EmailThere was more churn and little burn in Monday's trading. Following six-and-a-half hours of light trading action, the S&P 500 ended the day down less than 0.1%.
The day was not without its storylines -- Dell (DELL) reportedly entertaining a private equity buyout, Apple (AAPL) reportedly cutting iPhone5 supply orders, and President Obama imploring Congress to raise the debt ceiling -- yet investor conviction was lacking in a broader sense.
Some hesitation ahead of this week's earnings reports played a part in the lackluster session, as did the recognition that Fed Chairman Bernanke was going to be starting a speech just as the market closed on Monday.
In a nutshell, the Fed chairman didn't provide any surprises. He called on Congress to raise the debt ceiling; he said we are not out of the woods on fiscal cliff matters; and he reiterated that the economy has quite a ways to go yet to improve. Importantly, he didn't give any indication that the Fed's quantitative easing program will be ending anytime soon.
Mr. Bernanke did no harm, yet the equity market is indicated to open lower this morning. The S&P futures are trading 0.5% below fair value, weakened somewhat by a batch of sobering reminders that include:
- Treasury Secretary Geithner sending a letter to House Speaker Boehner that says extraordinary measures to meet government obligations will likely be exhausted sometime between mid-February and early March
- A warning from Fitch Ratings that it could downgrade the US credit rating if the debt ceiling isn't raised in a timely fashion
- A report showing Germany's GDP contracted 0.5% in the fourth quarter; and
- Several revenue/earnings warnings out of the retail sector
Today's economic data out of the US didn't alter the course of futures trading, although there was some room for optimism in the more important Retail Sales report, which showed a 0.5% increase in retail sales in December (Briefing.com consensus +0.2%) and a 0.3% jump in sales excluding autos (Briefing.com consensus +0.3%).
Most categories saw December increases, with the exception of electronics and appliance stores (-0.6%), which was coming off a 2.3% sales increase in November, and gasoline stations (-1.6%), which continued to feel the pinch of falling gas prices. Core retail sales, which exclude gas stations, autos, and building material stores, increased a solid 0.6%.
The lack of response to this otherwise encouraging report could be attributed to concerns that January results will paint a different picture as consumers grapple with the impact of the higher payroll tax.
In other developments, inflation at the producer level remains subdued. Producer prices declined 0.2% (Briefing.com consensus 0.0%) in December, driven lower by a 0.9% decline in prices for finished consumer foods. Core PPI, which excludes food and energy, increased 0.1% (Briefing.com consensus +0.2%) with a 2.0% rise in cigarette prices leading the advance.
On a year-over-year basis, PPI and core PPI are up just 1.3% and 2.0%, respectively, which isn't going to raise any alarm bells at the Fed.
The final report this morning was the Empire Manufacturing report for January. It was disappointing with a print of -7.8 versus the Briefing.com consensus estimate that called for an expansionary reading of 2.0.
Separately, homebuilder Lennar (LEN) topped the fourth quarter Capital IQ consensus earnings estimate by $0.11 on a 42% increase in revenue. Lennar had a solid report, but is indicated to open about 0.5% lower. Bear in mind that LEN has risen 6.0% since the start of the year.
The sell-the-news response could be a sign of things to come for many stocks that have made big moves ahead of the earnings reporting period. We will find out soon enough with a number of financial companies on the reporting docket beginning tomorrow.
