"Friday the 13th...Let the market slaughter begin"
Dow 12,859 (-1.05%) S&P 1,370 (-1.25%)
In the long history of Friday the 13th occurrences, the market has generally been up 56% of the time, despite the day’s particularly ominous cultural reputation. But apparently this was no typical Friday the 13th – morale was low at the New York Stock Exchange. After an exhausting up-and-down stomach-punching Six Flags-worthy ride of a week, stocks completed the biggest weekly decline of 2012 with a 1.6% drop over the last 5 trading sessions. A key Michigan University poll on mid-April Consumer Confidence showed a slightly lower reading as buyers remain cautious about the economy. And better-than-expected earnings from some big name companies weren’t enough to overcome significant market-moving concerns over the Chinese economy, as the the Dow slammed down 137 points.
Chinese first quarter growth is a disappointing 8.1%
The rumors from yesterday were flat-out wrong – China’s first quarter economic growth report completely undershot lofty expectations. Their Gross Domestic Product (GDP) only grew 8.1%, short of the bullish 8.3% analyst consensus and 8.9% from last year, resulting in the weakest performance for China in three years. China’s bustling economy is focused on by investors for its consistently booming rate of ~10% per year for most of the last decade (by comparison, the US GDP strives for 3%). After today’s taste of Chinese reality, investors sold the market this morning on some big global stocks – even if their earnings impressed (keep reading)….
Corporate earnings for key companies are up, but not enough to keep stocks from falling
JP Morgan (JPM), Wells Fargo (WFC) and Google (GOOG) represented the three most significant corporations reporting their quarterly earnings results and all three beat analysts’ expectations. Wells Fargo profits rose 13% thanks to an increase in mortgage banking, JP Morgan raised its dividend to shareholders and Google announced that it would offer shareholders the option of new non-voting stocks as a type of dividend. Despite the impressive results, the numbers were overwhelmed by the more pressing aforementioned Chinese growth concerns, pulling Wells Fargo down 3.5%, JP Morgan down 3.6% and Google down over 4%. As the 2nd quarter earnings season graced us with her presence on Monday, investors will spend the next few weeks focusing on individual companies’ reports of their recent financial performance.
“Week in review”
This week has experienced enough market moving action to qualify for a Discovery Channel series. Last Friday created the unusual predicament in which the stock market was closed for the Easter holiday, the same date as the government’s marquee monthly announcement on jobs. The 120,000 jobs added and down-tick from 8.3% to 8.2% in the unemployment rate in March were improvements, but far below economists’ expectations, causing investors to sell-off Monday when trading resumed. Add to that concerns over the European debt crisis, as Italian and Spanish borrowing costs (yields on bonds) spiked, and the markets were down for five straight losses, including the worst single drop of 2012 so far (a whopping 214 points on Tuesday). But, oh ye of little faith, major aluminum-producing company Alcoa (AA) came to the rescue, reporting better than expected profits and revenues. This kicked-off the 2nd quarter corporate earnings season, helping recoup much of the previous days’ losses with 270 points over two days before today’s market drop generated the worst week of 2012 so far.
Next week:
- Next week’s focus is on the American builder – manufacturing, construction and industrial activity data the size of a rib-eye.
- Earnings season kicks into second-gear – Citi (C), IBM (IBM), Goldman Sachs (GS)….
- South Korean traders erupted in jubilation today on the news that their evil neighbors in the North humiliated themselves on the world stage with their unsuccessful rocket launch. Their currency, the Won, and their stock markets gained on this news. The South Korean government had (awesomely, we might add) prepared a plan to stabilize markets had they successfully launched the missile into orbit (our best guess is a soothing Bob Marley CD to play on the Korea Stock Exchange floor) – stay tuned for how their political tensions will affect Asian stocks over the next week.
- The week was down big….and then up big, like someone just stuck the stock market with an IV of Viagra – what curve ball will traders toss us next week?
© 2012 MarketSnacks
Great stuff yet again, fellas. I feel like I’ll see you on CNBC in no time. I had a slightly different opinion on the action today though:
Tough to pin the downmove on China, specifically – The SHCOMP actually finished positive on the day today. The poor economic data combined with the potential political turnover leaves the door wide open for easing. Investors seem to be flocking to the “risk-off” trade as European concerns resurface, which really put pressure on JPM and WFC.
As a side note, GOOG’s most important metric in the earnings release is the “cost-per-click” number, which is the best determinant for how well their core business – search – is performing. Google’s cost-per-click metric declined by more than expected for the second straight quarter, indicating the shift towards alternative seach methods, like social (Facebook) and mobile (IPhone), may be eating away at Google’s future revenue stream. In my opinion, it was a fairly weak quarter, despite the EPS beat.
Love to hear the marketsnacks thoughts on AAPL. Keep up the good work.