Stocks traded in a tight range today as economic data, news from abroad, earnings and the developing 2012 outlook competed for dominance. Signs the global economy is slowing more than expected are in contrast to signs of economic life here at home.
Without a doubt the economy is still sluggish and on shaky ground but it is still growing and there are reasons to think we could see further strengthening by the end of the year. The jobless rate is trending lower and newly released unemployment data supports the trend. Initial claims for unemployment in the week ending May 18, 2012 dropped from an upwardly revised 372,000 to 370,000. The data from last week was revised upward by 2000 points, canceling out this weeks drop. On a week to week basis initial reported claims remain flat. The four week moving average of initial claims fell by 5,500 to a six week low 370,000. The four week moving average is currently inline with the initial claims number and could lead the number lower. Analysts had been expecting initial claims to rise by 1,000 to 373,000.
Continuing claims for unemployment, those people filing for a second week of unemployment benefits, fell by 29,000 claims to 3.26 million. This furthers the declining trend in continuing claims we have seen since the beginning of the year.
The total number of Americans on unemployment benefits also fell. The number lags initial claims by two weeks and is unrevised. Total claims declined by 105,004 to a new 2012 low. It is clear that fewer and fewer Americans are without jobs, the question that remains is â€œhow many have actually found workâ€. The ADP private sector employment figures and the April jobs number both come out next week and will help to answer that question.
In other economic news US durable goods orders inched up, led by increased demand in automobiles. Durable goods orders increased by 0.2%, surprising economists who had been expecting a -0.4% drop. The increase April orders follows a -3.7 decline in March orders. In total, orders for US durable goods increased by a total of $215.5 billion. Excluding transportation orders fell in April by 0.6%. The data underscores the strengthening US automotive sector which has been experiencing growth since last year.
General Motors and Ford Motor Company traded mixed on the news. Shares of GM fell moderately while shares of Ford managed to make a gain in today's rocky trading.
Headlines from Europe and Asia suggest that the global economy is weakening more than expected. Germany, who is the pillar of the European Union, suffered a decline in business confidence in April coincident with a sharp drop in manufacturing. The Markitt Flash PMI shows that German manufacturing is shrinking at an accelerated pace. The March manufacturing PMI number was 46.2, April declined to 45.0. Any reading below 50 shows contraction in the sector. The services portion of the PMI was 52.2, showing a modest increase in that sector but the composite figure of 49.6 shows that the German business spending is in decline. New and export orders for German goods are also in decline, primarily on weak domestic and Asian demand.
The pundits continue to speculate on whether or not Greece will exit the Eurozone. The failure of EU leaders to agree on bailout measures is leading to a further decline in the total EU economy. Their failure to act decisively and with one voice is one of the reasons why the crisis is spreading. Greek banks are expected to be re-capitalized soon and that should alleviate some of the stress in the near term.
The European markets closed higher today, rebounding from the recent weakness. The FTSE closed higher by 1.59%, followed by the CAC 40 with a 1.16% gain and the Xetra DAX with a 0.48% increase.
The HSBC China Flash PMI also declined in another sign the country is slowing more than anticipated. The May reading came in at 48.7, down from 49.3 in April and the sharpest decline in Chinese business this year. Analysts are expecting the Chinese government to intervene with some form of stimulus soon in order to help soften the economic decline.
Asian shares ended the day mixed. The slowing Chinese economy and growing concerns over Greece and the EU weighed on stocks. The Nikkei gained a modest 0.08% while the Hand Seng and China indexes lost about a half percent each.
Gold and Oil were both up today. Gold climbed about 1% on today's news and weakness in the dollar. Silver and copper were both strong as well. Silver gained about 2% and copper about 1%. The CBOE gold index crossed above the short term moving average yesterday and held its ground today.
Gold Index, daily
Crude oil climbed over 1% today. Iraq's issues over nuclear weapons has renewed fears of oil supply disruptions in the region. Fears of global slowdown tempered the outlook for demand and helped to moderate today's spike in price. Oil is still trading at an eight month low but prices at the pump have yet to reflect the full decline.
Facebook is still making more headlines than anything else in the financial news. The problems with the NASDAQ's handling of the IPO as well as irregularities with the pricing of the IPO are coming under intense scrutiny. CNBC reported that the Nasdaq is making some effort to curb the fall-out from the so-called disaster. There is growing speculation that Facebook will switch listing to the NYSE but I don't know what that would do for them now that the stock is trading actively. Facebook was one of the most active stocks on the Nasdaq today and volatility seems to be calming in the stock. Share price is settling around $32 while Nasdaq executives and regulators work the issue out. Any new developments could send stock price either way.
Facebook, One week chart
Earnings season is mostly over but there are still a few big names reporting today. HJ Heinz Company reported lower quarterly earnings today. The company's profits were hurt by one time charges related to the productivity improvements enacted by Heinz. Discounting the charges, the food distributor's earnings in the period increased significantly and beat the consensus estimate. The company stated its outlook for the rest of the year in the release and shares took a dive in pre-market trading. The outlook for the following quarter fell short of expectations. Shares of the stock found support at $53 and managed to trade up from there on higher than average volume.
HJ Heinz Company
Hewlett Packard and CEO Meg Whitman were in the spotlight today after the company released its earnings. The company beat expectations for revenue and profit. Total profits in the quarter totaled $1.6 billion or $0.98 per share. The consensus estimate was $0.91 per share. The company also announced a major round of layoffs as part of a restructuring plan that is intended to position the company for growth in 2013. In an interview today Ms. Whitman said that Hewlett Packard was â€œconcernedâ€ about Europe and its affect on business in 2012. The stock jumped in early trading gapping open nicely this morning. However, the bears were out and the stock sold off during the day but managed to maintain a gain over yesterday's close.
Hewlett Packard, daily
Costco is another company that reported today. The discount retailer posted an increase in net sales and profits in the quarter. The company's net income climbed 19% in the quarter on lower asset costs and increased member revenue. The company earned $0.88 per share, up from last years $0.73. The stock jumped today but met resistance at the short term moving average.
Flowers foods bloomed today to the delight of investors. The stock gained over 7% today, crossing over the short term moving average on more than double the average daily volume. The move was sparked by a surprise increase in the company's business, evidenced by the rise in quarterly revenue. The income was hurt though by the rising costs of ingredients and energy. Earnings were only down 2 cents from last year, a decline easily overcome by increasing business and lower fuel costs.
Flowers Foods, daily
Tiffany and Co made a new low today after its earnings statement hit the street. The luxury retailer reported that earnings in the quarter rose slightly over last year and that the outlook for 2012 was weakening due to rapid deceleration. Shares of the stock lost about 7% today on heavy volume.
Tiffany and Co, daily
Patriot Coal received some downgrades today as the result of a negative credit rating adjustment by Standard & Poors. The company's credit rating was reduced to CCC based on a negative outlook and a perceived ability to meet near term debt obligations. The stock has been in a downward trend and is trading near recent lows. Deutsch Bank downgraded the stock to hold from buy.
Patriot Coal, daily
Bank Of America remains one of the most active stocks on the market with around 200 million shares traded daily. The stock has been under heavy pressure the last two months but bearish momentum seems to be running out. The stock gapped open with the general market but sold off during the day.
Bank of America, daily
The large cap financial sector is in decline. The global economic outlook and exposure to the European banking system have put the big banks at risk. The financial sector Spider (XLF) is in a near term bear market. The stock has made a new lower low and is now forming a potential bear flag. Momentum is bearish and consistent with a further decline.
Financial Sector Spider, daily
NetApp's shares hit a new low today. The data-storage company expects quarterly earnings to be weak due to seasonal slowness and the global economy. The company's estimates fell short of the consensus and sent shares tumbling in after hours trading yesterday. Today, the stock opened about 13% lower than yesterday's close and traded on high volume. The company has over $10 per share of cash on hand and is a potential take over target.
The Dow hovered around neutral today, trading in a tight range around 12,500 and the 200 day moving average. The index traded in negative territory for much of the day but a late afternoon rally put the Dow up by 0.27%. Despite the small gain the index is in a near term down-trend and is possibly forming a bear flag. The long term momentum is bearish and gaining strength. In the near-term, bearish momentum is subsiding but the last two peaks are consistent with a continuation of the current downward trend. The markets are very sensitive to news and economic data and some highly anticipated information is due out soon. The next few days to a week will be very important for how the Dow trades over the summer and into the fall.
The S&P 500 is in the same shape as the Dow. The index traded in a tight range today, eking out late afternoon gains but closing off of the day's high's. The broader index is trending down and forming a potential bear flag.
S&P 500, daily
The VIX is trending higher as global worries weigh on stocks. The volatility indexes short term moving average has moved over the $20 resistance level.
The VIX, daily
The Nasdaq has had a rough week during the Facebook fiasco. The tech heavy index has made a steeper decline than the other two major indexes but is trending basically in tandem with them. The Nasdaq was not able to rally into the close and lost a little on the day. The index is sitting just above the 200 day moving average with bearish technical indicators.
The market has been struggling with the dichotomy of a possibly strengthening domestic economy and a weakening global economy. Signs at home point to declining joblessness, which, added to lower energy costs, are expected help spur the economy. However, the business outlook for the second and third quarters of calendar 2012 stated by some of the larger corporations do not concur. Sales figures and estimates have been guided lower, today's cautions from Hewlett Packard are only the most recent.
The ADP figures on private sector payrolls is out next week, followed by the April jobs data. The ADP report is expected to increase to 165 thousand from last months 119 thousand and supports the trend in declining joblessness. First quarter GDP revisions are also due out next week. The expectations are for first quarter GDP to revise down to 1.9% from the earlier estimates just over 2%. The effects from the drop in unemployment and decline in oil prices will be seen in the second quarter GDP data.
Tomorrow look out for consumer sentiment and news from Europe and Asia.