MarketView for January 17

 

 

Summary 

  

The major equity indexes advanced on Tuesday, pushing the S&P 500 to its highest level; since early August during the trading day but then sharply pared gains late in the session as Citigroup's steep earnings decline gave investors a reason to unload bank shares.

 

The financial sector, which has outperformed the broader market so far this year, took a hit on investors' disappointment with the Citigroup earnings number. As a result, Citigroup fell 8.1 percent to close at $28.25. The banks' sell-off splashed cold water on a rally that drove the S&P 500 through 1,300 for the first time since August. However, share prices managed a rally across the board after data indicated that China's economic growth was better than expected, even though it expanded at the weakest pace in 2-1/2 years. Citigroup's results followed similarly disappointing earnings on Friday from JPMorgan Chase.

 

After the bell, Yahoo rose 3.6 percent to $15.99 in extended-hours trading following news that Yahoo co-founder Jerry Yang resigned. In regular trading, Yahoo's stock ended the day down 0.3 percent to close at $15.43.

 

Wells Fargo posted a 20 percent increase in quarterly earnings, its stock, which earlier had been up more than 1 percent to a session high at $30.69, pulled back sharply from that peak and ended the day up just 0.7 percent at $29.81.

 

The Nasdaq outperformed the other major equity indexes, with shares of Applied Materials up 2.4 percent at $11.78. RBC upgraded the stock to "outperform." An index of semiconductor rose 0.5 percent.

 

The benchmark S&P 500 briefly moved above 1,300 on an intraday basis for the first time since August 1. Analysts said a substantial move past that resistance point could trigger more buying. On the downside, Carnival saw its share price fall 13.7 percent to $29.60 as its Italian unit, Costa Crociere, struggled to locate missing passengers after a cruise liner capsized. Fellow cruise operator, Royal Caribbean Cruises, fell 6.2 percent to $26.97.

 

On the economic front, a gauge of manufacturing in New York State rose to its highest level in nine months, keeping in line with the trend of modest improvement in U.S. economic data.

 

About 6.8 billion shares changed hands on the three major equity indexes, just above the daily average of 6.68 billion shares.

 

Retail Sales Chalk Up Record Year

 

Retail sales barely rose in December, but the gain was enough to lift sales to a record level for 2011. It marked the largest annual increase in more than a decade.

 

Sales inched up 0.1 percent in December to a seasonally adjusted $400.6 billion, The Commerce Department said Thursday. It was the second straight month that sales have topped $400 billion. Never before had monthly sales reached that level.

 

The government revised the November sales to show a stronger 0.4 percent gain — twice the original estimate. That pushed sales in November above $400 billion on a seasonally adjusted basis.

 

Separately, weekly applications for unemployment benefits spiked to a seasonally adjusted 399,000, the Labor Department said. But the gain was largely because companies let go of thousands of workers after the holiday season.

 

Economists said such a jump is typical in early January and downplayed the increase. It followed three months of steady declines that had brought applications to their lowest level in more than three years.

 

For all of 2011, retail sales totaled a record $4.7 trillion, a gain of nearly 8 percent over 2010. It was the largest percentage increase since 1999

 

Steady sales gains have fueled a 20 percent surge from the low during the recession. Monthly sales are even 6 percent above their pre-recession high.

 

The figures confirm evidence that the economy was strengthening as 2011 ended.

 

One caveat: Many retailers said they had to offer steep discounts in December to attract holiday shoppers.

 

Those discounts showed up in weaker department store sales. They fell 0.2 percent in December. A broader category that includes department stores like Macy’s and big chains such as Wal-Mart and Target showed an even larger decline last month: 0.8 percent.

 

The strength last month was led by a 1.5 percent jump in auto sales. Furniture store sales rose 1 percent. Hardware stores reported a 1.6 percent increase. But sales at electronics and appliance stores sank nearly 4 percent.

 

Sales at gasoline stations fell 1.6 percent. That decline reflected mainly lower gas prices. Excluding gas stations, retail sales would have risen 0.3 percent in December. Restaurants and bars did better over the holidays. Their sales rose 0.7 percent.

 

The government’s retail sales report is its first look each month at consumer spending, which accounts for roughly 70 percent of economic activity. A healthy report typically signals a stronger economy. When compared with the same time last year, retail sales have risen 6.4 percent.

 

This week, the Federal Reserve issued a report saying the final six weeks of 2011 were among the economy’s best last year. The report pointed to higher holiday and auto sales, along with increased travel.

 

The job market has brightened, too. Employers added 200,000 jobs in December. And the unemployment rate fell to 8.5 percent, the lowest in nearly three years.

 

For the holiday season, many retailers drew customers by staying open on Thanksgiving Day or offering sharp discounts. Discounting helped generate record sales at the start of the shopping season and in the days before Christmas.

 

A survey of 25 merchants by the International Council of Shopping Centers found that revenue in December at stores open at least a year rose 3.5 percent over the same month a year ago. For November and December combined, the year-over-year gain was 3.3 percent. That was a respectable increase. But it was less than the 3.8 percent year-over-year gain from 2009 to 2010.

 

The government’s monthly report is a broader gauge of retail sales. It covers purchases at all retailers, not just at major national chains. It also includes auto dealerships, restaurants and bars, grocery stores and gasoline stations.

 

The auto industry has indicated that November and December were their two best sales months in 2011. Their domestic sales rose 10 percent to 12.8 million in 2011, a 23 percent jump from the recession year of 2009. Chrysler reported sales were up 26 percent for all of 2011. General Motors saw sales rise 13 percent for the year, while Ford reported an 11 percent increase for 2011.

 

The government’s retail sales report is seasonally adjusted. That way, the current month can be compared with the previous month. But the figures aren’t adjusted for inflation.

 

Probe of Standard & Poor’s Continues

 

The Justice Department has stepped up its investigation of Standard & Poor's mortgage bond ratings during the financial crisis, the Wall Street Journal reported on Tuesday. At least five former S&P analysts have been contacted by federal prosecutors in recent weeks, after some had not heard from investigators for more than six months, the newspaper said.

 

The McGraw-Hill unit disclosed in September it had received a Wells notice from the Securities and Exchange Commission indicating it could face civil charges for its ratings of a 2007 mortgage bond deal called Delphinus 2007-1. It has not yet disclosed any investigation by the DOJ, which the WSJ reported is a civil probe.

 

Prosecutors are examining whether S&P managers pushed to weaken standards the company had set for rating the mortgage deals, and whether the company followed its established criteria in assigning ratings.

 

The recent interviews lasted two to three hours, and the former employees were told they would likely by contacted again, the Wall Street Journal said.

 

New York Manufacturing On Rise

 

A gauge of manufacturing in New York State showed growth picked up in January, rising to the highest level in nine months as new orders and employment improved, the New York Federal Reserve said in a report on Tuesday.

 

The New York Fed's "Empire State" general business conditions index rose to 13.48 from a revised 8.19 in December, topping economists' expectations of 11.0. It was the highest level since April 2011. New orders climbed to 13.70 from a revised 5.99, while inventories also gained to 6.59 from minus 3.49.

 

The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions. Activity in the region has been growing steadily since October, following a drop off through the summer months as the broader manufacturing sector slowed.

 

Financial markets showed little reaction to the data as investors focused instead on the corporate earnings season, as well as economic data from Germany and China.

 

Employment gauges showed strength. The index for the number of employees rose to 12.09 from 2.33 and the average employee workweek index climbed to 6.59 from minus 2.33. Manufacturers were also more optimistic about their outlook with the index of business conditions six months ahead rising to its highest level since last January at 54.87 from 45.61.