Evening Market Update

Stocks Defy Data Again, March Higher

US equities got off to a slow start this morning on news of a rise in consumer prices and jobless claims and growing geopolitical concerns in the Middle East, but reversed course to finish in the green. Investors were soothed by some positive earnings reports, as well as a sharp improvement in the Philly Fed Manufacturing Index, even though inflation pressures showed up in the underlying components of the report. Treasuries moved higher on the day, as the only other report on the economic front was a smaller-than-forecasted increase in the Index of US Leading Economic Indicators. In equity news, CBS Corp and Weight Watchers International both beat top- and bottom-line expectations, NVIDIA Corp met earnings targets and gave favorable 1Q guidance, while NetApp’s 4Q guidance disappointed analysts.

The Dow Jones Industrial Average rose 30 points (0.2%) to 12,318, the S&P 500 Index gained 4 points (0.3%) to 1,340, and the Nasdaq Composite was 6 points (0.2%) higher at 2,832. In moderately light volume, 882 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. Crude oil rose $1.62 to $86.61 per barrel, wholesale gasoline was flat at $2.54 per gallon, and the Bloomberg gold spot price increased $9.73 to $1,384.15 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was 0.3% lower at 77.99.

CBS Corp. (CBS $22) reported 4Q EPS ex-items of $0.46, three cents above the consensus estimate of analysts surveyed by Reuters, with revenues increasing 11% year-over-year (y/y) to $3.9 billion, exceeding the $3.8 billion that the Street had forecasted. The media company said its entertainment, outdoor, and cable networks units all posted revenue growth, while its local broadcasting led the way, with revenues growing 21% y/y. Also, the company said total advertising sales grew 12% y/y. Shares traded higher.

NetApp Inc. (NTAP $55) finished solidly lower after the data-storage company issued fiscal 4Q EPS guidance that disappointed analysts, overshadowing its report that 3Q EPS ex-items came in at $0.52, topping the $0.50 estimate that the Street was looking for. Also, the company said 3Q revenues grew 25% y/y to $1.3 billion, roughly inline with expectations.

NVIDIA Corp. (NVDA $25) announced 4Q EPS of $0.23, excluding a gain from the recent settlement with Dow member Intel Corp. (INTC $22), with revenues declining 9.8% y/y to $886 million. It was unclear whether the Street’s forecasts were comparable as the chipmaker said it believes some analyst estimates may have recorded a benefit from its INTC settlement as revenue, rather than as a credit to operating expenses, “artificially raising revenue consensus.” However, most analysts noted that NVDA’s 4Q EPS performance was either roughly inline with expectations or slightly to the upside. The company issued 1Q revenue guidance that topped expectations, and shares were solidly higher.

Weight Watchers International Inc. (WTW $65) surged over 45% after the weight management services firm posted 4Q profits ex-items of $0.66, compared to the $0.56 that the Street forecasted, with revenues increasing 15.6% y/y to $355 million, above the $321 million that was expected. The company issued full-year EPS guidance that far exceeded estimates, while saying it is seeing “terrific enrollment volumes” in North America and the UK and further strengthening in its WeightWatchers.com business.

Consumer prices slightly hotter than expected and jobless claims rose

The Consumer Price Index showed prices at the consumer level were up 0.4% month-over-month (m/m) in January, above the forecasted gain of 0.3% by economists surveyed by Bloomberg, and the 0.5% increase seen in December. Meanwhile, the core rate, which strips out food and energy, was 0.2% higher m/m in January—the highest increase since October 2009—compared to the estimate of a 0.1% increase, after rising 0.1% in December. On a year-over-year basis, consumer prices were 1.6% higher in January, up from 1.5% in December, and the core CPI is 1.0% higher y/y, after rising by 0.8% in December. Economists expected headline CPI to come in at 1.6% and a core rate of 0.9% y/y. The Bureau of Labor Statistics said increases in energy commodities and food prices accounted for over two-thirds of the increase in the headline figure, with gasoline and fuel “continuing their recent strong upward trend,” and food posting its largest increase in over two years. Meanwhile, the core rate increase was attributed to rising prices for apparel, shelter, airline fares and recreation.

The growing pricing pressures in food and energy continue to foster some uneasiness, due to the impact on discretionary spending, but the focus is more centered on the core rate, which is more closely followed by the Federal Reserve in shaping monetary policy. It is important to point out that the y/y core rate remains well below the “2% or a bit less” that the Fed judges to be consistent, over the long-run, with its dual mandate. However, if an upward trend in the core begins to develop, it could suggest businesses are passing on some of the burden of higher prices to consumers, hampering consumption, which is the heartbeat of US economic prosperity. As a result, the Fed could be forced to tighten monetary policy to hamstring pricing pressures, which could somewhat stymie its efforts to resuscitate the labor market—the other side of its dual mandate that it has made clear the lack of significant improvement in this area is a reason to temper its outlook for a sustainable economic recovery.

Elsewhere,  weekly initial jobless claims rose by 25,000 to 410,000, versus last week's figure which was upwardly revised by 2,000 to 385,000, and above the 400,000 level that economists had expected. The four-week moving average, considered a smoother look at the trend in claims, increased by 1,750 to 417,750, and continuing claims rose by 1,000 to 3,911,000, above the forecast of economists, which called for continuing claims to come in at 3,893,000.

Also, the Conference Board released the Index of Leading Economic Indicators (LEI) for January, which increased 0.1% m/m, just below the 0.2% rise that economists expected, and following the downwardly revised 0.8% gain seen in December. This was the seventh-straight monthly advance for the index, led by increases in the pace of deliveries, stock prices, and a favorable yield curve.

However, there was a bright spot on the economic docket, with the Philly Fed Manufacturing Index surging, jumping from 19.3 in January to 35.9 in February. Economists had expected the index to increase slightly to 21.0 and a reading above zero denotes expansion. Although the new orders, shipments, and employment components of the index expanded further, the prices paid component continued to surge, rising by nearly 13 points m/m to 67.2, exacerbating the growing worries about inflationary pressures.

Treasuries were higher, especially on the short end of the curve, as the yield on the two-year note was 6 bps lower at 0.76%, the yield on the 10-year note fell 5 bps to 3.57%, while the 30-year bond yield lost 1 bp to 4.67%.

Euro-zone consumer confidence rises, Canadian wholesale sales increase

In economic news across the pond, euro-zone consumer confidence improved by a larger amount than economists had expected, while a separate report showed euro-zone construction output fell 1.8% m/m in December, while falling 12% y/y.

In Asia/Pacific, Japan’s leading index remained unchanged in December, while South Korea reported new measures to support the region’s savings banks. Elsewhere, Taiwan reported that its 4Q GDP expanded at a higher-than-anticipated y/y rate, prompting some uneasiness that tighter monetary policy may follow, and Singapore increased its inflation outlook and lowered its 2011 economic growth outlook, on the heels of its 4Q GDP report, which came in below expectations.

Back in the Americas, Canadian wholesale sales increased 0.8% in December, inline with the expectations of economists and slightly below the revised November increase of 1.0%. The report helped the Canadian dollar rise to its strongest level against the US dollar since March of 2008. Another important reading on the Canadian economy is due out tomorrow in the form of the Consumer Price Index, which is expected to show a 0.3% increase in prices for January, and a 0.1% increase in the core rate.

The US economic calendar will be void of any major release tomorrow. Reports due out from the international front include China’s Leading Economic Index, Japanese department store sales, German producer prices, Italian industrial orders, UK retail sales, and the aforementioned Canadian CPI.