Even though there was a lot of pessimism going into 2012, it’s turning out to be a great year. Corporate earnings have been strong, the Fed has reaffirmed its commitment to stimulation and the domestic economy continues to perform ahead of expectations. The result is the averages trading at a 2-year high after logging a 5-week win streak.
But the action cooled a bit this week as the euro-zone story reemerged, with habitual offender Greece asking for more money as it teeters on the brink of default. It was a very quick reminder to a fairly comfortable market just how volatile things remain in the EU. That tone pushed the averages to their worst performance of the year on Friday as many investors chose to take profit on more short-term gains.
So that should pretty much set the tone for this week. Profit taking will be in play at the highs, and if we see any kind of meaningful down side, longer term players will use it as a chance to buy after letting the market run away from them in the surprisingly bullish market of January.
Other than the euro zone story, where Greece hangs in the balance, the markets got a good amount of data to sink its teeth into this week.
- Tuesday-Retail Sales
- Wednesday-Industrial Production
- Thursday-PPI (Producer Price Index), Philly Fed
- Friday-CPI (Consumer Price Index)
We’ll also be seeing the tail end of earnings, which have once again been pretty solid. We are seeing slower earnings growth, but that’s more normal cycle movement than a signal of Armageddon. Overall, the private sector is still looking strong, operating at record margins with lots of cash on the balance sheet.
So expect a bumpy week as the euro zone and domestic economy remain in focus.
Updates:
Earnings season rages on, and we saw some of our favorite stocks report this week. Let’s take a closer look.
Leading derivatives exchange Intercontinental Exchange (ICE) was at the front of the pack, adding 10% on the week after reporting Q4 results that came in ahead of expectations. The good quarter was driven by higher trading volumes in its energy products, a great example of the bullish trend in energy and commodities. The company also pleased the Street by announcing lower than expenses for 2012 that were lower than expected. So clearly the ICE was firing on all cylinders this quarter, trying to flex some muscle for the Street and get its share price back to its all-time high at $189.
Bunge Ltd (BG) was also in the 10% club, leading the charge higher on strong Q4 results and strength in its international business. As a leading global grain merchandiser, Bunge is a good way to a secular trend in agriculture. The company also operates very high in the distribution channel, capturing higher margins as prices rise. As it stands, Bunge is expected to make $7 a share this year, which means at $63, this stock looks pretty undervalued. The 52-week high is $13 away at $76.
We saw a rare blast of strength from one of our energy stocks, with Cimarex Energy Co (XEC) tacking on a 9% gain for the week. It doesn’t look like the move came on any news in particular, but this stock has fallen well off its high so maybe that has attracted some attention in the space. Moving forward, spring and early summer are good times to own energy stocks because of cyclical pricing and demand. So we’ll be looking for some solid upward movement from XEC in the next few months along those lines. If that doesn’t happen, this is a stock that could get kicked to the curb.
And finally, how about a shout out to Apple, Inc. (AAPL), tacking on another 7% as the Street continues to admire its Q4 results. With shares staring down the barrel of $500, those who stepped out and bought in the low $400’s very quickly got in at a great price, up a quick 20% in just two weeks. It’s great to see Apple doing well and cranking out great numbers as the inspiration of Steve Jobs lives on.
That’s all for this week, but until next time, here is the latest on Greece and the Euro zone. The Greeks are rioting as parliament tries to implement budget cuts. The political and social climate is definitely heating up in the Euro zone. Enjoy.
Greece set for critical vote on spending cuts
Your Investment Partner,
Mike
