Weekly Comment

September 2, 2014

Overview

Despite the worsening situation in Ukraine, the market moved higher last week in light trading (the first four days produced the four lowest volume days of the year) with the S&P 500 notching a record high close and the Nasdaq Composite finishing at a 52-week high.  The Dow Jones Industrial Average rose 97.23 points (0.57 percent), the S&P 500 Index gained 14.97 points (0,75 percent), and the Nasdaq Composite advanced 42.27 points (0.97 percent).  Political commentators parsed through statements by the leaders of Ukraine (who said that Russian troops had "entered," not invaded, his country) and Russia (who while arguing that issues of "statehood" need to be discussed claimed that he was not talking about a new sovereign nation in Eastern Ukraine).  

In the News

Apple Inc. (AAPL-102.50) Good News Calling

            Apple Inc. shares inched higher, finishing up 1.2 percent last week at an all-time high. On Thursday, the Company sent out invitations to the media for an event on September 9 in Cupertino, that is expected to involve the unveiling of the iPhone 6, and possibly the debut of what many have dubbed the iWatch. (although talk is that Apple will not actually start shipping a wearable device until early 2015. As for the iPhone 6,  Apple may be adding touch-to-pay capabilities to the new iPhone similar to Google Wallet, according to a Financial Times report that the company is working with a Dutch chipmaker to add touch-to-pay capabilities. It is being said that Apple plans to turn its next iPhone into a mobile wallet through a partnership with major payment networks, banks and retailers. Supposedly, the agreement includes Visa Inc. (V), MasterCard (MA) and American Express (AXP). 

Novartis (NVS-10.95) Good for the Heart

            Novartis told an investors meeting on Sunday that the expected launch of its new heart failure drug next year promises to be the Company's most exciting ever and profit margins on the medicine will be good. The Swiss drug maker impressed doctors at the European Society of Cardiology meeting in Barcelona at the weekend by unveiling strikingly good clinical trial results for the drug, known as LCZ696, in a keenly awaited clinical trial. Investigators working on the study and the Company itself believe it has the potential to replace drugs (known as ACE inhibitors) that have been central to treating heart failure for a quarter of a century. opening up a multi-billion dollar sales opportunity. It has been reported that LCZ696 cut cardiovascuar deaths by 20 percent and that patients on LCZ696 had a 21 percent reduced risk for hospitalization due to heart failure. The drug is expected to become profitable relatively quickly, though Novartis will be investing to ensure a strong launch. Analyst projections of eventual sales have included forecasts of several billion dollars. The study unveiled in Barcelona targeted heart patients with reduced ejection fraction, where the heart muscle does not contract effectively.  However, Novartis is also starting a trial in a similar-sized group with preserved ejection fraction, where the ventricles do not relax as they should. 


The Week Ahead

The big economic news during this holiday-shortened week will be August employment report scheduled for release on Friday. Expectations are for another solid better-than-200,000 gain for nonfarm payrolls as well as a modest decline in the unemployment rate to 6.1 percent.  The earnings calendar will be sparse although reports from Navistar and Joy Global will provide some insight into the capital goods sector. With the European Union giving Russia a one-week ultimatum to scale back its intervention in Ukraine or face additional economic sanctions, developments in Ukraine will be closely watched. EU summit chairman Herman Van Rompuy said early Sunday that the bloc's 28 leaders tasked its executive body to "urgently undertake preparatory work for consideration within a week." Still, in apparent fear of an economic backlash, EU leaders meeting in Brussels shied away from immediately imposing tougher sanctions even as NATO stated that 1,000 Russian troops had invaded Ukraine.  Russia is the EU's No. 3 trading partner and one of its biggest oil and gas suppliers. The only Treasury auctions scheduled for this week are on Monday: $28 billion of three-month bills and $24 billion six month bills.
 

Economic Indicators       

  Expected

 Last Period

Tues., Sept. 2

July Construction Spending

+1.0 percent

-1.8 percent

Wed., Sept. 3

July Factory Orders

+11 percent

+1.1 percent

Thurs., Sept. 4

July Trade Balance

-$42.0 bil

-$41.5 bil.

Q2 Productivity (revised)

+2.6 percent

+2.5 percent

Fri., Sept. 5

Aug. Nonfarm Payrolls

+220,000

+209,000

Aug. Unemployment Rate

6.1 percent

6.2 percent

Aug. Michigan Sentiment (final)

80.0

79.2

Source: Briefing.com

Selected Corporate Earnings

Period

Estimate

Year Earlier

Tues., Sept. 2

Conn's

2Q

$0.75

$0.52

Wed., Sept. 3

ABM industries

3Q

$0.46

$0.41

Christopher & Banks

2Q

$0.04

($0.01)

H&R Block

1Q

($0.40)

($0.40)

Korn/Ferry International

1Q

$0.40

$0.33

Navistar

3Q

($0.66)

($2.94)

PVH

2Q

$1.42

$1.39

Toll Brothers

3Q

$0.45

$0.26

Thurs., Sept. 4

Ciena

3Q

$0.29

$0.23

Cooper Cos.

3Q

$1.90

$1.74

Hovnanian

3Q

$0.09

$0.06

Joy Global

3Q

$0.84

$1.70

Mattress Firm

2Q

$0.60

$0.43

Quiksilver

3Q

$0.03

$0.10

UTi Worldwide

2Q

$0.01

$0.05

VeriFone

3Q

$0.35

$0.24

Zumiez

2Q

$0.23

$0.20

Source: CNBC.com










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