MarketView for October 25

MarketView for Friday, October 25
 

 

 

MarketView

 

Events defining the day's trading activity on Wall Street

 

Lauren Rudd

 

Friday, October 25, 2013

 

 

Dow Jones Industrial Average

15,570.28

p

+61.07

+0.39%

Dow Jones Transportation Average

7,009.05

q

-13.74

-0.20%

Dow Jones Utilities Average

506.57

p

+5.11

+1.02%

NASDAQ Composite

3,943.36

p

+14.40

+0.37%

S&P 500

1,759.77

p

+7.70

+0.44%

 

 

Summary

 

The S&P 500 chalked up another record close on Friday, in part due to better than expected revenue and earnings numbers from Microsoft and Amazon. The two companies were the latest to offer some upbeat news, especially on the revenue side where the percentage of companies exceeding Street expectations has been below the long-term average.

 

Microsoft had the largest influence on all three major indexes, while Amazon provided some momentum to both the S&P 500 and Nasdaq indexes. Microsoft ended the day up 6 percent close at $35.73, a day after it reported numbers above Street consensus.

 

Amazon had an intraday high of $368.40, a record, after the Company reported stronger-than-expected sales growth. Amazon ended the day up 9.4 percent close at $363.39.

 

The S&P 500 is up 23.4 percent so far this year. The index posted a 23.5 percent gain in 2009. Surpassing the 2009 record would give the index its largest annual gain in a decade.

 

For the week the Dow Jones Industrial Average was up 1.1 percent, the S&P 500 was up 0.9 percent and Nasdaq 0.7 percent.

 

Based on results so far and estimates for companies still to report, S&P 500 earnings are expected to have up a gain of 3.4 percent in the third quarter, with 69 percent of companies reporting earnings above Street expectations. Revenue growth is seen at 2.2 percent for the quarter, with just 54.2 percent exceeding sales estimates, below the long-term average of 61 percent, according to Thomson Reuter’s data.

 

United Parcel Service's saw its share price reach a record at $96.94 after the company posted a larger quarterly earnings number and said it expects online sales to increase its holiday volume. UPS ended the day up 1.2 percent to close at $95.61.

 

Zynga indicated late Thursday that it expects a full-year profit after reporting better-than-expected third-quarter results. Shares ended the day up 5.5 percent at $3.729.

 

DuPont reached its highest share price in more than 13 years, a day after announcing it will spin off its titanium dioxide unit within 18 months. Shares rose 0.8 percent to close at $61.90.

 

New orders for durable goods outside of transportation equipment fell in September, possibly due to uncertainty over government spending. Consumer sentiment fell in October to its lowest level since the end of last year, due in no small part to the dysfunction in Washington.

 

Consumer Sentiment Falls

 

Consumer sentiment fell in October to its lowest level since the end of last year due to the congressional dysfunction and the resulting partial shutdown of the federal government.

 

The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment fell to 73.2 in October from 77.5 in September and was the lowest final reading since December 2012. The October figure was lower than both the 75.0 forecast by economists in a Reuter’s poll and the mid-month preliminary reading of 75.2.

 

Other gauges also hit multi-month lows. The index of consumer expectations, at 62.5, hit its lowest since November 2011, and the index of current conditions, at 89.9, hit its lowest since April.

 

The debt impasse likely affected economic growth in the quarter; with Standard & Poor's estimating the shutdown took $24 billion out of the world's biggest economy. The one-year inflation expectation fell to 3.0 percent from 3.3 percent while the five-to-10-year inflation outlook edged down to 2.8 percent from 3.0 percent.

 

The sliding consumer confidence could in turn affect holiday spending - especially as the Congressional deal is only a temporary fix, which could see renewed fiscal debates toward year-end.

 

Durable Goods Orders Fall

 

Orders for durable goods were sharply lower during the month of September, one more indicator that the continuing budget battle in Washington has held back the economy. Specifically, Friday’s report by the Commerce Department indicated that new orders of non-military capital goods other than aircraft, a predictor of business spending plans, fell 1.1 percent. That could be a sign businesses were shutting their wallets as the fiscal debate was heating up in Washington.

 

A surge in volatile aircraft orders helped push overall orders of long-lasting factory goods to rise a more-than-expected 3.7 percent during the month. However, orders for durable goods, which include everything from toasters to tanks, fell 0.1 percent when factoring out transportation equipment.

 

The data suggests businesses may have scaled back investment plans as a political impasse in Washington threatened to lead the government to miss payments on its obligations, although firms also could be trimming these plans over more general doubts regarding the economy's strength.

 

While the economy was already struggling before the government shutdown, economists estimate the shutdown will shave as much as 0.6 percentage point off annualized fourth-quarter gross domestic product through reduced government output and damage to both consumer and business confidence. And even before the impasse, the pace of hiring by U.S. employers had slowed sharply in September.

 

Wholesale Inventories Surprise

 

Wholesale inventories were up more than expected in August, suggesting that restocking was less of a drag on economic growth on the eve of a fiscal battle in Washington than many on the Street had predicted.

 

According to the report released on Friday by the Commerce Department, wholesale inventories rose 0.5 percent in August, the largest increase since January. The Department also said inventories rose more than initially estimated in July.

 

Gross domestic product expanded at a 2.5 percent annual pace in the April-June period, and most analysts expect a significant slowdown in the third quarter. A government shutdown that left hundreds of thousands of people out of work for weeks this month is expected to make the fourth quarter even weaker.

 

The pace of inventory accumulation is likely to slow a bit in the July-September quarter after consumer spending moderated in the previous quarter. Wholesale inventories in August were higher due to increases in stocks of professional equipment and autos. Sales at wholesalers increased 0.6 percent, beating economists' expectations. At August's sales pace it would take 1.17 months to clear shelves. The inventories/sales ratio was unchanged from July.

 

Looking Good at UPS

 

United Parcel Service said increased demand in domestic ground shipments lifted earnings in the third quarter and expects online sales to boost shipping volumes as it heads into the holiday quarter.

 

UPS, which delivered more than one billion packages worldwide during the quarter, also reconfirmed its profit view for the year.

 

Shipment volume and forecasts at UPS, along with rival FedEx, are closely watched by Wall Street and considered an indication of overall economic health because of the vast amount of goods they transport.

 

For this year's holiday season, UPS said it expects peak season daily volume to increase by 8 percent, with pick-up volumes for Cyber Monday increasing 10 percent. Earlier in the week, rival FedEx forecast an 11 percent rise for the same day, the Monday after Thanksgiving that is traditionally a big day for online holiday sales.

 

For the third quarter, UPS reported that daily ground shipping volumes rose 3 percent, while next-day shipping fell 3.3 percent. Clients have been trading down from pricey next-day air deliveries to more affordable shipping ways that take more time, to save money.

 

Also, manufacturers and retailers have become more efficient with their supply chains, planning shipments strategically to cut back on express shipping. This reduces costs for manufacturers, but hurts courier companies like UPS, which make more money on faster shipping.

 

According to UPS, some shippers have moved their distribution facilities closer to their customers, which slowed air shipment growth but led to a greater use of UPS Ground facilities.

 

For the third quarter, UPS earned $1.10 billion, or $1.16 per share, as compared to $469 million or 48 cents a share a year earlier. The company expects earnings of between $4.65 and $4.85 per share for the current year.

 

Revenue came in at $13.52 billion, up 3.4 percent over last year, mainly helped by U.S. e-commerce shipments and strong European export growth.

 

The Street’s consensus was for the company to earn $1.15 a share, on revenue of $13.6 billion, according to Thomson Reuters I/B/E/S.