Recap: Week Ending April 25, 2014
Equity markets closed slightly down on the week as the bulk of corporate quarterly earnings were released. Unlike previous weeks, markets were not led lower by the NASDAQ. Markets pushed higher early in the week, however, chopped sideways Wednesday and Thursday. A strong sell off was seen Friday as geopolitical tensions in Eastern Europe started to once again enter the spotlight. Unlike its neighbors to the south, the TSX had little reaction to the sell off Friday only closing down 21 points on the day. It appears that many traders took Friday as a risk off day, selling many positions in what might be a volatile weekend if conflicts in Ukraine rise. With this being said, the US 30yr Treasury bond closed Friday around its highest level of the 2014 calendar year. This push higher comes even as equities are sitting just shy of all time highs. In recent times bonds and equities have had an inverse relationship with bonds being the risk off play when equities sell off.
Both the S&P and Dow Jones Industrial Average are within reach of making new all time highs. The S&P is off just under 2% from reaching such a level where the Dow is sitting 1.7% below its all time high which was made back on April 4th of this year. It must be noted that even though these indexes are just under all time highs, their RSI readings are neutral, hovering around the 50 level. The RSI, which stands for Relative Strength Index, is a gauge on how overbought or oversold a stock or index is. Any reading between 100-70 is considered overbought and any reading between 0-30 is considered oversold. With these indexes hovering in the 50 area, the notion that a push higher will be greeted by buyers is highly likely as there is still a large demand for the asset, in this case the Dow and S&P. Volumes in both indexes have been light in the past week, this is surprising as earnings usually provide a boost to trading volumes.
This past week was one of the biggest weeks for earnings in the quarter. So far this quarter 48% of S&P components have reported earnings with 73% beating analysts forecasted profits. Some of the biggest names in technology and retail reported earnings this past week including Amazon, Facebook, Netflix, Priceline.com, and even LinkedIn. Amazon reported a miss of earnings by one cent. Amazon went on to issue a cautious guidance report for its upcoming second quarter. The fact that Amazon missed earnings somewhat proves wrong those who blamed the winter weather for poor economic data focusing people to stay indoors. As Amazon is an entirely online retailer, weather should not have played an impact as customers do not have to leave their homes to purchase goods. The biggest news out of the week regarding earnings was Apple’s 7:1 stock split. On top of the stock split, Apple announced that it would increase its current repurchase program to $90 billion. This news comes as Apple continues to hoard cash. The repurchase program is an attempt to reduce their cash; however, it is evident through the stability in the amount of cash that Apple is neither researching new products nor acquiring companies. With this in mind, many are looking forward to the upcoming releases of the new iPhone and iPad where many believe big changes must come in order for Apple to maintain their dominance in the telecom and tablet sectors. Recently, Samsung released its S5 smart phone, providing even more competition to the innovation lacking iPhone.