Stocks rose moderately on Friday, with the Dow adding 127 points (0.8%) and the S&P 500 (+0.5%) closing within 0.5% of its all-time high. Call it a continuation of the “Yellen rally,” begun on Tuesday with the testimony to Congress of Fed Chair Yellen (her preferred title and one only Clint Eastwood could love). The S&P’s 2.4% advance for the week was its best weekly move since the third week of December, which incidentally was the week when Ben Bernanke unveiled the long-advertised “taper” of bond buying by the Fed. Policy, as much as fundamentals, continues to influence equity investors in 2014, it seems.
Despite rising only 0.1% on Friday, NASDAQ led the market averages for the week with a 2.9% gain to a new 13-year high. Biotech stocks, which were strong earlier in the week, sold off to the tune of 0.8% Friday. Facebook (+4.5%), Apple (+4.6%), Tesla (+6.6%), and lululemon (+8.2%) were big gainers for the week; Groupon (-3.4%), LinkedIn (-11%) and Angie’s List (-15%) were losers. On the NYSE, Twitter (+4.6%) and IBM (+3.8%) were an unlikely pair of winners for the week.
Roughly 80% of the S&P 500 constituent companies have reported Q4 results through Friday, according to Bloomberg, with 75% beating analyst estimates on earnings and 64% beating on revenues. The average Q4 growth in earnings has been 10% (5% better than forecasts), while top-line growth has averaged only 1% (compared with forecasts for flat sales). The energy sector, where two-thirds of companies have reported, is the lone sector with lower Q4 profits compared with year-earlier results (-10%); financials and materials stocks have averaged better than 20% earnings growth.
Beating earnings estimates does not guarantee that stock prices will do the same. Cisco is one stock that reported better than expected earnings this past week, but its share price lagged on weak sales guidance and concerns about the sustainability of profit margins; CSCO shares rose 0.2% this week, compared with 3.0% for the S&P 500 information technology sector and 2.4% for the S&P 500 Composite. Under Armour shares were another casualty for the week, losing almost 3%when the uniforms it provided for the U.S. speed skating team were suspected to be the cause of a surprise medal draught.
The Stoxx Euro 600 had its best week since December, gaining 2.5% to within 1% of its January high. Eurostat reported a 0.3% increase in Q4 GDP for the 18-nation euro-zone, a tick ahead of the Street’s 0.2% consensus. Germany’s DAX index rose 3.9% this past week as German GDP growth beat expectations, 0.4% to 0.3%. This showing by the DAX, which put it within 1% of an all-time high, was followed closely by a 3.8% rise in the FTSE-MIB index for Milan as the failure of another Italian government raised hopes for a new reform-minded prime minister. (Surely, Silvio Berlusconi cannot make another comeback, can he?)
U.S. industrial production declined 0.3% last month, as bad weather did a number on the manufacturing sector of the economy. As it did with retail sales, weather took a toll on U.S. industrial production in January, particularly in manufacturing. The 0.3% decline in the Fed’s total industrial production index last month fell considerably short of Street expectations for a 0.3% increase. Expected to show a modest increase, manufacturing output declined 0.8% to a three-month low, where it was still 4% below its 2007 peak level. Year over year, total production is up 3.1% since January 2013; manufacturing is up 2.0%. With respect to weather – at least on the east coast – February hasn’t exactly been a picnic either, so that it may not be until March before production and sales data begin to return to trend, which we believe is upward.
Bonds had their first losing week of the year, giving back 0.17% on the Barclays U.S. Aggregate. Corporate bonds, especially high yield, were positive performers. The 5- to 10-year part of the Treasury curve saw rates rise five to six basis points, despite some disappointing economic news, which everyone from Janet Yellen to the Wall Street trader believes was weather-related. Commodities prices were broadly higher this past week, led by natural gas (+8.9%), silver (+7.4%), gold (+4.4%) and unleaded gasoline (+2.1%). The dollar lost 0.7% against a traded-weighted basket of currencies this past week, but the greenback is essentially flat to date in 2014.
Reports/dates/facts/links to watch for over the next week:
- February 17: U.S. markets closed for Presidents’ Day.
- February 18: National Association of Home Builders housing market index for February; Empire State manufacturing survey for February.
- February 19: Housing starts for January; producer price index for January; minutes of the Federal Open Market Committee’s January 29 meeting released.
- February 20: Consumer price index for January; weekly unemployment claims; leading indicators for January; Philadelphia Fed survey for February.
- February 21: Existing home sales for January.
Copyright © 2014 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.