Weekly Comment

October 20, 2014

Overview

Stocks were extremely volatile last week. After a taking a pummeling on Monday, equities zigzagged for the next few days before rallying on Friday. The comeback was unable to undo Monday's damage however and the major averages finished the week lower: the Dow Jones Industrial Average dropped 163.69 points (0.99 percent), the S&P 500 Index fell 19.37 points (1.02 percent), and the Nasdaq Composite declined 17.80 points (0.42 percent).  Volatility was not confined to stocks...the yield on the 10-year Treasury Note ended last week at 2.31 percent, gradually fell to end at 2.21 percent on Tuesday, had a wild ride on Wednesday (falling to 1.87 percent before finishing at 2.09 percent), and worked its way back to 2.20 percent by the end of the week. Crude oil prices collapsed from about $85/barrel Tuesday morning to just below $80 early Thursday morning before recovering to about $83 by Friday afternoon. Ebola fears and ISIS concerns weighed on the market as the week began. However, economic news played a growing role in market action as the week progressed: on Wednesday, September retail sales were a disappointing -0.3 percent as compared to expectations of down 0.1 percent while September producer prices slipped 0.1 percent versus estimates of up 0.1 percent; but on Friday September housing starts were reported at 1,017,000, up from 946,000 and above the 1,000,000 consensus estimate, and the Michigan Consumer Sentiment Index rose to 86.4 from 84.6, beating the average forecast of 84.4...it was the highest reading since July 2007.  The stock market's recovery on Friday was also helped by solid earnings reports from General Electric and Morgan Stanley.  Friday's strength was also supported by dovish comments by central bankers on both sides of the Atlantic.


In the News

Netflix (NFLX-357.09) House of Cards

            Netflix Inc. shares sank Thursday on slower subscriber growth and fears of increased competition ahead. The world's largest Internet video service provider said late Wednesday that its subscriber growth for the third quarter lagged well below management forecasts and it pointed to a recent $1 a month price increase in the U.S. as the cause. The 13 percent increase only affects subscribers who signed up since May. Prices for households with subscriptions prior to the price increase remain at $8 per month in the U.S. through May 2015. Netflix added 3 million worldwide subscribers during the three months ending in September. Those gains were short of management's projection of an additional 3.7 million subscribers for the period. In the U.S., Netflix added about 1 million subscribers, missing the target of 1.3 million. Also, weighing on the stock was the news that rival HBO plans to add an Internet-only package in the U.S. next year.  The stock fell 19.4 percent on Thursday and failed to participate in the general market rally on Friday.

ITT Educational Services, Inc. (ESI-9.19) Not So Bad is Good Enough

          ITT Educational Services shares skyrocketed 65 percent Friday after the for-profit education company said that enrollment fell less than expected at its schools in recent months. New student enrollment fell 8.1 percent for its second quarter and 9.5 percent for its third quarter. It had warned in May that new student enrollment for the second quarter could be down 10 percent to 15 percent. ITT's total enrollment fell 6.3 percent in its most recent quarter ending September. The Company hadn't updated investors on its financial performance or enrollment since May as it worked to revise prior financial statements. It filed that paperwork with the SEC Thursday, clearing the way for the update.


The Week Ahead

While the coming week will include some key economic releases (it will be interesting to see if the consumer price figure that is reported on Wednesday mirrors the deflationary trends that have cropped up for U.S. producer prices and in European economies), investor focus will likely be pulled to the deluge of earnings reports. Thus far, third quarter earnings gains are trending a bit above the 4.6 percent growth forecast in consensus estimates. 

Economic Indicators       

  Expected

 Last Period

Tues., Oct. 21

Sept. Existing Home Sales

5.11 million

5.01 million

Wed., Oct. 22

Sept. Consumer Price Index

0.0percent

-0.2 percent

Thurs., Oct. 23

Sept. Leading Indicators

+0.6 percent

+0.2 percent

Fri., Oct. 24

Sept. New Home Sales

473,00

504,000

Source: Briefing.com

Selected Corporate Earnings

Period

Estimate

Year Earlier

Mon., Oct. 20

Apple Inc.

4Q

$1.30

$1.18

Chipotle Mexican Grill

3Q

$3.81

$2.66

Halliburton

3Q

$1.10

$0.83

Intl. Business Machines

3Q

$4.32

$3.99

Texas Instruments

3Q

$0.71

$0.56

VF Corporation

3Q

$1.09

$0.98

Whirlpool

3Q

$3.13

$2.72

Tues., Oct. 21

Apollo Education

4Q

$0.27

$0.55

Coca-Cola

3Q

$0.53

$0.53

Cree

1Q

$0.36

$0.39

Harley-Davidson

3Q

$0.60

$0.73

Kimberly-Clark

3Q

$1.55

$1.44

McDonalds

3Q

$1.38

$1.52

Travelers

3Q

$2.11

$2.35

United Technologies

3Q

$1.81

$1.55

Yahoo

3Q

$0.30

$0.34

Wed., Oct. 22

Abbott Labs

3Q

$0.59

$0.55

AT&T

3Q

$0.65

$0.66

Boeing

3Q

$1.98

$1.80

Dow Chemical

3Q

$0.67

$0.50

General Motors

3Q

$0.99

$0.96

Norfolk Southern

3Q

$1.81

$1.53

Thermo Fisher Scientific

3Q

$1.69

$1.30

Xerox Corp.

3Q

$0.26

$0.26

Thur., Oct. 23

3M

3Q

$1.96

$1.78

Amazon.com

3Q

($0.74)

($0.09)

American Airlines

3Q

$1.66

$1.38

Caterpillar Inc.

3Q

$1.36

$1.45

Microsoft

1Q

$0.49

$0.62

Occidental Petroleum

3Q

$1.75

$1.97

Union Pacific

3Q

$1.51

$1.24

Fri., Oct. 24

Colgate-Palmolive

3Q

$0.76

$0.73

Procter & Gamble

1Q

$1.08

$1.04

United Parcel Service

3Q

$1.29

$1.16

Source: cnbc.com










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