The Week in Review for the week ending January 25, 2013
The month long global equity advance continued last week on strengthening US, Chinese and German economic data. Strong corporate earnings reports, continued expansion in Chinese manufacturing and falling US jobless claims along with the Conference Board’s leading economic indicators and the US Federal Reserve Board’s Beige Book pointing to improving business conditions.
Eurozone consumer confidence and German business confidence also improved.
The S&P 500 Stock Index crested the 1500 mark for the first time since 2007. The Dow Jones Industrial Average continued its best start of a new year since 1987.
Amid this environment the DJIA was up 1.8%, the S&P 500 was up 1.1%, the Russell 2000 was up 1.4%, the Global Dow Ex-US was up 0.7%, while crude oil fell -0.2%.
US initial jobless claims fell to 330,000, their lowest point since January 2008. The four-week average dropped by 8,250 to 371,750, the lowest level in almost five years. US existing-home sales reached a five-year high in 2012, rising 9.2% annually. December sales were 13% higher than a year earlier, the eighteenth straight month of year-over-year increases. New home sales slipped in December, while the median sales price rose. More new homes were sold in 2012 than in any year since 2009. Two broad indicators of US economic conditions were positive. The
Conference Board Leading Economic Index gained 0.5% in December, boosted by a drop in new jobless claims and an increase in new building permits and the Fed’s Beige Book survey of business conditions indicated that economic activity increased across much of the country in December.
China’s manufacturing activity in January grew at the fastest pace in two years, according to the preliminary HSBC China Manufacturing purchasing managers’ index, which rose to 51.9 in
January from 51.5 in December. The growth trend bodes well for China’s 2013 economic outlook. The Bank of Japan agreed to a policy of greater monetary easing, including setting a clear 2% inflation target. Under an open-ended commitment, the BOJ pledged to continue purchasing financial assets until it beats deflation. The need for central bank intervention was underscored by a new report that consumer prices excluding fresh food fell 0.2% in December from a year earlier. Japan’s trade deficit nearly tripled in 2012 to a record ¥6.9 trillion ($78.3 billion) on a strong yen, crippling territorial tensions with China, Europe’s recession and skyrocketing energy imports.
Reports from Europe indicate improving economic conditions. German business confidence rose for the third straight month. The ZEW Indicator of Economic Sentiment for Germany jumped to its highest point since May 2010. The ZEW report also indicated significantly improved economic expectations for the eurozone. The eurozone’s current-account surplus rose to €14.8 billion in November from €8 billion in October, a potential sign of growth in economic output.
Apple posted flat earnings for its first fiscal quarter and reported its slowest rate of sales growth in more than three years. Since September, its share price has dropped from $700 to $450, and it is giving up smartphone market share to Samsung. Apple’s shares tumbled 12% on its disappointing earnings news.
IBM increased its net income despite declining revenue as it shed less profitable businesses in favor of higher margin software and services. IBM’s revenue has decreased for three consecutive quarters. However, in the most recent quarter, its sales to the large, emerging BRIC countries increased 11%.
Google posted a 6.7% rise in net profit on a 22% increase in fourth-quarter revenue, excluding its Motorola hardware unit, as it saw an increase in the number of ad clicks by 24% and its ad rates per click fall less than expected.
Software giant Microsoft posted a 3.7% decline in profit for its second quarter on weaker sales in its business and entertainment divisions, but its Windows and Windows Live division had a 24% growth in revenue. Overall revenue was up 2.7% while total operating expenses rose 10%.
General Dynamics swung to a $2.1 billion fourth-quarter loss and issued a disappointing projection for 2013 earnings.
Johnson & Johnson posted a more-than-tenfold increase in quarterly profit on an 8% increase in revenue. Excluding various one-time charges, J&J’s quarterly earnings rose 5.3% while its gross profit margin went up 4%.