Evening Market Update

Dow Notches Seventh-Straight Gain

Despite a rate hike in China greeting traders before the opening bell, stocks managed to slowly march higher throughout the day, finishing in the green with the Dow punching its ticket on the “gain train” for the seventh day in a row. Treasuries finished lower after small business optimism hit a three-year high, while on the equity front, Dow member McDonald’s offered up a favorable January sales report, but Beazer Homes and Avon Products missed on both the top and bottom lines.

The Dow Jones Industrial Average was 72 points (0.6%) higher at 12,233, the S&P 500 Index rose 6 points (0.4%) to 1,325, and the Nasdaq Composite gained 13 points (0.5%) to 2,797. In moderately light volume, 889 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. Crude oil fell $0.54 to $86.94 per barrel, wholesale gasoline gained $0.04 to $2.49 per gallon, and the Bloomberg gold spot price rose $13.08 to $1,364.38 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies— fell 0.1% to 77.96.

After the closing bell, Dow component Walt Disney (DIS $41) reported fiscal 1Q EPS of $0.68 ex-items, above analysts’ expectations, with revenues rising to $10.7 billion, also above forecasts.

Fellow Dow member McDonald’s Corp. (MCD $75) reported global January same-store sales—sales at restaurants open at least thirteen months—grew 5.3% year-over-year (y/y), with sales in Europe increasing 7.0%, the US rising 3.1%, and Asia/Pacific, Middle East and Africa gaining 5.2%. The fast-food chain’s global sales exceeded analysts’ forecasts, while its US sales were slightly below the Street’s expectations. MCD said US results were aided by the ongoing appeal of its beverage line-up and the national launch of Fruit & Maple Oatmeal, while European sales were led by “strong performance” in Germany, the UK, France and Russia. Shares were nicely higher.

Beazer Homes USA Inc.  (BZH $6) reported a fiscal 1Q loss of $0.66 per share, wider than the $0.47 per share shortfall that analysts were expecting, as revenues fell 48.2% y/y to $110.3 million, compared to the $165 million that the Street was anticipating. The homebuilder said its total home closings dropped 43.6% y/y and total new orders fell 23.9% y/y, as conditions “remained very challenging.” BZH added that despite low interest rates and excellent home price affordability, demand for new homes “remained at exceptionally low levels.” Looking ahead, the company said it anticipates seasonal improvements in home buyer demand over the next six months, and it remains hopeful that it will see the initial stages of a cyclical recovery in demand for new homes this year. BZH finished modestly higher.

Elsewhere, shares of  Avon Products Inc. (AVP $28) came under pressure after the beauty products maker reported 4Q EPS ex-items of $0.59, below the $0.67 that analysts were projecting, with revenues increasing 1% y/y to $3.2 billion, below the $3.3 billion that was expected. The company said its beauty sales declined 1% y/y and its revenues were negatively impacted by service disruptions in Brazil and weak performance in Russia.

Small business confidence rises to highest level since December 2007

The NFIB Small Business Optimism Index rose from 92.6 in December to 94.1 in January—the highest reading since December 2007—compared to the expectation of economists surveyed by Bloomberg, which called for the index to improve to 94.0. The increase came as the number of firms reporting expectations of a better economy increased slightly, while expectations of an increase in inventories improved and those anticipating higher sales rose. However, the report noted that the modest uptick in optimism might have been higher, but was blunted by small business owners’ skepticism about the future and continued hesitancy to spend and hire. Moreover, firms expecting to increase capital spending rose, but plans to hire over the next three months declined.

Treasuries finished lower following the business sentiment data, with the yield on the two-year note up 9 bps at 0.86%, the 10-year note 9 bps higher at 3.73%, and the 30-year bond yield gaining 6 bps to 4.76%.

China bumps interest rates

The People’s Bank of China increased its benchmark interest rate by 25 basis points to 6.06%, which will go into effect tomorrow when Chinese markets return to trading after being closed for a week to celebrate the Lunar New Year holiday. The move marks the third rate hike since mid-October, and the Asian nation also boosted its deposit rate by the same amount to 3.0%.

Other economic news in the region was relatively light, with Japan’s trade surplus rising solidly in December, but short of economists’ forecasts, while a report on Australian business confidence improved in January.

In Europe, Germany’s industrial production unexpectedly fell for the second month in a row, declining 1.5% m/m during December, compared to the 0.2% increase forecast by economists. Meanwhile, French business sentiment rose more than anticipated in January, while data on UK home prices improved more than economists had forecasted.

The MBA Mortgage Application Index is the only item on tomorrow’s US economic calendar, while reports overseas will also be light, with both the UK and Germany reporting their respective trade balances, and Japan releasing consumer confidence. As well, the Bank of England will begin its two-day monetary policy meeting.