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Market Commentary
By Fred Dickson, Chief Investment Strategist
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Written by Fred Dickson | Chief Investment Strategist
D.A. Davidson & Co. Lake Oswego, OR. Email: fdickson@dadco.com |
| Market Summary | End of Market May 21, 2013 DAD99: 12/31/2003=100.00 |
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|---|---|---|---|---|
| Index | Current | Chg | YTD Chg | YTD % |
| DOW | 15387.58 | 52.30 | +2283.44 | + 17.43% |
| NASDAQ | 3502.12 | 5.69 | + 482.61 | + 15.98% |
| S&P 500 | 1669.16 | 2.87 | + 242.97 | + 17.04% |
| Davidson 99 Regional Index ® (DAD 99) | 210.93 | + 0.31 | + 29.11 | + 16.01% |
Morning Market Comment - May 21, 7:32:51 AM MDT
Overview: Stock prices consolidated on Wall Street yesterday following Friday’s options and futures contract expirations. It was a light news day, with no economic data releases and a short list of companies reporting first quarter results. Two takeover announcements hit the tape. Yahoo (YHOO) is acquiring privately held Tumblr, a social networking company, for $1.1 billion. Actavis (ACT) announced it is acquiring Warner Chilcott plc (WCRX) in a deal valued at $5 billion. Several Fed governors offered comments regarding the recent FOMC policy statement, suggesting a widening view of the possible timing for adjustments to the Fed’s $85 billion per month bond-buying program. Market Recap: Stock prices opened lower on Monday then rallied mid-day. An afternoon sell-off left the major market indices with small losses on the day after posting new record intra-day highs. Trading volume on the NYSE and the NASDAQ totaled 2.3 billion shares. Market breadth on the NYSE was positive, with advancing issues outnumbering declining issues 1,724 versus 1,299. The bond market sold off, sending the yield on the 10-year Treasury note up to 1.965%. The euro rose versus the dollar, closing at $1.2885. The trade-weighted U.S. dollar dropped, closing at $83.74. The near-term West Texas Intermediate crude oil futures contract rose, closing at $96.93/barrel. Gold closed higher at $1,354.75/ounce. Sector Recap: Five of the ten market sectors rallied yesterday, five declined. Energy (+1.29%) was the only sector posting a gain in excess of 0.50%. Consumer Staples (-0.97%), Telecom (-0.80%), and Healthcare (-0.64%) saw modest selling pressure. Three of the four investment styles rallied, as shown below:| Investment Style | % Change |
| Small Cap Value | +0.37% |
| Small Cap Growth | +0.14% |
| Large Cap Value | +0.02% |
| Large Cap Growth | -0.13% |
| Source: Morningstar |
|
Monday's Lagging Industry Groups: Homefurnishing Retail (-2.57%), Health Care Facilities (-2.49%), Building Products (-2.24%), Cable & Satellite (-2.09%), Home Entertainment Software (-1.89%) Companies in the News this morning: Amazon.com (AMZN) received a security clearance from the U.S. government that will make it easier for federal agencies to use its cloud computing services. Blackrock (BLK) has bought private equity real estate fund MGPA, thus giving Blackrock a $25 billion real estate presence with increased exposure in Asia and continental Europe. Bloomberg News reported that Dish Network (DISH) has offered to buy the wireless spectrum from bankrupt broadband company LightSquared in a deal potentially valued at $2 billion. Home Depot (HD) reported better than expected quarterly revenues and earnings and boosted its guidance to reflect the improving housing market. Honda’s (HMC) small passenger jet, the HondaJet, will not receive its certification and license to fly by the FAA in the U.S. until late 2014 at the earliest. The company had hoped to complete the certification process this year. Microsoft (MSFT) is establishing two cloud data processing centers in Australia as it expands its Windows Azure business. Pfizer (PFE) is halting a late-stage trial for its drug designed to treat Non-Hodgkin lymphoma after trial monitors said it was unlikely to improve the survival rate of users. Companies reporting earnings above forecast: AZO, BBY, HD, MDT, TDW
Companies reporting earnings in line with forecast: DKS, MNRO
Companies reporting earnings lower than forecast: None reported Companies raising earnings or revenue guidance: HD
Companies maintaining earnings or revenue guidance: DKS, MDT, BBY
Companies lowering earnings or revenue guidance: MNRO Analyst Upgrades (from Thomson, Briefing.com, Marketwatch.com): UIL, CBST, FCH, CNW, WTSL, AMT, ICE, SF
Analyst Downgrades (from Thomson, Briefing.com, Marketwatch.com): BZH, OIS, EHTH, WCRX, CCL, FRC, LIFE, CCL, OIS, AQ, CME, BEN, RJF, VFC, DB Looking Ahead: Our thoughts and prayers go out this morning to the residents of Moore, Oklahoma, located just south of Oklahoma City. The Moore area saw devastation produced yesterday from a Category 4 tornado reported to be two miles wide that left 51 dead, including 20 children at a local elementary school. Adding to the sadness of this horrible situation was the realization that Moore was hit by a Category 5 tornado in 1999 and had to rebuild following that disaster. Massive rescue and recovery efforts continue and we hope the responders are able to find survivors today, particularly at the school directly hit and destroyed by the storm. Individuals seeking to help the victims of this tragedy can direct donations online through the Red Cross Disaster Relief Fund. We expect to see the stock market consolidate recent gains today ahead of tomorrow’s testimony by Fed Chairman Dr. Bernanke on the prospects for the economy before the Joint Economic Committee of Congress. There are no scheduled economic data releases today and another limited calendar of corporate earnings announcements. It appears the stock market may get a small boost this morning from Home Depot’s positive earnings surprise and lifted guidance. This two-day quiet news period is giving portfolio managers a chance to reassess recent economic data, first quarter results, and survey current quarter corporate guidance. We expect a modest dip in the GDP growth rate this quarter, reflecting the impact of the Fed’s sequestration and the ongoing global economic slowdown. We remain concerned that investors are not prepared for further slippage in second quarter revenues and earnings that may hit the tape during July and August. First quarter S&P 500 revenues were flat versus a year ago, hurt primarily by a double-digit drop in Energy sector revenues. So far, we have not seen analysts lower second quarter estimates. We expect to see some downward adjustments over the next month, thus putting some modest pressure on a stock market that stands near record highs. Today’s Market Outlook: The stock market appears poised for a slightly higher market opening, as the major market index futures are trading just above fair value an hour ahead of the opening bell. Stock prices closed mixed in the Asian equity markets last night. The Tokyo Nikkei 225 rose 0.13%. The Hong Kong Hang Seng Index fell 0.54%. The Shanghai CSI 300 Index rose 0.22%. Stock prices are trading mostly lower in the European stock markets at mid-session. The London FTSE is up 0.20%. The STOXX 50 Index is off 0.44%. The near-term contract of West Texas Intermediate light sweet crude oil is trading at $96.35/barrel. Natural gas futures are trading at $4.17/mcf. Gold is trading at $1,372.80/ounce. Silver is trading at $22.29/ounce. The euro is trading at $1.2868. The 10-year Treasury note is yielding 1.97%. The 2-year Treasury note is trading to yield 0.242%. 3-month Treasury bills are trading to yield 0.041%. The Fed Funds Target range remains 0% to ¼%. Longer-Term Major Stock Market Outlook Factors:
Fundamental (Growth) Outlook: Slightly positive, projected 2Q 2013 EPS growth at 4.5% Y/Y for the S&P 500
Valuation (P/E relative to interest rates): Equities in the “fair value” zone at 15x estimated 2013 S&P 500 EPS
Cyclical Economic/Market Position: Late-middle stage of a multi-year expansion
Near-Term Technical Market Trend: Extended but slowly moving higher on light to moderate trading volume
Long-Term Technical Market Trend: Up
Investor Sentiment: Mixed; P/E expansion (positive); VIX volatility (ultra-low) – indicating too much complacency
Next Major Market Problems/Risk: Syria, 2Q 2013 earnings/revenues estimate revisions Today’s Earnings Releases:
23 companies reporting, including Analog Devices (ADI), AutoZone (AZO), Best Buy (BBY), Dycom Industries (DY), Home Depot (HD), Intuit (INTU), Medtronic (MDT), NetApp (NTAP), and TJX Cos. (TJX) Economic Releases/Events:
None expected Corporate Analyst Meetings, Conference Calls, and Investor Meetings:
AHT Analyst/Investor Day, ARMH Analyst/Investor Day, JIVE Analyst/Investor Day, KND Investor Meeting, MET Investor Day, MSI Analyst Meeting This Week’s Institutional Investor Conferences:
B. Riley & Co. Investor Conference, Barclays Global Technology, Media & Telecommunications Conference, Barclays High Yield & Syndicated Loan Conference, Bloom Burton & Co. Healthcare Investor Conference, BofA Merrill Lynch Services Conference, Brean Capital Global Resources & Infrastructure Conference, CIBC World Markets Small Cap Retail Conference, Goldman Sachs Basic Materials Conference, J.P. Morgan Homebuilding & Building Products Conference, Johnson Rice Energy Infrastructure Conference, Longbow Research Consumer Investor Conference, NAPTP MLP Investor Conference, Stifel Nicolaus Internet, Media & Technology Conference, SunTrust Robinson Financial Services Unconference, UBS Global Healthcare Conference, UBS Global Oil & Gas Conference, Wells Fargo Gaming & Hospitality Conference, Wolfe Trahan Global Transportation Conference, Wunderlich Investor Summit
| Technical Overview (updated 5/21/2013) | |||
Short-Term Trend | Intermediate Trend | Long-Term Trend | |
| DJ Industrial Average | Up | Up | Extended-Up |
| NASDAQ Composite | Up | Extended-Up | Extended-Up |
| MSCI EAFE (EFA) | Up | Extended-Up | Extended-Up |
| Gold (GC/Z3) | Extended-Down | Extended-Down | Oversold-Down |
| Euro (FXE) | Extended-Down | Down | In Transition-Up |
| Trade-Weighted USD | Up | Up | Extended-Up |
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Near-Term Support | Near-Term Resistance | Current Price | |
| DJ Industrial Average | 14,600 | 15,400 | |
| S&P 500 | 1,560 | 1,680 | |
| NASDAQ Composite | 3,150 | 3,500 | |
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50-day Moving Avg. | 200-day Moving Avg. | Current Price | |
| DJ Industrial Average | 14,744 (up) | 13,742 (up) | |
| S&P 500 | 1,584 (up) | 1,482 (up) | |
| NASDAQ Composite | 3,297 (up) | 3,131 (up) | |
| Upcoming Office Visits and Client Event Appearances/Speeches: | |
| May 22: | Seattle, WA – Davidson Companies Investment Summit Meeting |
| May 23: | Seattle, WA – Foster Pepper Banking Conference; Speech (PM) |
| May 28-29: | Los Angeles, CA – Davidson-Crowell Weedon Meeting Luncheon Presentation |
| May 30: | Newport Beach, CA – Davidson-Crowell Weedon Meeting Luncheon Presentation |
| May 30-June 2: | Laguna Beach, CA – Davidson’s President’s Club Meetings |
| June 11-13: | Great Falls, MT – Corporate Meetings; FC/Intern Presentation (June 12) |
| June 18-19: | Port Angeles, WA – Office Visit/Client Meetings |
| June 20: | Aberdeen, WA – Office Visit/Client Meeting |
| July 1-3: | Cannon Beach, OR – Working Vacation |
| July 25-Aug. 7: | Bethany, DE/Cooperstown, NY – Working Vacation |
| Aug. 27-29: | Denver, CO – Fixed Income Lunch Speech at Coors Field (Aug 29) |
| Sept. 13: | Travel to New York City |
| Sept. 16-17: | Philadelphia, PA – Wharton-SIFMA Securities Institute Trustee Meeting |
| Sept. 18: | Return to Lake Oswego |
| Sept. 30-Oct. 1: | Great Falls, MT – Corporate Meetings |
| Oct. 2-3: | Bozeman, MT – Client Events |
| Oct. 4: | Return to Lake Oswego |
| Oct. 8-11: | Lewiston/Sandpoint/Coeur d’Alene, ID – Client Events |
| Nov. 6: | Eugene, OR – Office Visit/Client Meetings (?) |
| Nov 7: | Roseburg, OR – Chamber of Commerce Economic Outlook Forum Speech; Client Event |
| Nov 20: | Great Falls , MT – Cascade Country Estate Planning Council Presentation |
Senior Vice President, Chief Investment Strategist
Davidson Companies
503.603.3059
fdickson@dadco.com