In the U.S., the stock market ended a fairly cautious week on a high that sent the S&P 500 higher by 1.3%. On the week, the S&P 500 experienced a 1.0% decline. The Dow Jones Industrial Average increased 263.17 points to close at 16,380.41 while the NASDAQ advanced 41.05 points to close at 4,258.44. The S&P 500 increased 24.00 points on Friday to close at 1,886.76.
Equities spiked at the start of the trading day on Friday after overnight comments from central bank officials boosted investor sentiment. To that point, European Central Bank (ECB) executive member Benoit Coeure said that ECB purchases of asset-backed securities are set to begin within days, while Bank of England (BoE) Chief Economist Andy Haldane also walked the dovish line, saying that recent economic data speaks in favor of delaying the BoE's first rate hike.
The comments were met with a rally across Europe, while U.S. futures increased to ensure a higher start for the major averages. The Dow, NASDAQ and S&P 500 spent the first two hours of the session in a steady climb, but reversed from their highs around noon ET and surrendered almost a third of their gains.
Interestingly, the early advance on Friday received significant support from chipmakers and biotechnology firms, but session-long profit taking and the weakness of the small-cap index pressured high-beta groups from their highs.
For its part, the technology sector increased 1.2%, settling just behind the S&P 500. Most large cap components held up well, but their strength was masked by a 2.6% decline in the shares of Google after the company reported disappointing quarterly results.
NASDAQ (October 13th – 17th, 2014)
Another cyclical sector-industrials (up 2.0%) spent the day in the lead after General Electric and Honeywell reported better than expected results. General Electric beat bottom-line estimates by a penny, which has been a common theme for the conglomerate. Excluding today's report, the past five quarterly results from GE revealed either in-line results or one-cent beats. Participation received a boost from options expiration with more than a billion shares changing hands at the New York Stock Exchange (NYSE) floor.
Economic data was limited to Housing Starts/Building Permits and the preliminary reading of the Michigan Sentiment Survey. Housing starts increased 6.3% in September to 1.017 million from a slightly upwardly revised 957,000 (from 956,000), while analyst expectations predicted an increase to 1.013 million. Single-family construction rebounded after a one-month decline, increasing 1.1% to 646,000 from 652,000 in August.
The University of Michigan Consumer Sentiment Index increased to 86.4 in the preliminary reading for October from 84.6 while the Briefing.com consensus expected a decline to 84.0. Sentiment levels are at their highest point since July 2007. Over the past couple of weeks, severe volatility in the equity market resulted in a sharp drop in stock market prices.
On Thursday, Google’s stock dropped 3%, after reporting weaker-than-expected third quarter revenue. The company had gross revenue of $16.52 billion, revenue net of traffic acquisition costs of $13.17 billion, GAAP earnings per share of $4.09, and non-GAAP earnings per share of $6.35.
Analysts had expected Google to earn $6.53 per share on a non-GAAP basis. In the sequentially preceding quarter, Google earned $6.08 in non-GAAP earnings per share, on ex-TAC revenue of $12.67 billion. Google fell more than 1% in regular trading. In after-hours trading, following its mixed earnings report, the company was down more than 3%.
Google is working to expand its revenue base away from advertising. It is currently in the intertwined productivity-storage-cloud computing wars with Amazon, Microsoft, Dropbox and a host of other providers. Declining prices in that space have lowered short-term revenue potential, but that fact has done little to lower competitive tension in the market area. The company reported net income of $3.72 billion in the period.
Google’s revenue by segment is broken up like the following – revenue from sites: $11.25 billion, which was up 20% from the preceding year’s quarter; network revenue: $3.43 billion, which was up 9% from the preceding year’s quarter; international revenue: 58% of revenue, which is up 2% from the preceding year’s quarter.
Google (October 13th – 17th, 2014)
The company reported that its average cost-per-click fell 2% in the period, a weakening in a key revenue source. However, pushing back against that decline was a 17% year-over-year increase in ‘aggregate paid clicks.’ So, while the amount of revenue that Google managed to extract from a click went down mildly, it sold more than one-sixth more compared to the year-ago quarter.
It also seems to becoming more expensive to run Google. Operating expenses, other than cost of revenues, were $6.10 billion in the third quarter of 2014, or 37% of revenues, compared to $4.58 billion in the third quarter of 2013, or 33% of revenues.
That being said, Google remains incredibly rich — its cash tally now sits at $62.16 billion — and profitable. However, investors were looking for a touch more growth on both the top and bottom lines. The search giant is healthy and investing so many analysts are saying that investors may need to temper their short-term expectations more. With the company employing 55,030 full-time employees, up from 52,069 from the end of its sequentially preceding quarter, they are still performing well and are likely to continue to do so in the future.
For the week, Google’s stock started off the week on a weekly high of $549.33 on Monday before it reached a weekly low of $509.04 on Friday.
after starting the week fairly flat, the NASDAQ ended the week on a high. Those that traded binary options based on the value of the NASDAQ through a binary call option on Thursday morning would have been “in the money” by late afternoon of the same trading day.
the euro experienced a range of ups and downs throughout the trading week. Those that traded binary options based on the value of the EUR/USD currency pair midday on Friday through a binary put option would have experienced successful results by the end of the same trading day.
the search engine giant had a tough week, after announcing its quarterly earnings. As a result, the stock declined consistently throughout the trading week. Those that traded binary options based on the value of this stock on Friday morning through a binary put option would have been “in the money” by the afternoon of the same trading day.
As we enter a new week, a range of economic data will be released in the U.S. On Tuesday, October 21st, existing home sales will be announced while the consumer price index will be released on Wednesday October 22nd. On Thursday, October 23rd U.S. jobless claims will be announced and if jobless claims are on the rise, this is likely to cause a decline in U.S. indices. If employed figures rise, many analysts and investors may believe that growth projections will fall in the future. This could cause a decline in U.S. indices such as the NASDAQ. Then, on Friday, October 24th new home sales will be announced in the U.S.
It was a positive end to a mixed week in the markets. In the U.S., markets were up and down for most of the week but ended the week on a higher note. In Europe, indices started off slow but ended on a high after greater optimism came about after the ECB made a number of announcements. Market sentiment seems to be changing consistently these days, so who knows how the markets will perform in the weeks and months ahead.
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