News Column

MARKET ANALYSIS: Markets Turn Cautious As Averages Push Towards Unchartered Territory

May 8, 2014

WASHINGTON (Alliance News) - The major US index futures are pointing to a lower opening on Thursday, with sentiment suggesting uneasiness among traders concerning valuations. The markets have run up in recent sessions amid volatility, as earnings and economic data have largely been encouraging. A report released earlier in the day showed that jobless claims fell more than expected. Globally, Australia reported positive jobs data and Chinese trade balance showed a strong rebound in exports and imports, suggesting that global growth is alive and kicking. Traders may also react to a slew of Fed speeches, including Fed Chair Janet Yellen's testimony. The positive catalysts may help to cushion any potential weakness.

US stocks turned in a mixed performance on Wednesday, as traders weighed positive earnings and dovish comments by Federal Reserve Chair Janet Yellen against negative tech earnings and valuation fears.

The major averages opened higher, as traders reacted to some positive earnings. However, the averages fell in early trading amid Yellen's testimony. After briefly lingering below the unchanged, the Dow Industrials and the S&P 500 Index recovered in late morning trading and held above the unchanged line thereafter. The Dow Industrials ended up 117.52 points or 0.72% at 16,519 and the S&P 500 Index ended at 1,878, up 10.49 points or 0.56% .Meanwhile, the Nasdaq Composite continued to languish below the unchanged line before closing down 13.09 points or 0.32%.

Twenty-five of the thirty Dow components closed higher, led by UnitedHealth (UNH), American Express (AXP), Chevron (CVX), DuPont (DD), General Electric (GE), Johnson & Johnson (JNJ), JP Morgan (JPM), 3M Co. (MMM), Visa (V) and Verizon (VZ). On the other hand, Merck (MRK) and Disney (DIS) declined.

Among the sectors, utilities and financial stocks advanced, while gold and biotechnology stocks came under selling pressure.

On the economic front, the Labor Department reported that first quarter non-farm productivity declined 1.7% quarter-over-quarter. The drop in productivity pushed unit labor costs up by 4.2%. Weather was partly responsible for the drop in productivity in the quarter.

Meanwhile, outstanding consumer credit rose by USD17.5 billion in March, with non-revolving credit tied to auto loans accounting for the bulk of the increase. Compared to a USD16.4 billion increase in non-revolving credit, revolving credit rose by USD1.1 billion.

With Wednesday's gain, the Dow Industrials has regained momentum and is closing in on its all-time closing high. Immediate resistance for the index is now around 16,566, and further upward, the index has another resistance around 16,630. On the downside, the index has support around 15,451, its 21-day MA (currently at 16,408), 50-day MA (currently at 16,364), 16,298 and 100-day MA (currently at 16,242).

Commodity, Currency Markets

Crude oil futures are receding USD0.60 to USD100.17 a barrel after climbing USD1.27 to USD100.77 a barrel on Wednesday.

The previous session's strength came amid the release of the weekly petroleum status report, which showed that crude oil stockpiles fell by 1.8 million barrels to 397.6 million barrels in the week ended May 2nd. Inventories remained above the average range for this time of the year.

Distillate stockpiles eased by 0.4 million barrels and were below the lower limit of the average range. Meanwhile, gasoline inventories rose by 1.6 million barrels and were in the middle of the average range. Refinery capacity utilization averaged 90.3% over the four weeks ended May 2nd compared to 89.6% over the four weeks ended April 25th.

Gold futures, which fell USD19.70 to USD1,288.90 an ounce in the previous session, are moving down USD1.30 to USD1,287.60 an ounce.

On the currency front, the US dollar is trading at 101.77 yen compared to the 101.90 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at USD1.3927 compared to yesterday's USD1.3910.


The major Asian markets ended mostly higher amid encouraging developments in Ukraine and the release of some strong domestic data. The Japanese market led the gains in the region, rebounding from yesterday's sharp retreat. The New Zealand market bucked the uptrend with a moderate loss.

Japan's Nikkei 225 index opened higher and moved sideways in the morning. After rising in the afternoon, the index gave back some of its gains over the remainder of the session before closing up 130.33 points or 0.93% at 14,164.

Nisshin Steel rallied close to 15% and led the index's gains. Mitsubishi, Nisshinbo Holdings and Casio Computer also rose notably. On the other hand, Japan Steel fell 7.59%.

Australia's All Ordinaries hovered in positive territory throughout the session before closing up 36.80 points or 0.68% at 5,456. Most sectors advanced, although consumer discretionary stocks came under some selling pressure. Energy, material and financial stocks posted strong gains.

Hong Kong'sHang Seng Index closed at 21,837, up 90.86 points or 0.42%, and China's Shanghai Composite Index added 5.19 points or 0.26% before closing at 2,015.

On the economic front, the General Administration of Customs reported that China's trade surplus more than doubled to USD18.46 billion in April, as exports rose 0.9% year-over-year. At the same time, imports climbed 0.8%. Economists had forecast declines for both imports and exports.

The jobless rate for Australia held steady at 5.8%, according to a report released by the Australian Bureau of Statistics. Economists had expected a small uptick in the rate to 5.9%. The unchanged unemployment rate came about due to an increase in full time employment and a small drop in the participation rate.


European stocks opened higher and advanced further, as traders digest another flurry of earnings news. However, with the monetary policy announcement from the two major central banks in the region, the averages have turned mixed. The European Central Bank maintained status quo position despite inflation providing scope for further monetary policy easing and the Bank of England also held its monetary policy unchanged.

In corporate news, Barclays (BCS) revealed that it intends to eliminate 7,000 positions at its investment bank by 2015. The company also said it will create a bad bank to dispose of some of its assets.

Standard Chartered reported a decline in its first quarter operating profit, while BT Group reported strong fourth quarter results.

Meanwhile, Deutsche Telekom saw a drop in its first quarter core earnings. While Prudential Financial reported higher profits for its first quarter, Munich Re's first quarter profits fell year-over-year.

On the economic front, a report released by German statistical office INSEE showed that industrial production in Germany unexpectedly fell in March, marking the first decline in five months.

US Economic Reports

After reporting an unexpected increase in first-time claims for US unemployment benefits in the previous week, the Labor Department released a report showing that initial jobless claims pulled back by more than expected in the week ended May 3rd.

The Labor Department said initial jobless claims fell to 319,000, a decrease of 26,000 from the previous week's revised level of 345,000. Economists had expected jobless claims to drop to 325,000 from the 344,000 originally reported for the previous week.

Around the same time, Federal Reserve Governor Daniel Tarullo will speak at the Chicago Fed's banking conference. Yellen is scheduled to appear before the Senate Budget Committee in Washington at 9:30 am ET.

Additionally, St Louis Federal Reserve Bank President James Bullard will make remarks to the household finance conference in St. Louis at 2 pm ET.

The Treasury Department is due to announce the results of its auction of USD16 billion worth of 30-year bonds at 1 pm ET.

Stocks in Focus

Costco (COST) reported sales of USD8.56 billion for April, up 7% year-over-year. Comparable store sales for the month were up 5%.

Valmont Industries (VMI) announced the appointment of Vik Bansal to the newly created position of COO, effective July 1, 2014.

Dynegy (DYN) reported a narrower first quarter loss and its revenues exceeded estimates.

Expeditors International (EXPD) reported first quarter results that were in line. Kimco Realty (KIM) reported first quarter earnings that were in line and its revenues exceeded estimates. The company affirmed its full year guidance.

Tw Telecom (TWTC) reported higher first quarter earnings, and its revenues increased year-over-year and exceeded estimates.

Insurers Protective Life (PL), Unum Group (UNM) and Prudential Financial (PRU) all reported better than expected first quarter earnings.

Avis Budget (CAR) reported better than expected first quarter results and issued positive guidance for the full year.

Cardinal Health (CAH) announced a 13% increase in its quarterly dividend to USD0.3425 per share, and SanDisk (SNDK) said its board has approved a 33% increase in its quarterly dividend to 30 cents per share.

Gilead Sciences (GILD) announced that its board has authorized a USD5 billion stock repurchase program.

Meanwhile, Ford (F) said its board has authorized the buy back of up to 116 million of its shares, equivalent to about USD1.8 billion, with the buyback meant to offset the dilutive effect of potential conversions of 4.25% senior convertible notes due November 15th, 2016.

Allscripts (MDRX), bebe Stores (BEBE), Brooks Automation (BRKS), CBS (CBS), Computer Sciences (CSC), News Corp. (NWS), NVIDIA (NVDA), Scientific Games (SGMS), Symantec (SYMC) and Tuesday Morning (TUES) are among the companies due to release their quarterly results after the close of trading.

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Source: Alliance News

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