With some important earnings reports out before Friday’s opening, the market reacted either positively or negatively as the case may have been, and the closing results proved it. After a 68 point lower start, the Dow made an irregular chop higher, and then accelerated to the upside at 3pm when it was still 30 points lower and after all was said and done it closed with a nominal 10 point gain. Despite this nominal gain, it still meant that the market underwent its worst week of the year with the Dow lower by 2.1%, the S&P down by the same amount while the Nasdaq did even worse with a 2.7% decline. In fact, it was the worst weekly showing for the market since last November.
Breadth numbers were at a solid 22/8 upside ratio and the Nasdaq actually had the nerve to end with a 40 point advance due to good earnings reports from Dow component MSFT in addition to
GOOG. At the same time, the stock named after a fruit still could not get its upside act together and ended lower on a day when the index in which it is still the largest component put in a very good performance. For what it is worth, perhaps it did find a near-term support at 385 ahead of its earnings report tomorrow night after what has been a 45% collapse from its all-time highs seven months ago.
Individual stocks did well or poorly as the case may be, as three Dow stocks just by themselves accounted for huge point losses in this index, particularly IBM which by itself contributed 131 negative Dow points with its worst decline in eight years, MCD accounted for 15 while GE was responsible for 7 points, all three on poor earnings. In addition, IBM had very negative effects on other technology stocks, such as EMC, JNPR and NTAP.
The outside markets were mostly higher, which perhaps provided some kind of support, as the Euro, crude oil and gold all moved up a bit, and the latter has been in the process of perhaps making those who sold it down to last week’s intraday panic of $1,320 an ounce appear a bit foolish, as all of the pontificating about what did this historic decline mean for world markets and inflation now looks a bit pedantic and condescending, especially after today’s nice rebound, its largest gain since last September.
Then there is the question of that 50-day moving average that the technical crowd gets obsessed with, as the S&P did break below it on the final three days of the week intraday, and does that mean that one is supposed to sell when this happens, because if one did at around the 1541 level, one is a loser for the time being. So instead of viewing this as perhaps a lower support level, these people say – oh now is a good time to sell, instead of selling when it was at much higher levels.
Earnings are moving along for the first-quarter and this week we will hear from 160 S&P components in the largest week for reporting and the scorecard is as follows as of the present time – of the 104 S&P companies that have reported, the earnings projection is now for a gain of 2.2%, which is actually up from 1.5% on April 1st, which means that companies have been able to beat the lowered estimates. As of now, 62% have beaten their profit forecasts while only 43% have topped their revenue estimates, which are now supposed to grow by only 0.7%.
In a particularly volatile day so far today, the Dow started out with a fast 32 point gain which dissipated rather quickly and it was even around 15 points lower when the March existing home sales report came out worse than expected with a decline of 0.6% after a slight gain had been predicted by the experts.
This pushed an already fragile market down to its worst level of the session with a 90 point Dow decline right after 10:30am, from which things started to improve once again, as both the S&P and Nasdaq went into positive territory and the Dow is only nominally lower by 15 points as this is being written.
Breadth numbers have turned slightly positive and the VIX, which was once again flexing its upside muscles with a gain of 1.03 to 16 when the Dow was on its low, has now cooled off and is lower by .13 to 14.84 which reflects the higher S&P and Nasdaq.
And similar to Friday, individual stocks are making large moves primarily related to earnings, as Dow components IBM, GE and MCD continue to suffer a hangover from their disappointing Friday results, beaten-down CAT actually is having the nerve to turn an initial loss into a nice gain after the stock had declined by 28% this past year, MSFT is continuing its strong performance from last Friday’s strong earnings report, will miracles never cease in regard to this one.
Bond yields are sort of unchanged, as is the Euro, while crude oil continues its comeback from last week’s low in a nominal way but gold has now recovered $100 an ounce from the low of last week’s selloff, so one can ask –what was that about?
Other stocks are reacting to their earnings, which will get really heavy as the week moves ahead, with high-flier NFLX and TXN reporting tonight, among others. HAL is doing nicely on its report, which might be helping other energy stocks and GOOG put a little mini flash-crash on its sellers by having the stock decline down to as low as 775, down from last Friday’s strong earnings performance which got the stock up to 800, which means that someone got the booby-prize with a sell at that level as the stock is now back up to 797, lower by only 3 points, and do the regulators do anything about it? You guess the answer.
This is the major week for first-quarter earnings, with 160 S&P companies reporting, and here is the lineup: tonight – BWLD, CAKE, CTXS, GILD, JBLU, NFLX, PNRA, TXN and VMW; Tuesday – AKS, AMGN, AAPL, DAL, F, LXK, XRX, YUM plus Dow components DD, T and UTX; Wednesday – AKAM, COH, EMC, F, QCOM, S, WYN plus Dow components BA and PG; Thursday – AMZN, BIDU, DOW, MO, BMY, ELY, COP, CSTR, CL, CROX, DOW, HOG, HSY, LVS, LVLT, NYT, LUV, OXY, SWK, SBUX, UPS plus Dow components 3M and XOM; Friday – Dow component CVX plus TYC.
Economic reports include – Tuesday: March new home sales, April Richmond Fed Index; Wednesday: March durable goods orders; Thursday: weekly jobless claims, KC Fed Manufacturing Activity for April; Friday: first estimate of 1Q 2013 G.D.P., preliminary April U. of Michigan Consumer Sentiment Survey.
First quarter earnings rose by 6.2%, increased by 5% for the second-quarter, were flat for the third-quarter and were 6.3% higher in the fourth-quarter. The current projection is now for a gain of 2.2% in the first-quarter of 2013, down from the original projection of 4.3% in January but higher than the 1.5% estimate on April 1st.
The S&P trades at 14.2 times the projected 2013 earnings of $111. Earnings were $85 in 2010, $92 in 2011 and $102 in 2012. The estimate for 2013 is $111, a gain of 9%. The average P/E multiple for the S&P going back to 1954 has been 16.4 and it has been 14.4 for the last 10 year’s average.
After four consecutive quarters of negative G.D.P. growth, we have had 14 consecutive quarters of positive growth, starting with the third-quarter of 2009, every quarter in 2010, every quarter in 2011, and every quarter in 2012. G.D.P. rose by 2.2% in 2012, and is projected to increase by 2% in 2013, according to various surveys, with 3% in the first-quarter and then in the low 1’s for the second and third-quarters before a fourth-quarter acceleration to over 4%.

Donald M. Selkin

Don Selkin is the Chief Market Strategist at National Securities Corporation, member FINRA/SIPC, (NSC) and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analyses concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, Recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, Associated Press}.