U.S. stocks were mixed Friday, with the Dow Industrials the weakest of the major market averages, losing 0.6% on the day, which tipped it into negative territory (-0.5%) for the week. The S&P 500 and NASDAQ had better days (-0.2% and +0.4%, respectively) and better weeks (+1.1% for both), while small and mid-cap stocks were at the head of the pack for both periods, suggestive of a bit less risk aversion on the part of U.S. equity investors. Financial stocks were Friday’s best S&P 500 sector, gaining 0.4%, while consumer staple stocks were laggards, losing 0.8%. Against the background of a disappointing Q4 GDP report, with consumer spending accounting for the shortfall, Friday’s market action showed nearly two decliners for every advancing consumer stock in the S&P 500; among the rest of the S&P 500 universe, gainers outnumbered losers.
Some of the bigger consumer stocks reported earnings on Friday. Given the headwinds of currency and commodity costs, one suspects that current Street estimates for S&P 500 companies may need to come still lower…
- Starbucks had a grande quarter, fuelled by growth in both U.S. and international same store sales. But its guidance for the current year was merely tall, i.e., below expectations. Operating margins are being impacted by higher commodity costs mainly coffee. Still, the company plans to open 300 net new stores in Asia, with almost half of them planned for China. At 17% to 20% projected earnings growth and 10% growth in revenues, Starbucks is on a growth trajectory as evidenced by its valuations.
- Procter & Gamble reported earnings that beat consensus although revenues were a slight miss. Higher commodity costs knocked down gross margins by about two percentage points. Revised guidance for fiscal year 2012 earnings: $4.00-$4.10 per share, down $4.15-$4.33, mainly on negative currency impacts.
- Altria, the cigarette and tobacco giant, also reported numbers that beat on revenues and earnings led by higher cigarette prices. The smokeless tobacco segment continues to grow with volume growth in high single digits and improved pricing. While less immune to economic factors, its premium Marlboro branded cigarettes saw a decline in market share as smokers move to less expensive brands. Discount cigarette volumes and market share meanwhile increased. Unlike Starbucks and Procter & Gamble, Altria gave guidance for the full year above expectations.
Fourth-quarter U.S. GDP increased at a 2.8% annual rate, an improvement on the third quarter’s 1.8% but short of the consensus estimate of 3%. What’s more, final sales – GDP not counting the change in business inventories – increased at only a 0.8% annual rate. Consumer spending rose 2.0%, against forecasts of 2.4%, which suggests that after Black Friday and Cyber Monday, holiday sales were nothing special. The University of Michigan’s consumer sentiment index rose from 70 in December to 75 in January, the latter reading being the highest in almost a year.
U.S. Treasury bond yields fell for a third day in a row on Friday, with the 10-year settling at 1.90%. While European stocks lost ground today, the Euro bond markets rallied along with the U.S. bond market, as yields as well as spreads against German bunds came down nicely. The euro rallied throughout the day Friday and closed at $1.322, highest since early December; it might be closer to the truth to say the dollar weakened (on the softer GDP report), since the dollar also declined 1% against the yen on the day. Monday brings the Commerce Department report on personal income and spending in December, which should provide more telling indications on the direction of consumer spending trending into the first quarter.
A few reports/dates/facts/links worth paying attention to over the next week:
- January 30: January 30: Euro-zone Confidence Indexes for January; U.S. Personal Income and Consumer Spending for December.
- January 31: S&P/CaseShiller Home Price Indexes for 20 U.S. cities for November.
- January 31: Conference Board’s Consumer Confidence Index for January.
Copyright © 2012 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.