For those that believe markets love to have an excuse to sell-off, that scenario was certainly at play on Monday as investors digested at a glum earnings report from a marquee consumer discretionary name and had to contend with renewed headline risk out of Japan and the Middle East. The combination was enough to erase the middling gains notched earlier in the trading day and send all three major U.S. indexes to negative closes right at their intraday lows.
Using the economic data points that were released this morning as a guide, this should have been a much stronger start to the week for stocks than it ended up to be. Consumer spending rose 0.7% in February and personal incomes jumped 0.3%, thanks to a tax cut, the Commerce Department said. As I often say with regards to these types of reports, the devil is in the details: Adjusted for inflation, incomes fell 0.1% and consumer spending jumped just 0.3%. In other words, rising gas and food prices may be starting to pinch the consumer a tad.
On the other hand, Julia Coronado, chief economist at BNP Paribas, said in an interview with Bloomberg, that rising food and energy costs are not derailing consumer spending. I consider myself a stock/ETF guy as that is my background in both trading and writing, so I like to leave the macro commentary to others more qualified, but it is becoming at least slightly apparent that inflation is a concern.
Consumer Spending/Personal Incomes
There was another dose of good economic news and believe it or not, it came from the housing market. Pending sales of previously owned homes climbed 2.1% in February to a reading of 90.8, according to the National Association of Realtors. Economists were expecting a decline of 1%. Yep, this is what passes for good housing news these days.
There is no doubt, and the chart below illustrates the point, that residential real estate has suffered some mighty declines over the past few years. It is certainly safe to say that gone are the halcyon days of 2005-2006 and one has to wonder when, if ever, those times will return. As I have noted recently, part of the problem is that first-time buyers are still facing barriers to entry. They only accounted for 29% of existing home purchases in January and just 34% in February. Those numbers should be 40%-45%.
Taking a look Marriott's (MAR) performance today, maybe there is reason to still be concerned about consumer and business spending. The largest U.S. hotel chain plunged almost 6.3% to its lowest level in 10 months after saying slack demand in North America will weigh on revenue per available room (RevPAR) and come in at the low end of estimates.
The company said first-quarter RevPAR will jump about 7%, that's the low end of previous guidance of 7%-9% Marriott issued last month. Large group hotels in New York, Atlanta, Washington a Orlando, according to Bloomberg. Maryland-based Marriott said it expects first-quarter RevPAR in North America of 5%-6%, below the previous guidance of 6%-8%.
While Marriott is still optimistic on international markets, today's news from the company was also damaging for rivals Starwood (HOT) and Hyatt (H), which lost 5.7% and 6.3%, respectively.
Now if you want some better news and news that will keep you guessing about which direction the economy is headed, take a look at Wabtec (WAB). Shares of Pennsylvania-based Wabtec jumped over 12% after the company boosted its first-quarter and full-year guidance. What does Wabtec do and why should investors and traders care?
The company makes rail parts, stuff used for locomotives and freight cars. Wabtec offered up first-quarter guidance of a profit of 77-82 cents a share and for the full year, the company expects to earn $3.15-$3.25 a share. The company originally forecast a full-year profit of $2.90 a share. Analysts were forecasting a first-quarter profit of 69 cents a share and a full-year profit of $2.98.
Given those numbers, it is probably reasonable to assume that CSX, NSC, UNP and friends are ordering parts and related fare. Now if railroad operators are doing that, perhaps it means they are also hauling more coal, autos, raw materials, etc. and that of course would be good news for the U.S. economy. We will see in a few weeks. CSX steps into the earnings confessional on April 19 and UNP follows on April 20.
It was a docile day on the mergers and acquisitions front as the biggest deal of the day comes in the form of EBay's (EBAY) $2.4 billion deal to acquire GSI Commerce (GSIC). EBay will pay $29.25 a share for GSI, a 51% premium to where the shares closed on Friday. EBay already has a relationship with GSI, which manages e-commerce Web sites for some major retailers, through PayPal and the online auction giant is hoping to leverage that relationship by taking advantage of GSI's distribution network.
The acquisition, which will be financed with cash and debt, indicates that EBay wants to take the fight to rival Amazon (AMZN). Amazon has the larger distribution network, making it more attractive to third-party sellers. At a 51% premium, EBay is paying up for GSI. The buyers of more than 300 similar companies during that past five years paid a premium of 44% compared with the targetâ€™s average price over 20 trading days before the announcement, according to Bloomberg.
GSI has 40 days to solicit offers from other companies and EBay can then match any other offer, so it will be interesting to see if Amazon, which has $8.76 billion in cash on hand, wants to get involved here. What is clear is that EBay needs to do something to galvanize its shares. Of course the run off the March 2009 low is impressive, but that can be said of almost every stock. Look out over the past five years and the Nasdaq has sharply outperformed EBay. Of course, today was a great day to be a GSI shareholder.
Looking at the charts, no it was not pleasant to see stocks closer lower on the day, but if you had similar feelings about Friday's late-day sell-off that cut some impressive gains down, there's good reason for that: Volume was once again weak today. If the 6.4 billion shares that changed hands on Friday did not excite you, the 5.91 billion that was Monday's volume will not either. That is the lowest volume day since New Year's Eve.
With a close around 1310, the S&P 500 is still far enough off support at 1300 that it would take a pretty dismal day to get us back there, but I am getting the feeling that there is going to be quite a tussle in the 1320-1330 range, assuming the S&P 500 can get there, before Friday's jobs report.
S&P 500 Chart
A loss of almost 23 points on the Dow is nothing to be alarmed about and it is pretty easy to see why this meager loss transpired today. While CAT found its way to small gain, CVX, MMM and XOM all closed lower. On an intraday basis, Monday was the second consecutive day the Dow made its away above, but failed to close at or above resistance in the 12,250-12,275 area. Just below 12,200, the blue-chip Index is obviously far closer to resistance than it is to mental support at 12,000 and the more firm floor at 11,800.
In this week's version of ''Apple (AAPL) cannot do all the work,'' the Nasdaq found its way to a lower close despite news that the iPad 2 sold out in its international debut over the weekend. If you are reading this from Australia, Canada, France, Germany or the U.K. and were able to procure an iPad, congratulations, because from the reports I read, the odds were not in your favor.
Still, that was not enough for the Nasdaq today. At 2730, the Nasdaq could go either way to support at 2700 or resistance at 2766. We are still several weeks away from most of the big earnings reports from Nasdaq stars, so I would bet the Nasdaq just follows the broader market for the rest of this week.
Rather than regale you with a fun fact this week in the form of words, I will let a chart, courtesy of Bespoke Investment Group, do the talking. The chart shows that while the S&P 500 has not climbed all the way back to its February peak, the advance/decline line is now at its highest levels of the bull market.