The Stock Market: Sandy Causes Havoc!
The Past Week:A Solid Jobs Report!
by Ian Harvey
November 03, 2012
Stocks finished down 1 percent Friday, wiping out the previous session's gains, despite a better-than-expected government jobs report and amid nervousness ahead of next week's presidential election.
The Dow and Nasdaq finished in the red for the week, while the S&P 500 squeezed out a small gain.
For the week, the Dow erased 0.11 percent, the S&P 500 eked out a gain of 0.16 percent, and the Nasdaq dipped 0.19 percent. Pfizer (PFE) was the worst weekly performer on the Dow, while BofA surged.
Among key S&P sectors, energy was the biggest laggard for the week, while consumer discretionary gained.
The CBOE Market Volatility Index (VIX – 17.06) ), widely considered the best gauge of fear in the stock market, sprung back to life in Friday's trading, gaining more than 5.4% on the day but settling close to 1.2% lower for the abbreviated week.
Summary of the Past Week
The potential for serious damage was recognized by the stock market last week. Chubb (CB), which insures a lot of property, fell 3.3% from Monday through Friday, ahead of the storm. The KBW Insurance Index (KIX) fell 1.56% over the same time.
• How long it takes the storm to pass: Longer is bad.
• How fast recovery and reconstruction efforts begin. The faster the better. Look for strong sales for hardware stores, auto dealerships, paint dealers and furniture dealers over the next few months as claims are settled.
• How fast power is restored. Not just to homes but especially to the oil refineries in Delaware, Pennsylvania and New Jersey. Long shut downs in refineries can create short-term shortages and boost fuel prices not just regionally but nationally as well.
• How fast the local infrastructure is put back into shape, including water, sewers and streets and highways. Of special interest in the Northeast are suburban rail networks. Heavy rains can weaken rail beds and slow speeds at which trains can run.
Thursday, November 01
Markets are still recovering from the aftermath of Superstorm Sandy, which wreaked havoc up and down the Eastern Seaboard. The storm forced financial markets to close Monday and Tuesday, and nearly 5 million people are still without power.
Trading could still be volatile, Reuters noted, with many traders and money managers unable to reach their offices because of power and gasoline shortages and limited mass transit.
Stocks started November with their best performance in seven weeks, thanks to two decent jobs reports and an improved outlook on manufacturing.
If there was a downside to the rally, it was that the major averages pulled back from their early highs. The Dow Jones Industrial Average (DJI) jumped as many as 177 points, fueled by gains for IBM (IBM) and Caterpillar (CAT), but then profit-taking set in.
Private-sector employers added 158,000 jobs in October, the ADP National Employment Report estimated, better than expected, and the Labor Department said initial jobless claims fell to 363,000 last week, down from 372,000 the prior week and smaller than the consensus estimate of 369,000. The Labor Department will release its October jobs report at 8:30 a.m. ET Friday. The unemployment rate is expected to rise slightly from 7.8% to 7.9%, with payroll employment rising by about 125,000 jobs.
After the close, shares of Starbucks (SBUX) jumped $3.35 to $49.97 from a regular close of $46.62. The coffee-shop giant's fiscal-fourth-quarter earnings of 46 cents a share beat the Street estimate of 45 cents. Revenue was up 11% to $3.36 billion and in line with estimates. Also moving higher because of strong earnings: Priceline.com (PCLN) and American International Group (AIG).
The Dow closed up 136 points to 13,233. The Standard & Poor's 500 Index (SPX) gained 15 points to 1,428. The Nasdaq Composite Index (COMP) jumped 43 points to 3,020, its first close above 3,000 for the index since Oct. 22.
The Nasdaq-100 Index (NDX), which tracks the largest Nasdaq stocks, jumped 40 points to 2,688. The index had been up as many as 43 points.
Apple (AAPL), the biggest influence on the Nasdaq-100, was up $1.22 to $596.54 after peaking at $603 at 11 a.m. ET. Apple's Wednesday close of $595.32 was its first below $600 since July 30.
The Dow and the S&P 500 had their best one-day gains since Sept. 13. The Nasdaq's performance was its best since Sept. 6. Materials, industrials and technology stocks were the market leaders.
Contributing factors to today's gains included a gain in Chinese manufacturing activity after two months of contraction. The official October manufacturing PMI came in at 50.2, slightly lower than the forecast of 50.3 -- but higher than the 50-point level, the government said. The HSBC Purchasing Managers Index was a 49.5, up from 47.9. At the very least, HSBC said, industrial activity in China has bottomed. The economy should recover slowly.
Also helping were gains in consumer confidence and auto sales.
The one group that didn't participate today: utility stocks. They fell as interest rates moved higher. The 10-year Treasury yield rose to 1.715% from 1.686% on Wednesday.
The market gains came even as earnings from Exxon Mobil (XOM) fell from a year ago. Revenue was off 7.7% to $115.71 billion, still enough to be roughly the size of the gross domestic product of Vietnam. The decline was due to lower oil and natural gas prices Shares, however, were up 43 cents to $91.60.
Energy shares were largely higher as crude oil in New York settled up 85 cents to $87.09 a barrel. Brent crude, however, settled down 53 cents to $108.17 a barrel.
The average national retail price of gasoline was $3.507 a gallon, according to AAA's Daily Fuel Gauge Report. That's down from Wednesday's $3.521 a gallon. But because of power problems at gasoline terminals, there have been gasoline shortages around the New York area and in New Jersey.
Friday, November 02
Employers added 171,000 jobs in October, but the unemployment rate ticked up slightly to 7.9%, the Labor Department announced today.
While the jobs report was basically good, stocks slumped this afternoon on weakness in Chevron (CVX), Apple (AAPL) and IBM (IBM) and a host of property-casualty companies that face big claims from Superstorm Sandy.
In addition, the dollar moved higher on the jobs report, as traders worried that the Federal Reserve might pull back on its low-interest rate policy. Energy and materials stocks were lower. Gold fell below $1,700 for the first time since early September.
The losses wiped out weekly gains for the Dow Jones industrials (DJI) and the Nasdaq Composite Index (COMP).
The Dow closed down 139 points to 13,093. The blue chips had been up as many as 57 points early in the session. Today's decline more than undid Thursday's 136-point gain. The Standard & Poor's 500 Index (SPX) was off 13 points to 1,414. The Nasdaq dropped 38 points to 2,982.
The Nasdaq-100 Index (NDX) was off 31 points to 2,656.
Apple was off $19.74 to $576.80. The new iPad Mini went on sale today. The selling in the shares accelerated after they fell below $588, their 200-day moving average. They're down 18% since peaking in mid-September at $702.10.
About 77 points of the Dow's loss was concentrated in four stocks: IBM, Chevron, Caterpillar (CAT) and Exxon Mobil (XOM). Only four of the 30 Dow stock were higher: Bank of America (BAC), Walt Disney (DIS), Merck (MRK) and McDonald's (MCD).
In addition, Verizon Communications (VZ) fell 62 cents to $44.52 after it said in a regulatory filing that it expects the costs of restoring service and making extensive repairs to its land and mobile networks after Superstorm Sandy will have a "significant" impact on fourth-quarter results.
For the week, the Dow was off 0.1%, its third loss in the last four weeks. The S&P 500 added 0.2%. The Nasdaq dropped 0.2%, its fourth straight weekly decline. For the year, the Dow is up 7.1%, with the S&P 500 up 9.6% and the Nasdaq up 14.5%.
Crude oil in New York settled down $2.23 to $84.86 a barrel, the lowest close since July 10. Wholesale gasoline futures were down 2.3% to $2.5736 a gallon. Brent crude was down.
The national average price of gasoline was at $3.496 a gallon, according to AAA's Daily Fuel Gauge Report, down from Thursday's $3.507. That's the lowest average price since July 30, when it was $3.486.
Gold tumbled to $1,675.20 an ounce in New York, down $40.30. It was the biggest one-day drop for the metal since June 21 and the lowest close since Aug. 30.
Company News and Earnings in the Past Week
Friday, November 02
Restoration Hardware has a strong IPO
Despite the slump, home-furnishings retailer Restoration Hardware (RH) went public at $24 late Thursday and closed at $31.10, up $7.10. It reached as high as $33.15. And Starbucks (SBUX) shares jumped $4.22 to $50.84 after reporting strong earnings late Thursday and boosting its dividend to 21 cents a share, up from 17 cents.
Why Chevron missed
The oil giant missed Street estimates on earnings and revenues, blaming lower crude prices and a heavy period of planned oilfield maintenance. Shares were down $3.09 to $108.37.
Worldwide daily production was 2.52 million barrels of oil equivalent, down from 2. 6 million a day a year ago. Plus, the average sales price of crude oil and natural gas liquids was $91 vs. $97 a year ago.
Downstream operations earned $456 million, down from $704 million a year ago.
Starbucks' strong report Starbucks shares jumped because global comparable-store sales rose 6%, with a 5% increase in traffic and a 1% increase in average ticket contributing.
The company saw 10% growth in its China/Asia Pacific business. Europe lagged. The company grew its operating margin by 210 basis points (one basis is one one-hundredth of a percentage point) to 21.4% from 21.19%.
The company's strong performance helped shares of Whole Foods (WFM) move up $2.69 to $97.15. Rivals Dunkin Brands (DNKN) and Caribou Coffee (CBOU) were also higher. Panera Bread (PNRA) fell slightly.
Economic News in the Past Week
Personal income was up in September; spending was up more, the government said Monday.
The S&P/Case-Shiller Home Price Index showed prices in 20 major markets rose 2% in August from August 2011, the biggest year-to-year gain in more than two years. The report suggested the housing recovery is advancing solidly.
Sandy hits auto sales
Sandy's fury caused U.S. auto sales to fall short of expectations in October, but industry executives still see a strong fourth quarter as the housing market improves. Sales came in at a seasonally adjusted annual rate of 14.29 million units, up 7.1% from a year ago but down 4.35% from September, according to market researcher Autodata.
While General Motors (GM) and Chrysler Group reported their strongest sales for October since the 2007-09 financial crisis, the massive storm that hit the U.S. East Coast took as much as 30,000 vehicle sales out of the mix.
The storm turned what was expected to be a big month for auto sales into a mere healthy month, TrueCar.com analyst Jesse Toprak told Reuters.
Ford Motor's (F) October sales edged up 0.4%. Sales for Toyota Motor (TM) and Honda Motor (HMC) rose about 16% and 9%, respectively. Nissan (NSANY) sales fell 3.2%.
GM was up 18 cents to $25.68. Ford added 9 cents to $11.25. Toyota added 58 cents to $78.05 in New York. Honda was up 19 cents to $30.35. Nissan rose 18 cents to $16.90 in New York.
Manufacturing expands in October
Manufacturing in the U.S. expanded in October at a faster pace than projected as orders and production picked up, showing the industry is stabilizing.
The Institute for Supply Management’s factory index climbed to 51.7 last month, the highest since May, from 51.5 in September. Economists estimated 51 for October. A reading of 50 is the dividing line between growth and contraction.
The report shows American factories are holding up amid a global economic slowdown that’s weakened manufacturing from Asia to Europe. At the same time, companies such as Cummins (CMI) are feeling the effects of the so-called fiscal cliff that’s prompted cutbacks in equipment purchases.
A solid jobs report
In addition to the 171,000 overall gains in jobs, the Labor Department revised estimates for overall job gains in August and September higher by 84,000.
The payroll gains came from the private sector, which added 184,000 jobs, the Bureau of Labor Statistics said. That was the biggest gain since February. Government employment fell by 13,000.
The unemployment rate ticked up to 7.9% from September's 7.8% because more people were looking for work.
Private service providing jobs were up 163,000, with retail trade adding 36,400 jobs.
Temporary-help services, often a harbinger of future full-time hiring, added 13,600 jobs, more than reversing the previous month's decline.
The construction sector saw an increase of 17,000 jobs, the largest rise since January. But residential construction fell back by 2,000 jobs to 560,000. That reflects the struggles of the housing industry.
Despite the current uptick in job creation, the U.S. economy faces a real threat of a renewed recession next year.
Without action by lawmakers, existing legislation will raise taxes and cut spending to the tune of about $600 billion in 2013. That scenario -- known in Washington as the fiscal cliff -- could easily cause the economy to contract.
For some perspective on the current state of the labor market, today's chart illustrates the unemployment rate since 1948. As today's chart illustrates, the unemployment rate has been (despite this month's uptick) trending lower since peaking at 10% back in October 2009. While the overall downtrend of the unemployment rate is positive, it is worth noting that the current unemployment rate remains at a level that has rarely been surpassed during the post-World War II era.
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