Weekly Comment

April 21, 2014

Overview

The market bounced back last week supported by signs of a pickup in economic activity.  The Dow Jones Industrial Average rose 381.79 points (2.38 percent), the S&P 500 Index advanced 49.16 points (2.71 percent; now up 0.89 percent for the year-to-date), and the Nasdaq Composite gained 95.78 points (2.39 percent).  The positive March economic reports included retail sales (up 1.1 percent as compared with the consensus expectation of up 0.8 percent), industrial production (up 0.7 percent versus the average estimate of up o,5 percent), and capacity utilization (at 79.2 percent, better than the 78.8 percent expected).  The capacity utilization figure remains well below levels that imply inflationary pressures but are approaching levels that argue for greater capacity expansion. Nonetheless, Federal Reserve Chair Janet Yellen maintained her position that the winding down of Fed monetary stimulus should be flexible and gradual. The United States and Europe reached a non-agreement agreement with Russia regarding Ukraine.  Pro-Russian "activists" refused to give up occupied government buildings, 50,000 Russian troops remain deployed on Ukraine's border, and Vladimir Putin continues to maintain his right to use force "if required" to protect ethnic Russians in Ukraine.  


In the News

MoneyGram International  (MGI-14.81) Money Transferred

            Wal-Mart Stores introduced a new money transfer service Thursday that it says will cut fees for its low-income customers by up to 50 percent compared with similar services elsewhere. The Walmart-2-Walmart service is being rolled out in partnership with Ria Money Transfer, a subsidiary of Euronet Worldwide Inc. The service, which will be available starting April 24, allows its customers to transfer up to $900 to and from more than 4,000 Wal-Mart stores in the U.S. Customers can transfer up to $50 for a $4.50 service fee and up to $900 for $9.50. MoneyGram charges $5 to transfer $50 and $73 to transfer $900. MoneyGram stated that it is not "taking any pricing actions" at Wal-Mart or at any other U.S. location in response to Wal-Mart's actions, while noting that although Wal-Mart is its single largest corporate customer, it has been decreasing as a percentage of its revenue for the past five years. MoneyGram has no money transfer limits and customers can transfer funds outside the U.S. using its services. MoneyGram shares fell 17.7 percent on Friday.

Yahoo! (YHOO-36.38) The Riches of Alibaba

            Yahoo's shares rallied 10.7 percent last week as Chinese internet company Alibaba Group Holding Ltd, in which it holds a 24 percent stake, reported a 66 percent in quarterly revenue. Alibaba is expected to file for an initial public offering this week. The IPO is set to be the largest in the United States since Facebook Inc's 2012 market debut.  Alibaba's impressive performance overshadowed Yahoo's anemic revenue growth in the first quarter. Analysts, however, were positive on growth in Yahoo's core display and search advertisement revenue as the Company invests in mobile, social, video and native advertisement products. Yahoo's display ad revenue grew for the first time in more than a year, while search revenue rose for the ninth straight quarter. Estimates of Alibaba's potential market capitalization have been as high as $190 billion. At that level, Yahoo's market capitalization gives no value to its other operations if Yahoo is able to liquidate its Alibaba stake in a tax-efficient manner. 


The Week Ahead

This week's economic news includes expectations of relatively flat existing and new home sales in March. The earnings calendar will likely once again be dominated by companies reporting relatively flat or down results (overall S&P 500 earnings are forecast to come in down 1.2 percent).  Vice President Biden will be in Ukraine on Tuesday and President Obama will be in Japan on Wednesday. Clearly, we have Putin surrounded.  The Treasury auctions scheduled for this week are on Monday: $25 billion three-month bills and $23 billion six-month bills; Tuesday: $32.0 billion two-year notes; Wednesday: $35 billion five-year notes; and Thursday: $29 billion seven-year notes.  

 

Economic Indicators       

  Expected

 Last Period

Tues.,  Apr. 22

Mar. Existing Home Sales

4.57 million

4.60 million

Wed.,  Apr. 23

Mar. New Home Sales

450,000

440,000

Thurs., Apr. 24

Feb. Durable Goods

+1.9 percent

+2.2 percent

Fri., Apr. 25

Apr. Michigan Sentiment (final)

83.0

82.6

Source: Bloomberg

Selected Corporate Earnings

Period

Estimate

Year Earlier

Mon., Apr. 21

Halliburton

1Q

$0.71

$0.62

Kimberly-Clark

1Q

$1.47

$1.48

Tues., Apr. 22

Amgen

1Q

$1.93

$1.96

AT&T

1Q

$0.69

$0.64

Bank of New York Mellon

1Q

$0.53

$0.50

Comcast

1Q

$0.64

$0.51

Gilead Sciences

4Q

$0.88

$0.48

Lockheed Martin

1Q

$2.53

$2.33

McDonald's

1Q

$1.24

$1.26

Simon Property Group

1Q

$2.24

$2.05

United Technologies

1Q

$1.27

$1.39

Wed., Apr. 23

Apple

2Q

$10.17

$10.09

Biogen

1Q

$2.56

$1.97

Boeing

1Q

$1.56

$1.73

Dow Chemical

1Q

$0.71

$0.69

EMC

1Q

$0.35

$0.39

Procter & Gamble

3Q

$1.01

$0.99

QUALCOMM

2Q

$1.22

$1.17

Texas Instruments

1Q

$0.41

$0.32

Thermo Fisher Scientific

1Q

$1.40

$1.37

Thurs., Apr. 24

Amazon.com

1Q

$0.24

$0.18

Caterpillar

1Q

$1.25

$1.31

Lilly (Eli)

1Q

$0.70

$1.14

Microsoft

3Q

$0.63

$0.72

Starbucks

2Q

$0.56

$0.48

3M Company

1Q

$1.80

$1.61

Time Warner Cable

1Q

$1.68

$1.34

United Parcel Service

1Q

$1.10

$1.04

Verizon Communications

1Q

$0.86

$0.68

Visa

2Q

$2.18

$1.92

Fri., Apr. 25

Colgate-Palmolive

1Q

$0.68

$0.66

Ford Motor

1Q

$0.31

$0.41

Source: Thomson First Call















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