Weekly Comment

November 24, 2014

Overview

In addition to the economic benefits of cheaper fuel, investors found moves in favor of more stimulative monetary policy in Europe (European Central Bank started to buying asset-backed securities and said it was prepared to do more quantitative easing) and China (the central bank lowered the one-year benchmark lending rate for the first time in more than two years) as cause for greater optimism about prospects for sustained U.S. economic growth and continuing low interest rates.  In addition, the minutes of the Federal Open Market Committee's October meeting indicated that while the FOMC was upbeat about recent labor market trends concerns about the absence of inflation and weak overseas economies made them reluctant to move toward any tightening of monetary policy at this time. At least some of the money that left the market in early October has come back, lifting stocks about 13 percent from their mid-October lows.  Last week the Dow Jones Industrial Average rose 175.32 points (0.99 percent), the S&P 500 Index advanced 23.68 points (1.16 percent), and the Nasdaq Composite gained 24.43 points (0.52 percent).  Both the Dow and the S&P closed at record highs on Friday.   


In the News

Target Corp. (TGT-71.51) Bull's Eye

          Target reported its first increase in U.S. same-store sales in four quarters and a quarterly profit above expectations, but said it would review the future of its loss-making Canadian business after the holiday season. Target said consumers responded well to its back-to-school and Halloween promotions. U.S. same-store sales rose 1.2 percent, double the rate expected by analysts. EPS were $0.55, up one cent from a year ago and beating the consensus for $0.47. Target projected same-store sales to grow 2 percent in the fourth quarter, a reflection of improving consumer sentiment aided by lower fuel prices. Target narrowed the range of its January 2015 fiscal year adjusted EPS forecast  to $3.15-$3.25, compared with its previous forecast of $3.10-$3.30. The Company said it has been able to pull back on the promotions it put in place to win back customers unsettled by a damaging data breach, which resulted in the theft of at least 40 million card numbers.  Target said sales in Canada rose 44 percent in the quarter to $479 million but that it suffered a loss there of $211 million before interest and taxes. Management said that there would be a review of the operations after the critical fourth quarter to determine the "best path to go forward."  The stock finished the week up 5 percent.

Superb Summit International Group (1228.HK-1.46) Off a Cliff

            Muddy Waters Research, three years after alleging that timber company Sino-Forest had committed fraud (the Company filed for bankruptcy one year later), is now targeting another Chinese forestry firm, Superb Summit International Group, a $1.5 billion firm involved in timber and coal. Superb’s Hong Kong shares fell nearly 6 percent Thursday before they were suspended. Muddy Waters alleges that most of the Company’s revenue comes from a coal trading subsidiary that Superb doesn’t own, and that the coal liquefaction business Superb recently acquired is fake. While these allegations have yet to be proven, it should be noted that Summit has lost money for three years in a row. At the operating profit level, it has lost money every year since 2006. Although no major brokerage firm covers it, the stock more than quadrupled this year before the release of the Muddy Waters report. 


The Week Ahead

Consumer confidence and sentiment numbers to be released this week indicate that while some surveys portray large portions of the U.S. population is struggling an increasing number feel that they have much to be thankful for as we enter this holiday-shortened week. In a quiet week for earnings announcements, reports from Deere & Co., Hewlett-Packard and Tiffany & Co. stand out.  In other news: Monday is the deadline for Iran and six world powers to come to an agreement; most analysts believe the talks are likely to be extended; Thursday is when OPEC meets in Vienna; observers doubt that there will be any export cuts; and Friday is the kick-off of the holiday sales season.  Treasury auctions scheduled for this week are on: Monday: $24 billion three-month bills, $28 billion six-month bills and $28 billion two-year notes; Tuesday: $35 billion five-year notes; and Wednesday: $29 billion seven-year notes and $13 billion one-year, eleven- month floating rate notes. 


Economic Indicators       

  Expected

 Last Period

Tues., Nov. 25

Q3 GDP (preliminary)

+3.2 percent

+3.5 percent

Nov. Consumer Confidence

96.0

94.5

Wed., Nov. 26

Oct. Durable Goods

-0.6 percent

-1.3 percent

Oct. Personal Income

+0.4 percent

+0.2 percent

Oct. Consumption

+0.3 percent

-0.2 percent

Nov. Chic. Purchasing Mgr Index

63.5

66.2

Nov. Michigan Sentiment (final)

90.0

89.4

Oct. New Home Sales

470,000

467,000

Source: Bloomberg/FactSet

Selected Corporate Earnings

Period

Estimate

Year Earlier

Mon., Nov. 24

Big Lots

3Q

($0.05)

($0.16)

Central Garden & Pet Co.

4Q

($0.21)

($0.31)

Copart

3Q

$0.37

$0.34

Genesco

3Q

$1.44

$1.43

Post Holdings

4Q

$0.07

$0.16

Tues., Nov. 25

Analog Devices

4Q

$0.68

$0.63

Brown Shoe

3Q

$0.68

$0.63

Campbell Soup

1Q

$0.72

$0.66

CBRL Corp.

1Q

$1.29

$1.22

Chico's FAS

3Q

$0.17

$0.22

Eaton Vance

4Q

$0.64

$0.55

Fred's

3Q

($0.13)

$0.20

Hewlett-Packard

4Q

$1.06

$1.01

Hormel Foods

4Q

$0.64

$0.58

Movado Group

3Q

$0.86

$0.89

Pall

1Q

$0.81

$0.70

Signet Jewelers

3Q

$0.18

$0.42

Tiffany & Co.

3Q

$0.77

$0.73

Wed., Nov. 26

Deere & Co.

4Q

$1.57

$2.11

Source: Thomson First Call










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