After the Close - Notwithstanding a late rush, it was a rather blasé start to the trading week on Wall Street. However, that should not have come as a major surprise as there was little news of note on both the U.S. economic and earnings fronts. Thus, with few stories of interest on these shores, investors looked overseas for some news, with China’s economy (more below) providing some fodder for market participants. Still, the major U.S. indexes were not far removed from the neutral line for much of the day, although the bulls did make a move in the last hour to push the indexes solidly higher. The spread between advancing and declining issues on both the Big Board and the NASDAQ, which was in favor of the latter for most of the session, reversed course in the final few hours as buying picked up.

From a sector perspective, those industries most closely tied to the global economy were not in favor today, with the basic materials, energy, and industrial stocks lagging the overall market. Those sectors suffered, as investors were concerned by reports that China will take steps going forward to curb rising home prices will hurt demand for materials and industrial products. In addition to the overseas concerns, the industrial sector is suffering from the failure in Washington last week to reach an agreement to avoid the automatic spending cuts from kicking in. The cutbacks are likely to have an adverse effect on military (defense) spending, which falls under the industrial umbrella. In the same vein, the renewed worries about the lack of a budget agreement on Capitol Hill pushed investors toward the more-defensive stocks, including many of the utilities, healthcare, and consumer noncyclical names.

We would also be remiss if we did not touch on the technology sector today, as a few of the industry heavyweights were in the news for opposite reasons. Indeed, shares of Google (GOOG) moved to an all-time high in the latest session, while the stock of Apple (AAPL) fell to a 52-week low, closing off more than 10 points in the process. Our sense is that a report from technology research provider ABI Research had a hand in the different paths these two stocks took. ABI’s latest projections have Google’s Android powered smartphone accounting for nearly 60% of the smartphone industry’s application downloads in 2013, with Apple’s iPhone accounting for about one-third of the app downloads.  Thus far in 2013, Google stock has been a darling of Wall Street, while Apple shares are suffering after a phenomenally bullish performance in 2012.

In the commodities markets, there was a notable drop in the price of crude oil on the New York Mercantile Exchange. Our sense is that traders are worried that the aforementioned automatic spending cuts will weigh on the U.S. economy, leading to reduced demand for oil in the coming months. The news that China, a large consumer of oil, will be aggressive in its efforts to curb inflation also pushed oil prices lower in the latest session, which finished the day above $90 a barrel. Just over a month ago, crude prices were hovering around the $100-a-barrel mark.   

Looking ahead to tomorrow, the attention of investors should return to the homeland, as we are set to receive (at 10:00 A.M. EST) an important report on the economy when the Institute for Supply Management releases nonmanufacturing data for February. This report is expected to be closely monitored, as the services sector accounts for the largest chunk of the nation’s economic output. The tone of the nonmanufacturing report—which most economists expect to be decent—may have an effect on the performance of the consumer cyclical stocks, which were up today ahead of the report. - William G. Ferguson

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.


12:30 PM EST - The U.S. stock market has been trading modestly lower so far today, but is now looking to move into positive territory. At just past noon in New York, the Dow Jones Industrial Average is still off 17 points (-0.1%). In the large-cap average, shares of Merck (MRK - Free Merck Stock Report) are trading higher, while Caterpillar (CAT - Free Caterpillar Stock Report) stock is moving lower. Elsewhere, the S&P 500 Index is down about a point, and the technology-heavy NASDAQ is little changed. Market breadth indicates a mixed market, as decliners are just slightly ahead of advancers on the NYSE. The majority of the market sectors are still in negative territory, with weakness in the basic materials and energy stocks. There is some strength in the transportation and high-yielding utility names.

Technically, the S&P 500 Index is holding above the important 1,500 level. However, it seems that the market may be stalling a bit, and could trade in a sideways range a while longer. Notably, the VIX is off slightly, but remains just above 15 today.

Meanwhile, the trading here in the U.S. likely was influenced by some important news from abroad. Specifically, some of the markets in Asia were off sharply overnight. There were deep losses on the Shanghai Composite, and on the Hang Seng on news that the property markets in China would be subject to greater regulation. Closer to home, in Europe, the markets are just finishing up a mixed session.

There also was no material economic news released today. Tomorrow will also be a busier day for reports, with the ISM’s Non-Manufacturing issuance due out. Notably, a lack of economic news at home can sometimes create an information vacuum, leaving traders free to concentrate on the situation overseas, or on the political and corporate developments in the U.S.

Traders received some corporate news worth mentioning. Specifically, in the chemicals industry, A. Schulman (SHLM) has offered to buy Ferro (FOE) for $6.50 a share. Shares of Ferro are up sharply to $6.82 on the news possibly implying that shareholders are looking for a higher bid. In the energy area, Transocean (RIG) stock is higher, after that company posted better-than-expected profits for the fourth quarter and reintroduced a quarterly dividend. Also, Boyd Gaming (BYD) is seeing its stock rise. That company posted a wide fourth-quarter loss, but the announcement of asset sales seems to have created some optimism among traders. - Adam Rosner

At the time of this article’s writing, the author had a position in Ferro.


Stocks to Watch from The Survey Earnings news is rather light today, but there are a few reports to be aware of. Shares of Transocean (RIG) are trading higher in the premarket, after the offshore drilling contractor that was at the center of the 2010 Gulf of Mexico oil spill reported fourth-quarter results. The company’s Board of Directors has also recommended reinstating a quarterly cash dividend of $0.56 a share. Dividend payments were suspended in 2011. Shares of hotel and casino operator Boyd Gaming (BYD) are also indicating a higher opening this morning on earnings news. Conversely, shares of Berkshire Hathaway (BRK/B) are down slightly in the premarket. The holding company controlled by legendary investor Warren Buffett released fourth-quarter results after the market closed on Friday, as well as Mr. Buffett’s annual letter to shareholders. – Matthew E. Spencer  

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.


Before The Bell - The bears tried to make their case late last week, with a markedly lower opening on Friday. However, an upbeat report on U.S. manufacturing activity quickly nipped that latest half-hearted selling effort in the bud.

Specifically, after stocks dropped initially on worries about Europe and the possible fallout from the mandatory budget reductions, popularly known as the sequestors, they subsequently pared those losses and even moved to modest gains by the close, with the Dow Jones Industrial Average, a 35-point gainer on the day, leading the way. The good news was that the manufacturing survey put out by the Arizona-based trade group, the Institute for Supply Management (ISM) reported a much stronger February reading than had been forecast. That better metric, along with a similarly stronger survey on consumer sentiment, issued by the University of Michigan, helped to quickly bring the market back.

In addition to the Dow, the NASDAQ gained almost 10 points and the Standard and Poor's 500 Index added three-and-a-half points. Also, winners beat out losers on both the Big Board and the NASDAQ, while new highs swamped new lows, especially on the NYSE.

It was not so upbeat in the euro zone, however, where a survey on manufacturing activity showed a further contraction in February, following a disappointing performance the month before. There are few signs, as of yet, the recession engulfing the Continent is near an end.

Now, a new week is set to get under way on our shores, and once more the European bourses are heading lower, while our futures, albeit off of their lows from several hours ago, remain in the red, to the tune of two points in the Standard and Poor's 500 Index and six points on the NASDAQ.

As to upcoming news this week, there are few companies of note due to report over the next several days, with the last of the Dow concerns already in the books. As to economic news, we will get the companion report on nonmanufacturing activity from the ISM tomorrow morning. Here, a modest expansion is the likely result. Then, on Wednesday, we are due to get data on factory orders for January, where a decline is the forecast. This pending release will then be followed on Thursday by data on the trade gap, initial and continuing jobless claims, productivity, and unit labor costs. Finally, the biggest report for the month, the survey on non-farm payrolls for February and accompanying data on the unemployment rate will wind up the week. The consensus calls for a payroll increase of 155,000 in February, virtually the same as in January, and a slight dip, from 7.9% to 7.8%, in the jobless rate.

Finally, the Dow is now within just 75 points of its all-time high of 14,164. We sense that a serious and ultimately successful run at this target will be made, and perhaps this week. It is true, that the equity market is frothy, the VIX volatility index, at 15.36, is near the year's low--further suggesting that stocks are overbought--and the economy is still running at a low ebb. By most counts, stocks should be succumbing to profit taking. But markets can stay overbought for a long time, and we could very well be in one of those periods. – Harvey S. Katz

At the time of this article's writing, the author did not have positions in any of the companies mentioned.