MarketView for Febuary 14

 

 

Summary

 

Stocks closed higher on Friday, with major indexes notching a second straight week of gains as Wall Street was again willing to overlook some soft economic data stemming from bad weather. As a result, the Nasdaq ended the day at its highest level since the year 2000 and nine of the 10 major S&P 500 sector indexes closed higher. The only declining sector was telecom, which is viewed as a defensive play. Energy, which is closely tied to the pace of economic growth, was the day's largest gainer, up 1.5 percent.

 

Export prices rose 0.2 percent in January, the third straight monthly increase in a potentially positive sign for global economic demand and the outlook for American manufacturers.

 

However, the harsh winter weather, factory production was largely responsible for a 0.8 percent decline in January, the largest decline for that index in more than 4-1/2 years. The Street has been willing to forgive soft data of late, attributing weak results to bad weather as opposed to a slowing economy.

 

Despite difficult weather, the preliminary reading of the Thomson Reuters/University of Michigan overall index of consumer sentiment stood at 81.2 in February, unchanged from the final January reading.

 

The three major U.S. stock indexes scored their largest weekly percentage gains of 2014: The Dow and the S&P 500 each rose 2.3 percent, while the Nasdaq was up 2.9 percent. This is the second straight week of gains for all three. The benchmark S&P 500 now stands just 0.5 percent away from its all-time closing high of 1,848.38 set on January 15.

 

Friday's advance comes ahead of a long holiday weekend for Wall Street. The markets are closed on Monday for Presidents Day.

 

Jos. A. Bank has indicated that it plans to acquire outdoor wear specialist Eddie Bauer for $825 million from private equity firm Golden Gate Capital, spurning any merger considerations with rival Men's Wearhouse. Jos. A. Bank shares rose 0.4 percent to $55.12 while Men's Wearhouse stock was down 5.3 percent at $44.07.

 

AIG on Thursday raised its dividend and announced more share buybacks as its fourth-quarter earnings exceeded expectations. Shares of AIG closed down 1.2 percent at $48.98.

 

Looking at some of the day’s numbers, Weight Watchers fell 28 percent to $22.10 after it forecast a full-year adjusted profit far slimmer than estimates. Cliffs Natural Resources was up 5.8 percent to $23.16 as the best performer in the S&P 500. Better-than-expected earnings were helped by a drop in costs and higher iron ore prices. GNC fell 14.6 percent to $44.72. The health supplements retailer posted weaker-than-expected quarterly results. VF Corp was down 5.1 percent to $56.85 after the apparel company reported fourth-quarter earnings and issued its 2014 outlook.

 

With 398 S&P 500 companies having posted results so far, 66.3 percent have reported earnings that exceeded expectations, a number that was above the historical average of 63 percent, according to Thomson Reuters’ data. More than 64 percent have topped estimates on revenue, above the long-term average of 61 percent.

 

LCA-Vision rose 28 percent to $5.44 after the laser vision correction services company agreed to be acquired by skin health company PhotoMedex for about $106 million. PhotoMedex ended the day up 1.3 percent at $14.

 

Approximately 5.1 billion shares changed hands on the major equity exchanges, according to BATS exchange data.

 

Weather Continues to Impact Economic Output

 

Manufacturing output unexpectedly fell in January, recording its largest decline in more than 4-1/2 years, as cold weather disrupted production. Production fell 0.8 percent last month, the Federal Reserve said on Friday. It was the first drop since July and the biggest since May 2009, when the economy was still locked in recession. Output had increased 0.3 percent in December.

 

The Fed said "severe weather ... curtailed production in some regions of the country." Economists polled by Reuters had expected manufacturing output to edge up 0.1 percent.

 

Though consumer sentiment was steady in early February, there are worries the persistent and widespread harsh weather could dampen the morale of households, whose budgets are being stretched by soaring heating bills.

 

However, the Thomson Reuters/University of Michigan index of consumer sentiment stood at 81.2 early this month, unchanged from January. The survey's barometer of current economic conditions fell to 94.0 from 96.8 in January.

 

Manufacturing joined weak retail sales and employment data in suggesting that cold weather had spurred a step-back in economic growth early in the first quarter after a strong performance in the second half of 2013.

 

With unusually low temperatures and disruptive snow storms extending into February, the run of downbeat economic reports is likely to persist and further cloud the growth picture.

 

Given the weather's role in the slowdown, economists say the Fed will likely discount the reports and continue with measured reductions in its monetary stimulus. It has reduced its monthly bond buying to $65 billion from $85 billion in two steps since its December policy meeting.

 

The weakness in factory output last month was broad-based, with the production of motor vehicles and parts tumbling 5.0 percent, the largest drop since August 2010, after ticking up 0.1 percent in December.

 

Apart from the poor weather, auto manufacturers are also likely cutting back on production because of a sharp increase in motor vehicle inventories in the fourth quarter. That situation has been exacerbated by a fall in sales in December and January.

 

And while manufacturing output accelerated in the fourth quarter, the pace was not as strong as had been forecasted previously. Fourth-quarter output at the nation's factories was lowered to a 4.6 percent annual rate from a 6.2 percent pace.

 

The decline in factory output last month and a 0.9 percent fall in mining activity weighed on overall industrial production, which fell 0.3 percent, the biggest drop since April. Mining output was also hampered by cold weather, which caused slowdowns at some oil and gas extraction facilities. At the same time, the freezing temperatures raised demand for heat last month, causing utility production to increase by 4.1 percent.

 

With production declining, the amount of industrial capacity in use fell 0.4 percentage point to 78.5 percent January.

 

From the Sadly Idiotic Department

 

There are times when even the most imbecilic ideas receive public attention. In fact, the following would not even merit mentioning if it were not for the fact that the author was a supposedly intelligent hedge fund manager who therefore was able to get his opinion out in public view and therefore a saner discourse is necessary.

 

Specifically, Tom Perkins, the Silicon Valley venture capitalist who compared the plight of the wealthiest Americans to Jews in Nazi Germany, offered up a provocative new idea on what the rich deserve: more votes in public elections for every dollar they pay in taxes.

 

"If you pay a million dollars, you should get a million votes," Perkins, the retired co-founder of venture capital firm Kleiner Perkins Caufield & Byers, told an audience at San Francisco's Commonwealth Club in comments that he later said were meant to be provocative. He also said that only taxpayers should have the right to vote.

 

Last month, Perkins wrote a much-discussed letter-to-the-editor published in The Wall Street Journal that likened the Nazi party's war on Jews to what he called "the progressive war on the American one percent, namely the 'rich.'"

 

He later apologized for the analogy, which included a reference to Kristallnacht, the 1938 attack on Jews in Nazi Germany and Austria. He expressed regret again on Thursday for those words, saying, "You shouldn't compare anything to the Holocaust."

 

But on Thursday night, he doubled down on his comments about the treatment of the nation's wealthiest citizens.

 

"The extreme progressivity of taxation is a form of persecution," he said. "I think if you've paid 75 percent of your life's earnings to the government, you are being persecuted."

 

Perkins said the richest Americans, known as the 1 percent, contribute a great deal to the nation, including donating to charities.

 

He also discussed editorial attacks on his ex-wife, the best-selling novelist Danielle Steele; said he didn't understand the anger over the buses that ferry technology workers who live San Francisco to their jobs in Silicon Valley; and posited that if Germany had U.S. gun laws, "there would have never been a Hitler."

 

Perkins's comments come at a time of rising concern over income inequality, both in the country and specifically in San Francisco, where many blame technology workers for rising rents and other costs.

 

About his comments, Perkins said, "It's going to make you more angry (he might want to learn proper grammar) than my letter to The Wall Street Journal," he said, before floating his idea about allocating votes based on taxes. "How's that?" he said when finished.

 

In his career as a venture capitalist, Perkins backed companies including Genentech and Tandem Computers, and his firm has backed Amazon.com, Google and others. He grew up in a working-class family in White Plains, New York.