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Stock Market News for December 16, 2011 - Market News

A record drop in the initial claims and a strong manufacturing report helped the benchmarks register significant gains for the first time this week. Additionally, FedEx Corporation's better-than-expected results helped bolster sentiment. However, the benchmarks receded from session highs after European debt woes marred sentiment somewhat.

The Dow Jones Industrial Average (DJIA) was up 0.4% to settle at 11,868.81. The Standard & Poor 500 (S&P 500) gained 0.3% and finished yesterday's trading session at 1,215.76. The Nasdaq Composite Index edged up 0.1% to close almost flat at 2,541.01. The fear-gauge CBOE Volatility Index (VIX) declined 3.6% to settle at 25.11. On the New York Stock Exchange (NYSE), for 61% of the advancing stocks, 36% of the stocks were on the declining side. The remaining 3% closed unchanged. Total volume on the NYSE was 3.85 billion shares.

However, Thursday's gains were not strong enough to negate the battering benchmarks suffered this week. So far this week, the Dow, S&P 500 and Nasdaq are down 2.6%, 3.1% and 4.0%, respectively. European concerns have spooked investors throughout this week. The week had opened with ratings agencies Fitch Ratings and Moody's Investors Service severely criticizing the European treaty that all euro-members but Britain had agreed to. On Tuesday, the Federal Reserve acknowledged that the global financial economic scenario can significantly impact US markets. Sentiments were further dampened on Thursday after German Chancellor Angela Merkel voiced her opposition against hiking the lending power of the euro-zone bailout fund on Wednesday. The week also saw the euro falling to its lowest point since January this year, settling below $1.30.

Meanwhile, the euro managed to move back over the $1.30 level yesterday. Italian and Spanish bond yields also eased, a day after the five-year bond yield of Italy rose to a euro-era high of 6.5% and the 10-year bond yield moved back above unsustainable levels, at 7.2%.

However, comments from International Monetary Fund chief Christine Lagarde, which hinted at a gloomy global economic outlook, eroded the day's early gains. She said that if the prevailing financial woes are not addressed decisively, they might result in a global economic crisis of the same magnitude as the Great Depression of the 1930s. "It's not a crisis that will be resolved by one group of countries taking action,", but the issues must be dealt by, "by all countries, all regions, all categories of countries actually taking action," she added. Lagrade also said: "It's a question of actually facing the issues, not being in denial, accepting the truth, accepting the reality, then dealing with it".

Her speech robbed the day of most of its optimism and partially negated the impact of positive domestic economic data. The day's session began on an upbeat note, after first time claims for unemployment benefits dropped to their lowest point since May 2008. According to the U.S. Department of Labor, the advance figure for seasonally adjusted initial claims slumped to 366,000, for the week ending December 10. This was a substantial decline, by 19,000, from the previous week's revised figure of 385,000. Not only did initial claims sharp decline from the prior week's figure, the figure was well below consensus estimates of 390, 000.

Additionally, the Empire State Manufacturing Survey by the Federal Reserve Bank of New York reported that manufacturing activity in New York State had reached its highest level since May this year. The general business conditions index rose nine points to 9.5, and the new orders index climbed to 5.1. Additionally, the Philadelphia Fed' Business Outlook said: "The diffusion index of current activity, the survey's broadest measure of manufacturing conditions, remained positive for the third consecutive month and increased from 3.6 in November to 10.3". This was also significantly higher than consensus estimates of the index moving up to a reading of 5. The report also said that "regional manufacturing continued to improve in December. All of the broad indicators remained positive and suggest a modest expansion of activity".

Meanwhile, the National Retail Federation provided higher guidance for holiday sales and now expects holiday sales to jump 3.8% to a record $469.1 billion. This is well above previous expectations of a holiday sales increase of 2.8%. Retail stocks gained from the development and registered strong gains. The winners from this sector included PriceSmart Inc. (NASDAQ: PSMT ), Dollar Tree, Inc. (NASDAQ: DLTR ), Macy's, Inc. (NYSE: M ), Saks Incorporated (NYSE: SKS ) and Family Dollar Stores Inc. (NYSE: FDO ) which gained 2.9%, 1.2%, 2.1%, 5.3% and 0.9%, respectively.

Investors also drew strength from FedEx Corporation's (NYSE: FDX ) robust quarterly results. Considered to be an important economic bellwether, the company topped the Street's expectations and said that its income nearly doubled spurred by strong online sales. The stock jumped 8.0% and ended the day with a trading price of $83.47.

Coming back to economic data, among the slew of robust reports, the industrial production report struck the lone discordant note. According to the Board of Governors of the Federal Reserve System, industrial production dropped 0.2% in November. The decline follows a 0.7% increase in October, and is lower than consensus estimates of an increase of 0.1%.

DOLLAR TREE INC ( DLTR ): Free Stock Analysis Report

FAMILY DOLLAR ( FDO ): Free Stock Analysis Report

FEDEX CORP ( FDX ): Free Stock Analysis Report

MACYS INC ( M ): Free Stock Analysis Report

PRICESMART INC ( PSMT ): Free Stock Analysis Report

SAKS INC (SKS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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