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Broadgate: Market News 30/1

30 January 2013

Stocks advanced on Tuesday, led by defensive sectors, in a sign the cash piles recently moving into the market are being put to use by cautious investors to pick up more gains.

The S&P 500 is on track to post its best monthly performance since October 2011 and its best January since 1997 as investors poured $55 billion in new cash into stock mutual funds and exchange-traded funds in January, the biggest monthly inflow on record. The Dow Jones industrial average has been flirting with 14,000, a level it hasn’t seen since October 2007.

Shares of Amazon.com jumped nearly 7 percent in extended trade after the world’s largest Internet retailer posted fourth-quarter revenue that jumped 22 percent to $21.27 billion. The stock closed down 5.7 percent at $260.35 in regular trading.

Among rising defensive shares, which are companies relatively immune to economic swings, were drugmaker Pfizer, up 3.2 percent to $27.70 after posting earnings and AT&T, 1.6 percent higher at $34.68.

“Cyclical were moving very nicely, now you see balance with some of the defensive. Many managers use that as an internal hedge in equity portfolios,” said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

She said the market is cautious ahead of Wednesday’s statement following the Federal Reserve’s two-day meeting. In addition, defensive stocks would hold up better if Friday’s payrolls report surprises on the downside.

The S&P hovered near 1,500, and market technicians say the benchmark is at an inflection point which will determine the overall direction in the near term.

“The public is pouring in now,” said Carter Worth, chief market technician at Oppenheimer & Co in New York. “It reflects complacency and that typically leads to hubris, and hubris leads to trouble. Everyone’s buying.”

The top performing sectors on the S&P 500 were healthcare and telecom services, so-called defensive sectors, both up more than 1 percent.

The energy sector also advanced, on the back of strong earnings from Valero Energy Corp and a hedge fund move to break up Hess Corp to boost investor returns.

Valero shares jumped 12.8 percent to $43.77 and Hess gained 9 percent to $68.11.

The equity gains have largely come on a strong start to earnings season, though results were mixed on Tuesday with Pfizer rising but Ford Motor Co down after its report.

Both companies reported profits that topped expectations, but Ford also forecast a wider loss in its European segment. Ford dropped 4.6 percent to $13.14 as one of the biggest percentage losers on the S&P 500.

The Dow Jones industrial average was up 72.49 points, or 0.52 percent, at 13,954.42. The Standard & Poor’s 500 Index was up 7.66 points, or 0.51 percent, at 1,507.84. The Nasdaq Composite Index was down 0.64 points, or 0.02 percent, at 3,153.66.

Thomson Reuters data showed that of the 174 companies in the S&P 500 that have reported earnings this season, 68.4 percent have been above analyst expectations, which is a higher proportion than over the past four quarters and above the average since 1994.

Disappointing outlooks from Seagate Technology and BMC Software pressured their shares. Seagate lost 9.4 percent to $33.91 and BMC fell 6.3 percent to $41.71.

D.R. Horton Inc’s quarterly profit more than doubled as it managed to sell more homes at higher prices, leading the No. 1 U.S. homebuilder to forecast a good spring selling season. The stock jumped 11.8 percent to $23.82.

U.S. home prices rose in November to rack up their best yearly gain since the housing crisis began, a further sign that the sector is on the mend, but consumer confidence fell to its lowest level in more than a year in the wake of higher taxes for many Americans.

Currencies

The euro held steady near a 14-month high versus the dollar on Wednesday, with market players focusing on whether it can breach resistance at $1.3500 and set itself up for further gains.

Some upbeat German economic data and signs European banks may have turned the corner have bolstered hopes that the worst of the euro zone’s crisis has passed, boosting the euro more than 2 percent against the dollar so far this year.

For now, the focus was on technical resistance at $1.3500, where there has also been talk of an option barrier.

“I think there is a possibility of a euro overshoot on the upside,” said Sim Moh Siong, FX strategist for Bank of Singapore, adding that a breach of $1.3500 could open the way for the euro to start heading towards $1.3900.

“It is a fact that things are normalizing in Europe. But it is also a fact that the structural problems and issues remain unresolved and could come back to haunt the euro,” he said, adding that the near-term outlook for the single currency looked positive.

The euro held steady at $1.3495, right near a high of $1.3498 hit on Tuesday, the single currency’s strongest level against the dollar since December 2011.

Dealers were also looking ahead to the outcome of the Federal Reserve’s first policy meeting of the year at 1915 GMT. The central bank is widely expected to reaffirm its commitment to a super-easy policy until unemployment falls sharply, which could ease concerns about an early end to bond buying.

In contrast, the European Central Bank seems disinclined to ease any further, and that contrast in outlook has helped to bolster the euro this month.

A trader for a U.S. bank in Singapore said that there may be scope for institutional investors to give the euro an added lift, judging from the way they seem to be positioned now.

“I think that their positions are not really built for long (euro) positions yet,” the trader said.

News last week about euro zone banks’ early repayments of three-year loans to the European Central Bank was seen as a sign that parts of the euro zone banking system may be on the mend, and has helped to bolster the euro.

A survey on Friday that showed improvement in business confidence in Germany, has been another supportive factor.

YEN RETREATS

Against the yen, the euro rose 0.3 percent to 122.75 yen, hovering close to a peak of about 122.90 yen set on Monday, the euro’s highest level versus the Japanese currency since April 2011.

The dollar edged up 0.2 percent to 90.97 yen, heading back in the direction of Monday’s high around 91.25 yen, the greenback’s strongest level since June 2010.

Selling the yen has been mostly a one-way bet since mid-November, based on expectations that Japanese Prime Minister Shinzo Abe would push the Bank of Japan into more aggressive monetary easing to beat deflation.

Present BOJ Governor Masaaki Shirakawa, whose term ends in April, is expected to be replaced with a much more dovish governor, who could then bring forward any easing.

Aside from the Fed, investors are looking out for the first estimate of U.S. fourth-quarter GDP due later on Wednesday, a couple of days before the January jobs report.

Source:  Reuters.com

The information set out herein has been obtained from various public sources and is by way of information only. Broadgate Financial can accept no liability of any sort in relation thereto and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.

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