case they would not dilute the share base.

 

"When we went public, we created a dual-class voting structure," Page said in a letter explaining the moves. "Our goal was to maintain the freedom to focus on the long term by ensuring that the management team, in particular Eric, Sergey and I, retained control over Google's destiny," the letter said.

 

"We are creating a corporate structure that is designed for stability over long time horizons. By investing in Google, you are placing an unusual long term bet on the team, especially Sergey and me, and on our innovative approach," Page was ;quoted as saying.

 

Google remains one of the last few major technology corporations to resist calls to pay a cash dividend. Last month, Apple gave in to investor pressure to pay a dividend as the company's cash pile grew to almost $100 billion.

 

Google's earnings of $10.08 per share, excluding certain items, surpassed the $9.65 that analysts had predicted - another source of relief after the previous quarter's earnings miss.

 

Net revenue, excluding fees paid to partner websites, totaled $8.14 billion in the three months ended March 31, compared with $6.54 billion in the year-ago period.

 

Net income was $2.89 billion, or $8.75 per share, compared with $1.80 billion, or $5.51 a share, in the year-ago period when Google took a $500 million charge to settle a government probe into its advertising practices.