What’s the Story

by CC October 4, 2012 9:09 am • Commentary


The number of Americans filing new claims for unemployment benefits rose less than expected last week, according government data on Thursday that suggested a mild improvement in the labor market.

Initial claims for state unemployment benefits climbed 4,000 to a seasonally adjusted 367,000, the Labor Department said. The prior week’s figure was revised up to show 4,000 more applications than previously reported.

Economists polled by Reuters had forecast claims rising to 370,0000 last week. The four-week moving average for new claims, a better measure of labor market trends, was unchanged at 375,000. It was the first time since December last year that the four-week average was unchanged.


The euro strengthened against the yen for a sixth day, the longest winning streak since March, and U.S. stock index futures advanced as European policy makers held borrowing costs at record lows.

The euro gained 0.5 percent to 101.86 yen at 7:48 a.m. in New York, while futures on the Standard & Poor’s 500 Index added 0.4 percent and the Stoxx Europe 600 Index rose 0.1 percent. The JPMorgan G7 Volatility Index of currencies slid to the lowest in almost five years. Oil climbed 0.6 percent, after falling 4.1 percent yesterday, and gasoline was 1.7 percent higher. Gold jumped 0.6 percent.

The European Central Bank left its benchmark at 0.75 percent and Bank of England policy makers also held their key interest rate at a historic low of 0.5 percent.


STOCKS: The S&P 500 is up 29% from last year’s closing low on Oct. 4. The Dow is up 25%, the tech-heavy Nasdaq Comp has risen 30% and the Russell 2000 index of small-capitalization stocks is up 29%.

Central-bank stimulus from around the globe has been one of the major underpinnings that has fueled the big rally. However, the run-up has stalled since mid-September when the Fed announced QE3, sparking concerns that the rally may have run out of steam.

One year ago, investors were worried about a potential bear market. Now, the Dow sits about 5% away from its all-time high.

COMMODITIES: Gold is up 10% from a year ago, although the precious metal remains below its all-time high of $1920 hit in September 2011. Crude oil is up 16% from a year earlier.

Gold enjoyed a big rally over the summer in anticipation of more Fed stimulus. With the Fed unleashing an open-ended quantitative easing program, gold (as an inflation hedge) may continue to be one of the biggest beneficiaries of the Fed’s easy monetary policy. Several Wall Street strategists expect the metal to surge past $2000 an ounce in 2013.

Even as oil prices are still up from a year ago, they have recently dropped 11% from a four-month high of $99 a barrel hit on Sept. 14.

EARNINGS: In 2011, the S&P 500’s third-quarter profit growth increased 18% from a year earlier, according to S&P Capital IQ. One year later, growth has vanished.

With earnings season poised to kick off next week, analysts anticipate third-quarter earnings for S&P 500 companies will decline 1.7%, the lowest expected growth rate since the third quarter of 2009. Companies ranging from FedEx and Caterpillar to tech titans such as Intel and Hewlett-Packard have already warned on earnings.

Profit growth has quickly shifted from a pillar of the market’s rally to a weak link.

JOBS: The economy added 103,000 jobs in September 2011. One year later, not much has changed.

Economists are expecting 118,000 jobs added last month, up from 96,000 jobs added in August. The unemployment rate has stubbornly held above 8% all year.

Besides a few months of more than 200,000 jobs added earlier this year, growth on a monthly basis has underwhelmed economists for much of 2012.

ECONOMY: Last year, U.S. GDP grew by 2.5% in the second quarter and 1.3% in the third quarter. One year later, second-quarter GDP growth was revised lower last week to 1.3%. Economists generally expect third-quarter growth to clock in between 1.5% to 2.0%.

In other words, the economy is going nowhere fast.

Few economists see a recession on the horizon. But the big risk associated with a low-growth economy is it’s more susceptible to any sort of exogenous shock.


Facebook [FB  21.83        ]– The social network has reached the 1 billion user mark and is launching a new ad campaign in conjunction with that milestone.

Marriott [MAR  39.00        ] – The hotel operator reported third quarter profit of $0.44 per share, 4 cents above estimates, with revenue also beating consensus. However, Marriott’s current quarter guidance of $0.52 — $0.56 per share falls short of the $0.57 consensus estimate.

UPS [UPS  73.39        ] – RBC Capital has cut its rating on the delivery service’s shares to “sector perform” from “outperform,” saying slower economic growth will keep a lid on earnings and that domestic margins are unlikely to expand further.

Costco [COST  99.62        ] – The retailer reported a September same-store sales increase of 6 percent, slightly above analyst estimates.

Applied Materials [AMAT  11.16        ] – The company is planning to cut 900 to 1,300 jobs, representing about 6 percent to 9 percent of its global workforce, by the end of fiscal 2013’s third quarter. The biggest maker of chipmaking equipment says the restructuring will free up to $190 million annually.

3M [MMM  93.78  —  UNCH    ] – 3M has terminated its agreement to buy Avery Dennison’s [AVY  31.45  —  UNCH    ] consumer product unit. 3M did not provide a reason, but the Justice Department had threatened to sue to stop the deal on anti-trust grounds.

Unilever [UN  Unavailable      ()   ] – The consumer products giant is considering various options for its Skippy peanut butter brand, including a possible sale.

eBay [EBAY  48.59        ] – Nomura Securities has upgraded the online auction site’s shares to “buy” from “neutral,” citing increased margins at its PayPal unit.

NuVasive [NUVA  22.62        ] – The medical device maker cut third quarter revenue guidance. It cites aggressive competition, especially from physician-owned distributorships.

Hewlett-Packard [HPQ  14.91        ] – HP shares will bear watching once again today, following Wednesday’s 13 percent drop. That followed CEO Meg Whitman’s statement that HP’s turnaround effort will take longer than expected. Whitman is appearing on CNBC’s “Squawk On the Street” at 9 a.m. EDT.

Sprint Nextel [S  5.20        ] – Baird has downgraded Sprint shares to “underperform” from “neutral.”

Limited [LTD  50.24        ] – The retailer saw same-store sales rise 5 percent in September, slightly above estimates of 4.7 percent.