On Friday, the stock market ended a solid week of trading with a fairly unstable Friday trading session. The S&P 500 lost 0.6%, but still gained 1.6% for the week while the NASDAQ was up 0.2%, able to register its fifth consecutive advance. The Dow Jones Industrial Average was down 141.38 points to close at 17,672.60 while the NASDAQ was up 7.48 points to close at 4,757.88. The S&P 500 was down 11.33 points to close at 2,051.82.
Market indices began the day amid a range of selling activity that started in the futures market after UPS issued disappointing guidance due to weakness in the U.S. domestic segment. The logistics company plunged below its 100-day moving average to end down 9.9%.
The S&P 500 followed this opening decline with an eight-point rally off its morning low after European Central Bank (ECB) member Benoit Coeure said the bank will need to do more if the quantitative easing program that was announced on Thursday does not produce the desired outcome.
Despite the morning session lows, the index never made any advancement on Friday and slid to a new low during the final hour of the trading day. The industrial sector kept the pressure on the market throughout the day while other influential groups like financials (down 1.0%) and consumer staples (down 1.1%) kept the S&P 500 from moving up.
The financial sector struggled despite better than expected reports from a number of U.S. banks. The economically-sensitive group widened its January decline to 3.5% in response to a combination of slow global growth. The consumer staples sector hovered near the bottom after Kimberly-Clark reported below-consensus results and issued cautious guidance, which failed to justify the company's rich valuation.
Dow Jones Industrial Average (January 19th – 23rd, 2015)
Also of note, the energy sector (down 0.9%) spent most of the day in-line with the market, but finished among the lowest sectors as crude oil remained weak. The energy component showed overnight volatility after it was reported Saudi Arabia's King Abdullah has died.
From an economic data perspective, existing home sales increased 2.4% in December to 5.04 million SAAR from a downwardly revised 4.92 million SAAR in November while market analysts predicted an increase to 5.10 million SAAR.
Improvements in the labor market, gains in stock prices, and a general decline in mortgage rates were not enough to boost housing demand in 2014. For the year, 4.93 million homes were sold, which was down 3.1% from the 5.09 million homes sold in 2013
On the upside on Friday, utilities were up 0.3% and technology advanced 0.2%. The utilities sector solidified its spot atop the January list of sectors (up 4.2%) while technology received support from large organizations. Outside of technology, the consumer discretionary sector was down 0.2%, finishing near its flat line. Fast food retailer McDonald's lost 1.5% after missing estimates and priming the market for negative comparable store sales in January.
This week, online streaming firm Netflix announced its profit. As a result, investors sent the shares surging 17% to $409.28 at the close in Wednesday's trading, after Netflix said Tuesday it will profitably reach all 200 of the countries that have broadband Internet service within two years. That's the biggest jump since April 2013, when better-than-expected subscriber growth boosted the stock. Netflix has gained 20% this year.
The outlook reassured traders who have expressed concerns about the company's narrow margins, widening international losses and a budget for films and TV shows that's swollen to $9.5 billion from $7.3 billion in the past year.
International subscriber growth outstripped gains in the U.S. for the third straight quarter. Users outside the U.S. expanded by a record 2.43 million in the fourth quarter, reaching 18.3 million.
Netflix expects to add another 2.25 million international customers in the first quarter 2015. It already has more than 5 million users in Latin America the most detailed number Netflix has given regarding international subscribers.
The company didn't say which countries will be targeted next after Australia and New Zealand, where the streaming service debuts in March. Unexplored territories with fast Internet service include China, Japan, Spain and South Korea. Licensing issues may inhibit Netflix's expansion into China too but the company is exploring its options, and any investment will be modest.
Netflix (January 19th – 23rd, 2015)
As Netflix expands into new markets, it will be offering more original programming than ever. The company plans 320 hours of original series, new and returning, films, documentaries and stand-up comedy specials this year. That's triple what was offered in 2014, the statement said.
The company faces competition for new television shows and creative talent from broadcast networks and cable channels, as well as newer players like Amazon.com, Hulu and Yahoo!. To support its programming efforts, Netflix plans to borrow at least $1 billion. The company's has committed to spending $9.5 billion on programming.
However, on Friday, Netflix got hit with a negative announcement about its credit rating. Moody's Investors Service downgraded Netflix, Corporate Family Rating to B1 from Ba3. The rating action was precipitated by the company's announcement that it plans to increase debt by at least $1 billion to fund accelerated international expansion in new territories and materially increase investment in original owned programming to support long-term growth and increase long-term profitability.
Despite the decline in Netflix’s credit rating, its stock value didn’t seem to be phased. Throughout the trading week, Netflix’s stock progressively increased. For the week, Netflix’s stock started off the week on a weekly low of $334.01 before the stock reached a weekly high $438.68 on Friday.
Looking ahead to next week, no economic data will be released on Monday but investors will be responding to the results of the Greek election and its implications for financial markets this past weekend. If the Greek elections result in new leadership in the country, this could add greater confidence in the European economy. As a result, the euro could rise and European indices may increase as well. In the U.S., a number of corporate earnings will be released throughout the week. Microsoft will announce its results on Monday, January 26th; Apple and AT&T will release results on Tuesday January 27th; on Wednesday, January 28th Facebook and Las Vegas Sands will announce their earnings and Alibaba, Amazon and PotashCorp will formally release results on Thursday January 29th. If newcomer Alibaba Group posts a boost in sales, this could cause its stock to rise in response. As well, on Friday, January 30th, consumer sentiment will be released in the U.S.
Markets in the U.S. experienced a fairly strong week despite it being shortened due to Martin Luther King Jr. Day on Monday. With the start of earnings season, analysts and traders are watching closely to see how major corporates closed off 2014, in order to see what influence this will have on their stocks. As this continues in the week ahead, there’s bound to be more economic and corporate data released that will both surprise and excite traders across the global markets.
click here for 2013's reviews, and here for 2014's.
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