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Schwab Market Update
Posted: 5/18/12 4:15 PM ET
U.S. equities finished lower today after the highly-anticipated IPO of Facebook could not sway investors' attention away from European debt issues. Concerns regarding the crisis were exacerbated by Moody's downgrading a number of Spanish banks and were enough to constrain sentiment even amid the largest tech IPO in history. After some delay and with a number of technical issues, Facebook began trading on the NASDAQ exchange at about 11 a.m. EST. The stock, while failing to get the meteoric pop many were expecting, closing only slightly above its offering price, did trade an IPO-record 567 million shares. In other equity news, outside of the Facebook craze, Gap and Saleforce.com both reported earnings that exceeded expectations. Treasuries were lower.
The Dow Jones Industrial Average (DJIA) was down 73 points (0.6%) to 12,369, the S&P 500 Index shed 10 points (0.7%) to 1,295, and the Nasdaq Composite was 35 points (1.2%) lower at 2,779. Volume was heavy today with a boost from Facebook. 1.2 billion shares were traded on the NYSE and 2.7 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.50 to $91.06 per barrel, wholesale gasoline was up $0.01 to $2.88 per gallon, and the Bloomberg gold spot price added $17.77 to $1,591.91 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies— was 0.3% lower at 81.16. For the week, including dividends, the DJIA was down 3.5%, the S&P 500 Index shed 4.3%, and the Nasdaq Composite declined 5.3%.
Facebook Inc. (FB $38), priced at $38 per share—the high end of the range for the social network's highly-anticipated initial public offering (IPO)— and began trading today on the Nasdaq. The launch could of went smoother for the NASDAQ as the heavy volumes caused errors, including a delay in confirmation of trades in the stock. Shares of NASDAQ OMX Group (NDAQ $22) fell sharply amid the technical glitches even as Facebook set an IPO-record for volume of 567 million shares. FB is expected to raise about $16 billion in proceeds from the offering and including an overallotment option giving underwriters additional shares to sell in the IPO, the deal could raise up to $18.4 billion, making it the second-largest US IPO in history, behind the $19.7 billion raised by Visa Inc. (V $113) in 2008. FB shares closed only slightly above its offer price of $38.
Gap Inc. (GPS $26) reported 1Q EPS of $0.47, one penny above the consensus estimate of analysts surveyed by Reuters. Revenues increased 6% year-over-year (y/y) to $3.5 billion, roughly matching the Street's expectations. The retailer said its 1Q same-store sales—sales at stores open at least a year—rose 4%. Additionally, GPS raised its full-year EPS outlook. However, shares were lower, despite the results and guidance, possibly reflecting some uneasiness from a 4% drop in its international same-store sales and operating expenses rising nearly 7% y/y for the quarter.
Salesforce.com Inc. (CRM $146) posted 1Q earnings ex-items of $0.37 per share, above the $0.34 that the Street was looking for, with revenues jumping 38% y/y to $695 million, exceeding the $678 million that analysts had projected. The software company raised the high end of its full-year revenue guidance. Shares were sharply higher.
US economic calendar was dormant today, after offering divergent signals for the week
Treasuries pared early losses, but still finished lower. The yield on the 2-year note was unchanged at 0.29%, the yield on the 10-year note rose 2 basis points (bps) to 1.71%, and the 30-year bond rate advanced 1 bp to 2.80%.
Bond yields rebounded today after having found some pressure earlier this week, along with the equity markets. The pressure came amid the ongoing Greek uncertainty regarding its status as a member of the eurozone and a flare-up in Spanish banking sector concerns. The US economic calendar offered some mixed signals. April retail sales rose modestly as expected and consumer prices were tame, while regional manufacturing reports diverged, with the Empire Manufacturing Index accelerating more than anticipated, but the Philly Fed Manufacturing Index unexpectedly fell to a level depicting contraction in activity. Elsewhere, industrial production came in much stronger-than-forecasted for April, but Leading Indicators snapped a string of six-consecutive monthly increases. Moreover, housing starts came in north of estimates, while building permits missed expectations on the downside. Finally, the Federal Reserve's minutes from its most recent policy meeting showed more policy makers indicated that additional monetary policy accommodation could be necessary if the economic recovery falters, with members continuing to view the strains in the global financial markets as posing a "significant risk to the outlook," while the possibility of a sharp fiscal tightening in the US was also considered a "sizable risk."
Schwab's Chief Investment Strategist Liz Ann Sonders, Director of Market and Sector Analysis Brad Sorensen, CFA, and Director of International Research Michelle Gibley, CFA note in their latest Schwab Market Perspective: Here We Go Again…or Not?, softer economic data has prompted concerns the market may be headed for another summer swoon. We believe the backdrop is different and better this year relative to the last two years as in the US we're seeing further signs of housing stabilization, a continued improving job situation, and a rebound in auto sales, which is now a larger driver of GDP than residential investment. But confidence will be important and there is the impact of "muscle memory" given the past two years' volatility; and perception can become reality. With the Fed’s Operation Twist set to end in June 2012, some investors appear to be hoping for weaker data to spur the Fed to enact another round of quantitative easing (QE). However, we believe data would have to get substantially worse before that would happen and we are skeptical of the actual effectiveness of QE2. However, we share the Fed’s concern about the potential hit to the economy in 2013 of the so-called “fiscal cliff.” The Fed may be prompted to initiate further easing in the future in response to the fiscal cliff or if downside risks in Europe threaten to spread to the United States. Read more at www.schwab.com/marketinsight.
Debt issues remain the focal point in Europe, while Asian data disappoints
In Europe, debt crisis concerns were exacerbated by yesterday's downgrade of Spanish banks by Moody's Investors Service and Fitch's Ratings downgrading the credit rating of Greece. Economic news from the region was favorable. German producer prices came in cooler than expected for April and Italian industrial orders rose at three times the rate expected by economists for March. The data from Asia was not as kind, as China offered a lackluster report on housing prices and Indian inflation accelerated more than expected.
Schwab’s Liz Ann Sonders, Brad Sorensen, CFA, and Michelle Gibley, CFA note in their Schwab Market Perspective, falling off a cliff doesn't begin to describe the ongoing problems in Europe and recent events have demonstrated the unpopularity of austerity. The adjustment to living within your means requires difficult choices and takes time—there is no magic cure. However, Europe’s problems are exacerbated by low (or negative) underlying growth, as well as a common currency and monetary policy that applies to countries possessing differing outlooks. We believe austerity needs to be accompanied by reforms to improve growth prospects. Spanish banks in particular are under the microscope due to a housing bubble that is still deflating while a recession deepens and unemployment at 24% continues to rise. As the Spanish government may not have the leeway in the bond markets to provide this amount of funding without risking a spike in interest rates and threatening its own solvency, outside help is likely needed. Solutions are limited though, as eurozone bailout funds are currently prohibited from direct infusions into banks. Any "bad bank" proposal to off-load bad loans from balance sheets likely needs to have credible loss estimates and be mandatory in order to provide a lasting shot of confidence. Read more at www.schwab.com/marketinsight.
The U.S. housing market takes center stage next week
Next week, the US economic calendar will provide a good look at how the housing market is progressing through the spring selling season, beginning with Tuesday's release of existing home sales, which make up the largest portion of housing sales and are projected to increase 3.1% month-over-month (m/m) in April to an annual rate of 4.62 million units, after falling 2.6% in March. Sales of existing homes reflect closings from contracts entered one-to-two months earlier. Also, on Wednesday, April housing sales picture will be completed with a look at new home sales, which are considered a timely indicator of conditions in the housing market as they are based on signings instead of closings. New home sales are expected to increase 2.1% m/m to an annual rate of 335,000 units, following a 7.1% drop in March.
Manufacturing will also be in focus as regional reports from Richmond and Kansas City will compliment Thursday's durable goods orders report. Other reports on the US economic docket next week include: MBA Mortgage Applications, weekly initial jobless claims, and the final University of Michigan Consumer Sentiment Index for May. Finally, the international economic calendar will yield of plethora of key reports highlighted by: a preliminary read on Chinese manufacturing activity, along with PMI Manufacturing and Services reports across Europe, and the Bank of Japan's monetary policy meeting.
The international economic calendar will yield of plethora of key reports highlighted by a preliminary read on Chinese manufacturing activity, along with PMI Manufacturing and Services reports across Europe and the Bank of Japan's monetary policy meeting.
Schwab Center for Financial Research - Market Analysis Group
©2012 Charles Schwab & Co., Inc., Member SIPC. All rights reserved.
Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.
1 - IB1
Schwab or its affiliates has managed or co-managed a public offering of securities for this company in the past 12 months.
2 - SO2
Schwab and/or its officers own options, rights or warrants to purchase the securities of this
company.
(0512-2999)
Stocks Falter as the IPO of Facebook Fails to Boost Sentiment
U.S. equities finished lower today after the highly-anticipated IPO of Facebook could not sway investors' attention away from European debt issues. Concerns regarding the crisis were exacerbated by Moody's downgrading a number of Spanish banks and were enough to constrain sentiment even amid the largest tech IPO in history. After some delay and with a number of technical issues, Facebook began trading on the NASDAQ exchange at about 11 a.m. EST. The stock, while failing to get the meteoric pop many were expecting, closing only slightly above its offering price, did trade an IPO-record 567 million shares. In other equity news, outside of the Facebook craze, Gap and Saleforce.com both reported earnings that exceeded expectations. Treasuries were lower.
The Dow Jones Industrial Average (DJIA) was down 73 points (0.6%) to 12,369, the S&P 500 Index shed 10 points (0.7%) to 1,295, and the Nasdaq Composite was 35 points (1.2%) lower at 2,779. Volume was heavy today with a boost from Facebook. 1.2 billion shares were traded on the NYSE and 2.7 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.50 to $91.06 per barrel, wholesale gasoline was up $0.01 to $2.88 per gallon, and the Bloomberg gold spot price added $17.77 to $1,591.91 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies— was 0.3% lower at 81.16. For the week, including dividends, the DJIA was down 3.5%, the S&P 500 Index shed 4.3%, and the Nasdaq Composite declined 5.3%.
Facebook Inc. (FB $38), priced at $38 per share—the high end of the range for the social network's highly-anticipated initial public offering (IPO)— and began trading today on the Nasdaq. The launch could of went smoother for the NASDAQ as the heavy volumes caused errors, including a delay in confirmation of trades in the stock. Shares of NASDAQ OMX Group (NDAQ $22) fell sharply amid the technical glitches even as Facebook set an IPO-record for volume of 567 million shares. FB is expected to raise about $16 billion in proceeds from the offering and including an overallotment option giving underwriters additional shares to sell in the IPO, the deal could raise up to $18.4 billion, making it the second-largest US IPO in history, behind the $19.7 billion raised by Visa Inc. (V $113) in 2008. FB shares closed only slightly above its offer price of $38.
Gap Inc. (GPS $26) reported 1Q EPS of $0.47, one penny above the consensus estimate of analysts surveyed by Reuters. Revenues increased 6% year-over-year (y/y) to $3.5 billion, roughly matching the Street's expectations. The retailer said its 1Q same-store sales—sales at stores open at least a year—rose 4%. Additionally, GPS raised its full-year EPS outlook. However, shares were lower, despite the results and guidance, possibly reflecting some uneasiness from a 4% drop in its international same-store sales and operating expenses rising nearly 7% y/y for the quarter.
Salesforce.com Inc. (CRM $146) posted 1Q earnings ex-items of $0.37 per share, above the $0.34 that the Street was looking for, with revenues jumping 38% y/y to $695 million, exceeding the $678 million that analysts had projected. The software company raised the high end of its full-year revenue guidance. Shares were sharply higher.
US economic calendar was dormant today, after offering divergent signals for the week
Treasuries pared early losses, but still finished lower. The yield on the 2-year note was unchanged at 0.29%, the yield on the 10-year note rose 2 basis points (bps) to 1.71%, and the 30-year bond rate advanced 1 bp to 2.80%.
Bond yields rebounded today after having found some pressure earlier this week, along with the equity markets. The pressure came amid the ongoing Greek uncertainty regarding its status as a member of the eurozone and a flare-up in Spanish banking sector concerns. The US economic calendar offered some mixed signals. April retail sales rose modestly as expected and consumer prices were tame, while regional manufacturing reports diverged, with the Empire Manufacturing Index accelerating more than anticipated, but the Philly Fed Manufacturing Index unexpectedly fell to a level depicting contraction in activity. Elsewhere, industrial production came in much stronger-than-forecasted for April, but Leading Indicators snapped a string of six-consecutive monthly increases. Moreover, housing starts came in north of estimates, while building permits missed expectations on the downside. Finally, the Federal Reserve's minutes from its most recent policy meeting showed more policy makers indicated that additional monetary policy accommodation could be necessary if the economic recovery falters, with members continuing to view the strains in the global financial markets as posing a "significant risk to the outlook," while the possibility of a sharp fiscal tightening in the US was also considered a "sizable risk."
Schwab's Chief Investment Strategist Liz Ann Sonders, Director of Market and Sector Analysis Brad Sorensen, CFA, and Director of International Research Michelle Gibley, CFA note in their latest Schwab Market Perspective: Here We Go Again…or Not?, softer economic data has prompted concerns the market may be headed for another summer swoon. We believe the backdrop is different and better this year relative to the last two years as in the US we're seeing further signs of housing stabilization, a continued improving job situation, and a rebound in auto sales, which is now a larger driver of GDP than residential investment. But confidence will be important and there is the impact of "muscle memory" given the past two years' volatility; and perception can become reality. With the Fed’s Operation Twist set to end in June 2012, some investors appear to be hoping for weaker data to spur the Fed to enact another round of quantitative easing (QE). However, we believe data would have to get substantially worse before that would happen and we are skeptical of the actual effectiveness of QE2. However, we share the Fed’s concern about the potential hit to the economy in 2013 of the so-called “fiscal cliff.” The Fed may be prompted to initiate further easing in the future in response to the fiscal cliff or if downside risks in Europe threaten to spread to the United States. Read more at www.schwab.com/marketinsight.
Debt issues remain the focal point in Europe, while Asian data disappoints
In Europe, debt crisis concerns were exacerbated by yesterday's downgrade of Spanish banks by Moody's Investors Service and Fitch's Ratings downgrading the credit rating of Greece. Economic news from the region was favorable. German producer prices came in cooler than expected for April and Italian industrial orders rose at three times the rate expected by economists for March. The data from Asia was not as kind, as China offered a lackluster report on housing prices and Indian inflation accelerated more than expected.
Schwab’s Liz Ann Sonders, Brad Sorensen, CFA, and Michelle Gibley, CFA note in their Schwab Market Perspective, falling off a cliff doesn't begin to describe the ongoing problems in Europe and recent events have demonstrated the unpopularity of austerity. The adjustment to living within your means requires difficult choices and takes time—there is no magic cure. However, Europe’s problems are exacerbated by low (or negative) underlying growth, as well as a common currency and monetary policy that applies to countries possessing differing outlooks. We believe austerity needs to be accompanied by reforms to improve growth prospects. Spanish banks in particular are under the microscope due to a housing bubble that is still deflating while a recession deepens and unemployment at 24% continues to rise. As the Spanish government may not have the leeway in the bond markets to provide this amount of funding without risking a spike in interest rates and threatening its own solvency, outside help is likely needed. Solutions are limited though, as eurozone bailout funds are currently prohibited from direct infusions into banks. Any "bad bank" proposal to off-load bad loans from balance sheets likely needs to have credible loss estimates and be mandatory in order to provide a lasting shot of confidence. Read more at www.schwab.com/marketinsight.
The U.S. housing market takes center stage next week
Next week, the US economic calendar will provide a good look at how the housing market is progressing through the spring selling season, beginning with Tuesday's release of existing home sales, which make up the largest portion of housing sales and are projected to increase 3.1% month-over-month (m/m) in April to an annual rate of 4.62 million units, after falling 2.6% in March. Sales of existing homes reflect closings from contracts entered one-to-two months earlier. Also, on Wednesday, April housing sales picture will be completed with a look at new home sales, which are considered a timely indicator of conditions in the housing market as they are based on signings instead of closings. New home sales are expected to increase 2.1% m/m to an annual rate of 335,000 units, following a 7.1% drop in March.
Manufacturing will also be in focus as regional reports from Richmond and Kansas City will compliment Thursday's durable goods orders report. Other reports on the US economic docket next week include: MBA Mortgage Applications, weekly initial jobless claims, and the final University of Michigan Consumer Sentiment Index for May. Finally, the international economic calendar will yield of plethora of key reports highlighted by: a preliminary read on Chinese manufacturing activity, along with PMI Manufacturing and Services reports across Europe, and the Bank of Japan's monetary policy meeting.
The international economic calendar will yield of plethora of key reports highlighted by a preliminary read on Chinese manufacturing activity, along with PMI Manufacturing and Services reports across Europe and the Bank of Japan's monetary policy meeting.
Schwab Center for Financial Research - Market Analysis Group
©2012 Charles Schwab & Co., Inc., Member SIPC. All rights reserved.
Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.
1 - IB1
Schwab or its affiliates has managed or co-managed a public offering of securities for this company in the past 12 months.
2 - SO2
Schwab and/or its officers own options, rights or warrants to purchase the securities of this
company.
(0512-2999)
Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.
1 - IB1
Schwab or its affiliates has managed or co-managed a public offering of securities for this company in the past 12 months.
2 - SO2
Schwab and/or its officers own options, rights or warrants to purchase the securities of this company.