MarketView for January 14

Summary

Wall Street was in a buying mood on Tuesday, thereby erasing much of the previous session's steep drop, as a strong December retail sales reading eased concerns that economic growth might be slowing.

Google rose 2.4 percent to end the day at $1,149.40, a day after the company announced plans to acquire Nest Labs. The $3.2 billion acquisition will give Google a promising line of products and a prized design team.

Core retail sales increased 0.7 percent in December from the prior month, well above the expected 0.3 percent gain. Fourth-quarter economic growth prospects were enhanced further by a report showing retail inventories, excluding autos, increased 0.6 percent in November.

The data followed Friday's payroll report, which showed job growth for December that was sharply below expectations.

Tuesday's gains came a day after the S&P 500 posted its largest decline in two months, pointing to an increasingly problematic and volatile 2014 after a year of what appeared to be never ending gains.

The CBOE volatility index fell 7.5 percent to 12.28 after gaining 9.4 percent on Monday.

Shares of General Motors were up 3 percent to $41.20 in extended trading after the company said it will pay the first quarterly dividend on its common stock in almost six years.

Intel rose 4 percent to close at $26.51 in regular trading after JPMorgan upgraded the stock to "overweight" from "neutral."

Tesla said deliveries of its Model S sedan in the fourth quarter moved well past its forecast, sending shares up 15.7 percent to $161.27.

Both JPMorgan Chase and Wells Fargo posted earnings that exceeded expectations, although the upside was limited with Wells Fargo shares already near all-time highs and JPMorgan shares at their highest since 2000. Shares of both banks rose less than 0.1 percent on the day.

With just 5 percent of the S&P 500 companies having reported quarterly results, 53.8 percent have exceeded earnings expectations, according to Thomson Reuter’s data, a number that was below the 63 percent historical average. About 62 percent are ahead on revenue, a number that is above the long-term 55 percent average.

Bank of America, Citigroup, Goldman Sachs and Morgan Stanley will post results later in the week. General Electric and Intel are also set to report. GameStop and Stratasys Ltd were lower after giving outlooks that were weaker than expected. GameStop ended the day down 19.9 percent to close at $36.31, while 3D printer maker Stratasys fell 8.2 percent to close at $119.37.

In contrast, Intuitive Surgical advanced 6.8 percent to close at $419.88 after the surgical equipment maker gave a strong fourth-quarter outlook.

Charter Communications is trying to strike a deal to buy Time Warner Cable and sway its shareholders after three of its offers have been rebuffed. On Monday, Charter took its approach public and proposed paying $132.50 per TWC share. TWC shares gained 2.7 percent to $136 and Charter added 2.3 percent to $137.34.

Volume was roughly in line with the year-to-date average as approximately 6.5 billion shares changed hands on the major equity exchanges, according to data from BATS Global Markets.

Consumer Spending Surprises

The Commerce Department reported Tuesday morning that consumer spending rose more than expected during December, suggesting that the economy saw additional momentum at the end of 2013 and was poised for stronger growth in 2014. For example, retail sales excluding automobiles, gasoline, building materials and food services, increased 0.7 percent last month after a 0.2 percent rise in November.

The so-called core sales correspond most closely with the consumer spending component of gross domestic product. The increase suggested consumer spending accelerated in the fourth quarter from the third quarter's 2 percent annual pace. It was also the latest indication of strong momentum in the economy at the end of 2013.

Although job growth stumbled during December, the reason was largely seen as temporary given the cold weather that gripped parts of the country during the month. Nonetheless, core sales last month were lifted by a 1.8 percent rise in receipts at clothing stores. Sales at food and beverage stores recorded their largest increase in seven years. There were also increases in online store sales.

A cold snap during the month likely contributed to holding down sales of automobiles. Receipts at auto dealers fell 1.8 percent, the largest decline since October 2012. Auto sales had risen 1.9 percent in November.

That limited overall retail sales to a 0.2 percent gain in December. Retail sales increased 0.4 percent in November. The expectation had been for retail sales to edge up 0.1 percent last month. For all of 2013, retail sales rose 4.2 percent. Retail sales excluding automobiles rose 0.7 percent. Sales of furniture, sporting goods, building materials and garden equipment and electronic appliances fell.

Import Prices Unchanged

The Labor Department reported on Tuesday that import prices were unexpectedly flat during December as the cost of petroleum fell marginally. At the same time, import prices are still showing no signs of imported inflation pressures.

November's import prices were revised to show a 0.9 percent decline rather than the previously reported 0.6 percent, the Labor Department said on Tuesday. In the 12 months through December, import prices fell 1.3 percent.

Import prices excluding petroleum were also flat in December after edging up 0.1 percent in November. Compared to December last year, they were down 1.3 percent.

The report also indicated that export prices rose 0.4 percent in December after inching up 0.1 percent in November.

Inventories Rise

According to a report on Tuesday by the Commerce Department, business inventories increased 0.4 percent during November, after rising 0.8 percent in October, suggesting restocking could well be a improvement to economic growth during the fourth quarter instead of being a drag as was previously expected.

Inventories are a key component of gross domestic product changes. Retail inventories, excluding autos - which go into the calculation of GDP - increased 0.6 percent after increasing 0.3 percent in October.

Businesses aggressively accumulated stock in the third quarter and warehouses were left bulging with unsold stock. The unusually strong pace of inventory accumulation was thought to mean that businesses would need to pull back, which in turn would undercut fourth-quarter GDP growth. It appears some of the inventory build-up was planned.

Business sales rose 0.8 percent in November, the biggest rise in six months, after gaining 0.5 percent the prior month. At November's sales pace, it would take 1.29 months for businesses to clear shelves, matching the prior month.