Weekly Comment

January 12, 2015

Overview

The market zigzagged to a lower finish with weekly declines of 95.62 points (0.54 percent) for the Dow Jones Industrial Average, 13.39 points (0.65 percent) for the S&P 500 Index, and 22.75 points (0.48 percent) for the Nasdaq Composite. While the precipitous decline in oil prices has often been likened to a "global tax cut," it has raised concerns about reduced spending and even financial distress for oil-exporting countries and, in the United States, for companies and regions. The sweet crude price ended the week at $48.36/barrel, down 8.2 percent, after hitting as low as $47.93 on Tuesday. The yield on the ten-year Treasury note slipped from 2.12 percent to 1.97 percent, the lowest day's close since May 2013. Concerns about weak overseas growth (slowing industrial production in China and signs of an impending recession in Europe) weighed heavily on the market.  While European commentators seem to believe that a possible departure of Greece from the euro (if that turns out to be the eventual outcome of Greek elections scheduled for January 25) would be manageable, this situation still clouds the European economic outlook.  In addition, while investors have increasingly been of the belief that the European Central Bank will start its own quantitative easing when it meets on January 22, failure to do so would likely heighten recession concerns.  In the meantime, terrorist attacks in Paris further dampened investor sentiment.


In the News

Transocean Inc. (RIG-16.10) Choppy Waters

          Moody's Investors Service placed Transocean Inc.'s Baa3 rating on review for downgrade to reflect the company's large capital commitments and Moody's expectation for a significant increase in leverage as this leading provider of offshore contract drilling enters what appears to be a prolonged industry down-cycle. The review will assess Transocean's capital spending, financing and dividend plans in light of the impact that weak commodity prices will have on the company's operating cash flow and leverage. Moody's stated that "the rapid drop in oil prices and the resulting deterioration of the market conditions for offshore drilling contractors has elevated the risk profile for the company" and that it "believes that based on Transocean's current operating model and high capital spending commitments over the next several years, there is heightened risk that before the end of 2017 the Company's leverage will climb to levels that do not support its current Baa3 rating." Transocean shares fell 11 percent last week and are now trading 67 percent below their 52-week high.

The Container Store Group (TCS-18.19) Still Boxed In

            The Container Store Group reported net income of $6.25 million, or $0.13 a share, in its fiscal third (November) quarter, after a loss of $25 million, or $1.39 a share, in the year-earlier period. Adjusted per-share earnings came to $0.07, in line with the consensus estimate. However, sales rose only to $190.9 million from $188.3 million, well below the average estimate of $199 million. Moreover, the storage retailer said it expects full-year February 2015 adjusted EPS of $0.41 to $0.44 and sales of $785 to $795 million. The consensus had been for full-year EPS of $0.43 and sales of $803.8 million. Despite management's forecast of a return to positive same-store sales comparisons in the current quarter, investors focused on the sales shortfall and the stock finished the week off 6 percent and now trades 55 percent off its 52-week high.

  


The Week Ahead

This week's economic news will include December reports for import, producer and consumer prices..all these figures are expected to show declines. In addition, December retail sales are expected to show little or no improvement, but this would be due to lower gas station receipts. The earnings season begins with Alcoa's report on Monday, but the week's reports will be dominated by bank earnings which are expected to be mixed. Treasury auctions scheduled for this week are on: Monday: $24 billion three-month bills, $24 billion six-month bills, and $24 billion three-year notes; Tuesday: $21 billion nine-year, ten-month notes; and Wednesday: $29-year, 10-month bonds.  Yields on all the issues are expected to be lower than at the previous auctions.

 

Economic Indicators       

  Expected

 Last Period

Wed., Jan. 14

Dec. Import Prices

-1.5 percent

-1.5 percent

Dec. Retail Sales

+0.1 percent

+0.7 percent

Nov. Business Inventories

+0.2 percent

+0.2 percent

Thurs., Jan. 15

Dec. Producer Price Index

-0.4 percent

-0.2 percent

Jan. Philadelphia Fed Survey

20.0

24.5

Fri., Jan. 16

Dec. Consumer Price Index

-0.2 percent

-0.4 percent

Dec. Industrial Production

-0.3 percent

+1.3 percent

Dec. Capacity Utilization

79.6 percent

80.1 percent

Jan. Michigan Sentiment

94.5

93.6

Source: Bloomberg/FactSet

Selected Corporate Earnings

Period

Estimate

Year Earlier

Mon., Jan. 12

Alcoa

4Q

$0.27

$0.04

Washington Federal

1Q

$0.39

$0.39

Tues., Jan. 13

CSX Corp.

4Q

$0.49

$0.42

Fuller (H.B.)

4Q

$0.64

$0.68

Kinder Morgan Holdco

4Q

$0.35

$0.33

Linear Technology

2Q

$0.50

$0.45

Wed., Jan. 14

JPMorgan Chase

4Q

$1.32

$1.40

Skyworks Solutions

1Q

$1.19

$0.67

Wells Fargo

4Q

$1.01

$1.00

Westamerica Mancorp

4Q

$0.57

$0.60

Thurs., Jan. 15

Bank of America

4Q

$0.31

$0.29

Bank of the Ozarks

4Q

$0.41

$0.33

BlackRock

4Q

$4.74

$4.92

CitiGroup

4Q

$0.10

$0.77

Commerce Bancshares

4Q

$0.66

$0.66

Fastenal

4Q

$0.40

$0.33

Intel

4Q

$0.66

$0.51

Lennar

4Q

$0.96

$0.73

M&T Bank

4Q

$1.94

$1.74

PPG Industries

4Q

$1.99

$1.81

Schlumberger

4Q

$1.46

$1.35

Schwab (Charles)

4Q

$0.24

$0.23

Fri., Jan. 16

Comerica

4Q

$0.77

$0.77

Goldman Sachs

4Q

$4.48

$4.60

SunTrust Banks

4Q

$0.80

$0.77

PNC Financial Services

4Q

$1.74

$1.85

Source: Thomson First Call










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