Early in the week, the Greek Parliament approved the austerity measures that were required to receive bailout funds, but uncertainty remained as to whether or not the eurozone finance ministers will release the next tranche.  By mid-week, the eurozone finance ministers announced they would once again withhold Greek bailout funds until they are certain that Greece will continue to implement spending cuts, even after the elections in April.  On Friday, it became clearer that Greece is highly likely to receive the bailout funds, as early as February 20^th.  The ECB announced they would swap current Greek debt holdings for new bonds, indicating they are confident, in the near term at least, that Greece will not default.  US Equity markets were somewhat insulated from the total impact of the events in Greece as mostly strong US economic data continued to be released in the second half of this week, after a rough start.

The week started out with a mixed retail sales report.  Advance retail sales for January 2012 rose 0.4% month/month versus 0.8% expected.  Also disappointing was the downward revision of December’s data.  The underlying data for January was more encouraging.  January sales, ex-autos, rose by 0.7% versus 0.5% expected.  Sales at general merchandise stores outpaced the group, up 2.0% for the month.  Nine of the thirteen subcategories rose in January.  The category that pulled the index below expectations was the motor vehicle sales and parts stores, which fell 1.1% in the month. 

A few other reports early in the week also fell short of expectations or had disappointing results.  Business inventories rose 0.4%, less than 0.5% as expected.  The NFIB Small Business Optimism Index gained for the fifth month to 93.9, the highest level since February 2011, but short of the 95.0 level that was forecast by economists.  The Producer Price Index came in at 0.1% for January, versus 0.4% expected.  The core rate, ex-food and energy, was 0.4% in January, higher than economists’ forecasts of 0.2%.   

However, later in the week, housing starts were reported for January at a 699,000 annualized level, against an upwardly revised rate of 689,000 for December and 675,000 expected by economists.  Another encouraging report came with the weekly initial jobless claims.  Claims fell by 13,000 to 348,000 and the four-week moving average continued to decline, dropping another 1,750 to 365,250.  Continuing claims also retreated to 3,426,000 against 3,495,000 expected.  

Another hopeful report came from the Philly Fed.  Their Manufacturing Index rose more than expected, posting 10.2 in February, up from January’s level of 7.3.  With the level of zero being the demarcation point between expansion and contraction, current levels indicate continued and further economic expansion.  New orders and shipments both rose solidly.  The Consumer Price Index showed an increase of 0.2% month/month in January and fell short of economic forecasts of 0.3%.  Core CPI, ex-food and energy, rose 0.2% as expected.  The annual CPI rate at 2.9% was ahead of forecasts of 2.8%.

The Conference Board’s Index of Leading Economic Indicators rose 0.4% in January; the fourth monthly increase, but fell short of expectations of 0.5%.  Rising components of the index were the increase in the average workweek for production workers, the gains in the US equity markets and the yield curve. Among the declining components were consumer expectations, jobless claims and new manufacturing orders.

There were mixed results among earnings reports this week.  Strong earnings reports, exceeding expectations, came from:

• Diebold, Inc. (DBD) reported $1.40/share versus $0.84 expected.  Shares rose 10.84% this week to $38.39. 
• Michael Kors Holdings, Ltd. (KORS) reported $0.28/share versus $0.09 expected.  Revenues grew to $374 million against $349 million expected.  Same store sales increased 38% year/year.  KORS rose 24.95% for the week, closing at $41.82.  

Some disappointing reports came from the following companies:

• Avon Products Inc. (AVP) reported $0.39/share versus $0.51 expected.  The company cited higher commodity costs as the culprit.  Shares finished the week higher despite the shortfall, closing the week at $19.19, up 7.39%.
• Goodyear Tire & Rubber Co (GT) reported $0.03/share versus $0.20 expected.  The company pointed to lower unit volume and said they expect a “slower pace of growth in the global tire industry near term” and higher raw material costs.  GT finished the week lower, finishing at $13.42, down 3.31% for the week.
• General Motors Co (GM) posted $0.39/share for their 4^th quarter, short of analysts’ estimates of $0.44.  Revenues topped estimates at $38 billion versus consensus of $37.8 billion.  Shares dipped on the report, but recovered by the end of the week.  GM closed on Friday at $27.34/share, up 7.22% for the week.

In other corporate news, Gilead Sciences (GILD) reported on Friday that a majority of the patients taking their hepatitis-C drug had a viral relapse within four weeks of completing the 12 week treatment program.  Shares of GILD slid 14.25% in trading on Friday to finish the week at $47.00. General Mills (GIS) also guided forecasts lower on Friday for their 3^rd quarter results and for the 2012 fiscal year in response to weak consumer volume performance.  GIS fell 3.62% in trading on Friday to $38.34.  US Equity markets will be closed on Monday, February 20^th, in observance of the Presidents’ Day holiday.

Bank Stocks Hang on to Hopes of a Greek Bailout

Bank shares moved ahead slightly for the week ending February 17^th, 2012 as measured by the SNL U.S. Bank Index, up 1.84% to 256.70.  The SNL U.S. Thrift Index rose 1.99% to 513.14.  Financial shares have been more closely tied to events in Europe this week, although given the recent run up in bank stocks, some analysts point to the possibility of a pull back in share prices.  

The eurozone finance ministers keep raising the bar for Greece to obtain the bailout funds.  The next meeting is scheduled for Monday, February 20^th, when US equity markets will be closed.  

The general US economic news has been trending positively, ahead of expectations, for the past three to four months.  However, as the waves of news came from Greece, bank shares rose and fell depending on the tenor of the announcements.  

Mortgage applications fell 1.0% for the week ended February 10^th, as reported by the Mortgage Bankers Association.  The refinance index moved up 0.8% due to continued historically low interest rates.  Homebuilder confidence also increased for the fifth straight month for new single family homes to 29 from 25 in January, the highest level in more than four years.

Due to the impending bailout of Greece, the prospect that they will avoid default, and the mostly encouraging US economic data, shares of large banks moved ahead this week.  JPMorgan Chase (JPM) gained 2.29% to $38.47and Wells Fargo (WFC) rose 2.74% to $31.09.  Bank of America (BAC) slipped this week after The Wall Street Journal reported the company may sell its US Trust wealth management unit with its retail branch network in Texas if they are required to raise capital.  BAC closed at $8.02, down 0.87% for the day and 0.62% for the week.

On Monday, Greece agreed to additional austerity measures and cut 15,000 civil service jobs but failed to agree to a debt agreement with private creditors.  Progress on Tuesday boosted optimism.  A Reuters report revealed that Greece was preparing documentation to satisfy the requirements for the next installment of bailout funds.  However, they still dragged their feet on the debt restructuring.  

By the end of the week, default concerns re-emerged.  Greece needed to find an additional €325 million in spending cuts in order to receive the next tranche of bailout funding.  On Friday, the situation in Greece degenerated further.  The austerity measures had already incited rioting, which escalated on Friday as the EU finance ministers announced that further measures would be required to secure the next bailout payments.  As a result of the increased unrest in Greece, the US equity markets suffered their worst single day performance so far this calendar year.  

The week was relatively void of economic reports, after the spate of mostly positive data received last week.  However, there were numerous corporate earnings reports released this week.  Hasbro (HAS) reported quarterly earnings on Monday that was in-line with expectations.  HAS earnings and revenues were $1.06/share and $1.3 billion, respectively, but stated that growth in the US and Canada was below their forecasts for 2011, especially during the back half of the year.  Despite the pessimistic commentary, the stock rose on the report to finish the day at $36.66, up $0.80.  Coca Cola (KO) reported earnings on Tuesday of $0.79/share, ahead of analysts’ estimates and revenue of $11 billion, in line with projections.  KO traded higher on Tuesday to finish at $68.55, up $0.52.  Also on Tuesday, YUM brands (YUM) reported better than expected earnings of $0.75/share and revenues at $4.1 billion.  YUM finished solidly higher at $64.85, up $1.66.

PepsiCo (PEP) reported before the open on Thursday.  Quarterly earnings were $1.15/share and $20.2 billion in revenue, both ahead of Street estimates.  However, PEP announced that they expect earnings per share to fall in 2012 as they plan to increase advertising and marketing, reduce the workforce by 8,700 employees, and raise the dividend and share repurchases in 2012.  PEP traded down $2.47 to finish the day at $64.27.  After the close on Thursday, LinkedIn Corp (LNKD) reported $0.12/share, well above Street consensus of $0.06 and better than expected revenues of $168 million.  LNKD shares soared $13.57 points to close the week at $89.96.

In company specific news, Boeing (BA) announced on Monday that repairs are needed in the tail sections of some of its 787 Dreamliners.  Inspections are underway to determine which planes need repair.  Five of the planes had been delivered to All Nippon Airways in Japan since September and dozens of new planes have been built and will undergo inspection.  BA fell $0.88 to $75.46 and slipped a bit further by the end of the week to finish at $74.95.  Caesars Entertainment (CZR) rose 71% in its first day of trading on Wednesday.  The IPO was priced at $9 per share for 1.8 million shares and raised $16 million for the company.  The stock closed at $15.39 on Wednesday and settled back to $14.17 to finish the week on Friday.  Apple (AAPL) stock has been rallying, posting new highs every day and flirting with the $500/share level.  Strong earnings prospects continue to drive share price.  The shares finished the week at $493.42, up 7.34% for the week and 21.83% year to date.

The University of Michigan’s Consumer Sentiment Index was reported on Friday.  The Index declined from 75.0 in January to 72.5, lower than 74.8 that had been expected.  While this report was disappointing, pundits remarked that often consumers say one thing and do another.  

In the worst single day of trading so far in 2012, the S&P 500 Index and the Dow each lost 0.7% on Friday.  The S&P slipped 9.31 points and the Dow fell 89.23 points, both coming off the lows of the day in the last hour of trading as the Greek situation deteriorated further.  Greece’s parliament will meet over the weekend to deliberate the eurozone’s austerity requirements.  In addition to the concerns over Greece, investors shuddered when S&P downgraded 34 Italian banks on Friday, after the European markets had closed.    

Euro Debt Crisis and Foreclosure Settlement Rattle Financial Shares

The SNL US Bank Index slipped 1.37% this week to finish at 252.06 as turmoil resumed in Greece and 34 Italian banks were downgraded by S&P.  The foreclosure settlement also put pressure on shares.  The SNL US Thrift Index fared a bit worse and lost 2.39% for the week and finished at 503.11.    

In addition to the anxiety over the Greek debt situation, the big news for banks this week was the announcement that US government officials had reached a settlement agreement with five major banks.  On Thursday, after year-long deliberations, a $26 billion settlement was agreed upon to mitigate the alleged foreclosure abuses by mortgage lenders.  The banks involved and their portion of the settlement are Bank of America at $11.8 billion, JPMorgan Chase, Wells Fargo, and Citigroup at $5.3 billion each and Ally Financial was undisclosed.  The settlement funds will be used to decrease principal balances for borrowers at risk of foreclosure and refinancing at lower interest rates for others who are current on their mortgages but underwater versus the value of their homes.  The fairness of this deal has come under question as it appears to “reward” delinquent borrowers.  

In company specific news, JPMorgan Chase (JPM) reached a preliminary agreement to pay $110 million to settle overdraft fee litigation.  Shares of JPM lost 1.75% for the week, closing at $37.61, but are up 13.11% year to date.   A Reuters report on Monday announced that Citigroup had become the first non-Asian bank to win approval for credit card issuance in China.  Citigroup lost 1.83% for the week, closing at $32.92 on Friday, but has increased 25.14% year to date.  Bank shares have rebounded so far in 2012 after being beaten down in 2011.  Despite this week’s losses, bank shares have advanced 13.9% so far in 2012, as measured by the SNL US Bank Index.  

The ADP report on private sector payrolls showed a 170,000 increase in January but fell short of expectations of an 182,000 increase.  Despite the shortfall, the momentum of recent months remains intact.  Over the past three months, the average monthly increase was a relatively robust 223,000, outpacing the average monthly increase for all of 2011 at 163,000.  This report also marked the 24^th consecutive monthly increase in private employment.

On Tuesday, S&P/Case Shiller revealed that the home price index fell in November 2011 by 3.7% year/year, a worse than expected result.  More negative news was reported as Consumer Confidence slipped in January from December, 61.7 down from 64.8.  On the brighter side, December personal income rose 0.5%, beating expectations.

February started strong with equity markets up across the board.  Investors eagerly anticipated the Facebook IPO registration.  Bank stocks rallied at the prospects of a rebound in capital markets activity.  The announcement finally came on Thursday.  Facebook stated that Morgan Stanley will serve as the lead underwriter for their IPO.  JPMorgan Chase and Goldman Sachs won the second and third positions, respectively.  The IPO is expected to raise $5 billion and investors are pondering what Facebook will do with these proceeds.  As part of the registration process, Facebook had to reveal their financial information, previously only speculated upon by Wall Street.  Facebook has posted profits for the past three years, reporting gross revenue of $3.7 billion last year, an 88% increase from the prior year, and net income of $1 billion.  The company also revealed they have 845 million members of which more than half (483 million) return to the site daily.  Admittedly, this rate of growth will be difficult to maintain as all eyes are watching and waiting for the IPO’s infusion of cash and the resulting use of the cash by the company.

After the close of the markets on Tuesday, Amazon (AMZN) reported earnings of $0.38/share, well ahead of analysts’ estimates of $0.17/share.  Concern arose, however, over the company’s revenue for the quarter, reported at $17.4 billion versus $18.2 billion expected.  In trading on Wednesday, AMZN lost $14.98 (down 7.7%) to $179.46 on the revenue shortfall and the lowering of guidance for the first quarter of 2012.  AMZN shares retraced a bit more than half of the initial decline to finish the week at $187.68, down 3.9% for the week.  

Initial Jobless Claims at 367,000 was released on Thursday for the week ending January 28^th.  This report came in below the 375,000 that was expected and added another indication that the job market is slowly improving.  On Friday, additional employment data was reported and sent the markets higher.  The US Department of Labor released the nonfarm payroll data that showed a 243,000 increase in January from December, versus a very conservative estimate of 140.000.  November and December data was also revised upward, to the tune of an additional 60,000 jobs for both months combined.  The Department of Labor also noted that the job growth in January was widespread.

The NASDAQ soared to an eleven year high on Friday on the positive jobs report.  The Dow approached its four year high and the S&P added to its year-to-date gains and was at its highest level in six months.  More than 450 stocks hit new highs across the board. The NASDAQ finished the week at 2,905.66, up 11.5% year-to-date.  The S&P 500 and the Dow also closed the week on a high note.  The S&P finished at 1,344.90, a 6.9% gain year-to-date and the Dow gained 5.3% year-to-date to 12,862.23. 

Bank Shares, Boosted by Economic Data, Outperform Broader Indices

Eurozone concerns dragged down financial shares early in the week but positive jobs data reported later drove shares higher.  The SNL US Bank Index posted a 5.2% gain for the week to 255.55.  The SNL US Thrift Index closed the week at 515.44, a more modest gain of 2.5%.  

EU leaders met on Monday and agreed to a permanent rescue fund of €500 billion and a fiscal compact that had been negotiated in December 2011.  Tainting this positive development was news that Greece’s finance minister rejected a eurozone proposal to set up an EU “Budget Commissioner” with the power to veto the financial decisions made by the struggling country in exchange for a €130 billion bailout.  On Thursday, European leaders signed a treaty to establish the European Stability Mechanism with an initial lending volume of €500 billion.  Greece was still in discussions with the IMF over the restructuring the more than €200 billion of Greek sovereign debt held in the private sector, leaving an overhang of uncertainty.  

Fed Chairman, Ben Bernanke, spoke to the House Budget Committee on Thursday.  He reiterated the FOMC view that the fed funds target rate will remain near zero, but extended the time frame to 2014 from 2013.  In general, a sustained low interest rate environment applies pressure to banks’ net interest income through its net interest margins.  Bernanke also noted that the economy is improving but remains uncertain and requires “close monitoring” of economic data and urged policymakers to reduce the country’s long-term budget deficits.

Bank of America (BAC) shares struggled on Monday.  Goldman Sachs lowered their rating to “neutral” from “buy”, citing “execution risk” in the coming quarters.  BAC lost 3.02% to $7.07 on Monday, but finished the week strongly at $7.84, up 41% year-to-date.

Citigroup shares faltered on Monday, losing 2.07% to $30.23 after a Wall Street Journal report that Chairman Richard Parsons may resign.  According to the report, Parsons will announce his decision in early March.  The shares recovered by the end of the week and have posted a 27.5% gain year-to-date, finishing the week at $33.54.

On Wednesday, President Obama introduced a plan that will allow more struggling homeowners to refinance their mortgages.  The cost of the program, between $5 billion and $10 billion, will be funded through a fee to the large financial institutions and will be based on the size of the institution and the level of risk in its activities. 

BB&T Corp announced on Friday that it entered into an agreement to purchase Crump Life Insurance Services and Crump Property & Casualty Insurance Services from New Jersey based Crump Group Inc. for $750 million in cash.  BB&T closed at $29.12 on Friday, up 3.9% for the day, and 15.7% year-to-date.    

Bank stocks rallied in the second half of the week on positive employment data, outperforming the broader markets all week, except on Monday.  Financial stocks are often a proxy for the economy.  Signs of progress in Europe and encouraging domestic economic reports propelled financial shares this week and added to year-to-date gains.  The SNL US Bank Index has risen 15.5% and the US Thrift Index has gained 7.1% since the end of 2011. 

RIM’s CEO was grabbing headlines this week as he seeks to turnaround the company, but founder and former CEO, Mr. Lazaridis will be now focusing on vision and remain a director and co-chief Mr. Balsillie will also remain a director.  It can be difficult to right a ship with prior captains aboard and within striking distance of the helm.  The long awaited blockbuster IPO appears to be even closer than originally forecast; The Facebook IPO could top the charts at $100B!

Broader markets were mixed as a Greek debt default resurfaced with renewed vigor on Monday.  The Dow Jones slipped 0.1% to 12,708.82, and the NASDAQ was lower by 0.09% to 2,784.17, while the S&P 500 gained 0.05% to 1,316.00.  Further, Germany and France weighed in to encourage Greece to seek common ground with creditors on an agreement.  According to the London FT, there is word of easing some of the Basel II regulations. 

In Europe, Standard & Poor’s made some ratings changes which did not have much of an impact on the markets.  The Dow Jones drifted lower by 0.3% to 12,675.75, the S&P 500 was off a modest 0.10% to 1,314.63, and the NASDAQ bucked the trend finishing up slightly to 2,786.64.  Meanwhile, Greek debt restructurings continue to be negotiated on the global stage with various deals just not making the final cut.  Tuesday evening, President Obama discussed a plan to help save homeowners money and opened the door for a fee on large financial institutions to fund the program.  At this point in the business cycle, we expect many financial institutions to be in a stronger position to begin to lend even more, but this type of uncertainty negatively impacts the flow of credit.

The Federal Reserve kept its targeted rate unchanged at near zero, but extended its cautious view of the economy to late 2014 on Wednesday.  In its statement rates are now expected to remain near zero until late 2014.  Previously, this statement extended only through mid-2013.  Markets advanced with the Dow Jones rising 0.7% to 12,758.85, the S&P 500 increased 0.9% to 1,326.06, and the NASDAQ jumped 1.1% to 2,818.31.  There has been further market speculation of QE3; however, it seems still too uncertain to discuss more quantitative easing, at this time.  The central bank modestly lowered its economic projections of GPD growth to 2.2%-2.7% this year.  Also the FOMC set an inflation target of 2% versus a certain percentage of the long-term.

Initial unemployment insurance claims of 377,000 were posted on Thursday; an increase of 21,000 over the prior week and new orders for manufactured durable goods rose 3.0% in December 2011.  The Dow fell 0.2% to 12,734.63, while the S&P 500 dropped 0.67% to 1,318.43, and the NASDAQ declined 0.5% to 2,805.28.

Coming in slightly below projection on Friday; real GDP increased by 2.8% in the fourth quarter, compared to a 1.8% increase in the previous quarter. Behind this headline data point, some pundits focused on the jump in replacing inventory as a main driven which was not a bullish economic sign.  Real GDP increased 1.7% in 2011, compared to an increase of 3.0% in 2010.  Meanwhile consumer sentiment soared to 75 in January 2012 from 69.9 in December and above the forecast of 74.1.  The Dow fell 0.6% to 12,660.46, the S&P 500 slipped 0.2% to 1,316.32, while the NASDAQ reversed the trend and finished up 0.4% to 2,816.55.

Financials Under Pressure

Bank stocks traded higher Monday, with the SNL U.S. Bank Index rising 0.6%, while the SNL U.S. Thrift Index declined by 0.6%.  The Greek debt uncertainty continued to keep the markets guessing.  Bank of America Corp. may be in a deal to divest its U.K. and Irish credit card business and is focused on another $3 billion in cost cuts which sent its shares up 2.6% to $7.25.  Well Fargo rose 1.2% to $30.92 and Bank of New York Mellon increased 1.7% to $21.64.  Bank of Hawaii fell 1.9% to $46.82 after reporting earnings of $0.85. CenterState slipped 0.7% to $12.90 after assuming the deposits of failed bank, Central Florida State Bank.

Earnings continued to drift in which has been a relief from the deluge last week and the SNL U.S. Bank Index declined 0.3%, while the SNL U.S. Thrift Index rose 0.4%. Both Regions and Synovus posted earnings and their respective shares jumped 6.3% and 6.1%, to $5.23 and $1.73.  Regions recently solidified a deal to jettison Morgan Keegan to Raymond James and booked a charge related to that transaction which may still leave a need for additional capital.  The Durbin amendment hit TCF Financial’s card revenue hard, down 51% linked quarter and the shares fell 9.0%.

The SNL U.S. Bank Index and the SNL U.S. Thrift Index decreased modestly on Wednesday.  There was a varied reaction by the banks to the Fed’s action with Wells Fargo down 1.1% to $30.20, while Bank of America was up 0.8% to $7.35.  Old National was pressured, off 1.7% to $12.17 as it acquired Indiana Community.  BankUnited reported slightly better than projected earnings of $41.3 million, up from $27.8 million a year earlier, but fell 1.6% to $22.91.   Mortgage applications dropped 5.0%, on a seasonally adjusted basis, during the week ended Jan. 20, according to the Mortgage Bankers Association.  In addition, pending home sales fell in December 2011 from the prior month’s high but was up over the last 12-months.  Home prices rose 1% for the month, according to the House Price Index for November 2011.

Lackluster housing data pressured banks and thrifts.  The SNL U.S. Bank Index declined 1.7% and the SNL U.S. Thrift Index fell 0.8% on Thursday. New single family home sales dropped 7.3% over the last year and by 2.2% for the month of December 2011.  Large caps turned in a mixed performance with Wells Fargo off 3.8% to $29.05 and Citigroup rose 1.4% to $30.38. Small cap First Niagara increased 2.7% to $9.68 as earnings came in at expectations but discussed positive prospects of HSBC branch transaction.

Bank and thrift stocks marched higher on Friday but could not reverse losses for the week.  The SNL U.S. Bank Index increased 0.6% and the SNL U.S. Thrift Index rose 0.3%.  However, for the week, the bank index fell 0.9% and the thrift index dropped 1.0%.  Many of the small cap banks and thrifts continue to post earnings and are receiving mixed reviews.  There is wide range of results, with one end of the spectrum still facing extreme economic challenges in its footprint to not recognizing write-downs in a timely fashion to healthy balance sheets and modest lending.  Meanwhile, four institutions were seized on Friday, two in Tennessee, one in Florida and in Minnesota.  These closures are projected to negatively impact the deposit insurance fund by $607 million.  Markets and management are the two primary differences between the extreme ends of the performance spectrum.

The Dow Jones inched up 0.5% to finish at 12,482.07, the S&P 500 increased 0.4% to 1,293.67 and the NASDAQ rose 0.6% to 2,728.08.  The Empire State Manufacturing Survey, out on Tuesday, indicated improved conditions in January for New York manufacturers including areas such as general business conditions, new orders, shipments, inventories, prices paid and received and employment.  China’s CDP grew by 8.9% in 4Q11 and 9.2% for the year, its slowest pace in 1 ½ years, according to the Associated Press.

Upbeat economic data propelled the broader markets higher on Wednesday with the Dow Jones increased 0.8% to 12,578.95, the NASDAQ Composite jumped 1.5% to 2,769.71 and the S&P 500 advanced 1.1% to 1,308.04.  Greece was expected to strike an agreement, again, and avoid a default.  The producer price index declined slightly, by 0.1% in December 2011, while industrial production increased 0.4% in December 2011 or at an annualized pace of 3.1%, marking the 10^th consecutive quarterly increase.  Mortgage applications soared 23.1% for the week ended January 13, according to the Mortgage bankers Association.

Initial unemployment claims were posted on Thursday and came in at 352,000 for the week ended January 14, an improvement of 50,000 from the prior week.  The CPI was relatively unchanged for the second consecutive month, while the Federal Reserve Bank of Philadelphia’s business outlook was positive for regional manufacturing. Thirty-year fixed rate mortgages remains at historically low levels at 3.88% for the week ended January 19 with fifteen-year rates near 3.17%. The Dow Jones rose 0.4% to 12,623.98, the NASDAQ Composite increased 0.7% to 2,788.33, and the S&P 500 moved up 0.5% to 1,314.50. The Associated Press reported that both France and Spain had strong auctions for long-term debt which helped ease European concerns.  The Federal Reserve Bank of New York sold about $7 billion of its Maiden Lane II LLC portfolio to Credit Suisse.  After the close both IBM and Intel posted solid earnings results which was an underlying positive by signally technology investments are being done by companies.

The broader markets were mixed on Friday due to a combination of healthy earnings and improving home sales.  Existing home sales rose 5% to 4.61 million in December 2011.  The Dow finished at 12,720.48, up 0.8%, the S&P 500 inched up 0.1% to 1,315.38, and the NASDAQ Composite declined 0.1% to 2,786.70.  Google bucked the broader market trend, finishing down 8.5% after missing earnings projections.

US Financial Balance Sheets Continue to Improve

Weighed down by Citigroup’s earnings, the SNL U.S. Bank Index fell 1.7% and the SNL U.S. Thrift Index slipped 0.3% to 506.64 despite gains in the broader markets on Tuesday.  Citi reported disappointing revenue and fell 8.2% to $28.22.  Bank of America decreased 2.0% to $6.48, but does not report earnings till Thursday.  A few interested parties in the BankUnited franchise may include Toronto-Dominion, BB&T and PNC Financial.  Bucking the trend in financials was Wells Fargo which reported better than expected earnings and finished at $29.83, up 0.7%.

Super Wednesday ushered in earnings from GS, PNC, USB, STT, NTRS, BK and many others!  The SNL U.S. Bank Index increased 1.65% to 242.28, and the SNL U.S. Thrift Index ticked up 0.29% to 508.10.  The Goldman critics were focused on the compensation to net revenue ratio which did not decline as much as expected and leads to the thought that more of GS’s compensation cost is fixed than originally projected.  USB came in better than projections at 69 cents versus consensus of 63 cents on solid revenue growth.  BK had a challenging revenue quarter according to its CEO Gerald Hassell due to general uncertainty which resulted in less client activity.  BK has a partial settlement with the Justice Department as it relates to the bank’s foreign exchange marketing materials. JPMorgan rebounded 4.7% to $36.54, Bank of America increased 4.9% to $6.80, while State Street fell 6.6% to $39.95 and Bank of New York Mellon dropped 4.6% to $20.30.

On Thursday, Capital One was under scrutiny for higher than projected expenses within its earnings release and the CFO, Mr. Perlin spoke of the infrastructure required to be a top-five bank. Bank of America fell short of earnings expectations but, its capital levels surprised on the upside and its efficiency program, Project BAC is ahead of schedule. BankUnited pulled the plug on its own sales and its stock fell 9.5% to $22.58. Goldman, Citigroup and Bank of America issued at least $5 billion of bonds with maturities of 10 and 30 years at yields of 5.7% and greater.  LA-based City National boosted its dividend by 25% and indicated further capital would likely be deployed for bank deals. The SNL U.S. Bank Index increased 0.2%, but the SNL U.S. Thrift Index fell 1.0%.

The SNL U.S. Bank Index and the Thrift Index both rose 1.0% on Friday propelled by healthy earnings and better existing home sales during the month of December.  First Horizon jumped 3.1% to $9.04 on solid earnings and capital levels, even with the $44 million in stock buybacks during the fourth quarter.  Comerica reported healthy earnings and indicated a review of its dividend policy once they hear back from the Federal Reserve on their capital plan in March. Fifth Third was up 2.9% to $13.17 and its capital build may be such that management will seek bank deals later this year.  After a brief hiatus, regulators seized three companies on Friday, one in Florida, Georgia, and Pennsylvania which depleted the deposit insurance fund by $244 million.

The markets posted modest gains with the Dow Jones up 0.3% to 12,392.69, the S&P 500 increased 0.2% to 1,280.70, and the NASDAQ rose 0.1% to 2,676.56 as it waits, in anticipation of fourth quarter and year-end earnings reports. European leaders continued to work towards a resolution of the debt crises.  Talk of a March 1 date for the agreement has come forward as well as a 55%-60% discount by Greek bondholders compared with to the 50% agreement in October 2011.

On Tuesday, domestic wholesale trade was a positive with November 2011 up 0.6% from the prior month an 11.3% higher than a year earlier.  The markets moved higher with the Dow Jones increasing 0.6% to close at 12,462.47, the S&P 500 rose 0.9% to 1,292.08, and the NASDAQ climbed 1.0% to 2,702.50.  Meanwhile, the MF Global debacle remains in the headlines as commodities customers want first priority in repayment of missing funds.

The broader markets were mixed on Wednesday, with the Dow Jones off 0.10% to 12,449.45 while both the S&P 500 and the NASDAQ were up modestly.  The Euro continued its decline and is close to a 16-month low at $1.2672.  The Italian Prime Minister, Monti met with German Chancellor, Merkel and there are elements of forward movement.  The second caucus was in New Hampshire and Mitt Romney secured the top seat.  So, now it is off to somewhat warmer temperatures of South Carolina!

Lackluster employment data could not keep the market down on Thursday and the Dow Jones inched up 0.2% to 12,471.02, the S&P 500 nudged 0.2% to 1,295.50, and the NASDAQ rose 0.5% to 2,724.70.  There were 399,000 initial unemployment claims, up 24,000 over the prior week.  But the bond auctions in Italy and Spain went fairly well and that buoyed the broader markets.

Closing the day off the lows, the Dow Jones fell 0.4% to 12,422.06, the S&P 500 declined 0.5% to 1,289.09, and the NASDAQ decreased 0.5% to 2,710.67 on Friday.  S&P downgraded 53% of the European countries late in the day and that weighed on the markets as the news dribbled out.  While, once again, news of the pending or possible debt downgrades was not shocking but it did weigh on the markets especially since its delivery was not from S&P but from the various country representatives. France and Austria were cut one notch to AA+; and Italy, Portugal, Spain and Cyprus were slashed by two notches; while Germany and seven other countries were reaffirmed.  It is intriguing to witness the multitude of global news items that only a few short months ago would have swooned the US market indices a few hundred points, but for now, are moderate speed bumps on the march upward.

Financials Outperform Ahead Of the Earnings Snowstorm Next Week

The SNL U.S. Bank Index climbed 1.13%, and the SNL U.S. Thrift Index rose 0.55%. JPMorgan is the first large cap bank to report on Friday the 13^th of January and the consensus earnings estimate is $0.95. Next week we will hear from the rest of the large cap banks, many mid-cap banks and a few of the large broker/dealers.  Citigroup was up 1.9% to $29.08, Wells Fargo increased 1.2% to $29.30 and JPMorgan inched lower by 0.2% to $35.30.

On Tuesday, financial stocks continued the march higher.  Even with the recent year-to-date enthusiasm, this sector remains under-owned.  Fannie CEO, Williams, who has been with the company since 1991 will leave once a replacement is named. The SNL U.S. Bank Index increased 1.9%. The SNL U.S. Thrift Index was up 0.9%. Bank of New York is close to a settlement involving foreign currency exchange transactions.

Outpacing the broader markets on Wednesday, the SNL U.S. Bank Index increased 1.3% and the SNL U.S. Thrift Index rose 0.15%.  The Beige Book indicated that the economy continued to grow at a modest to moderate pace from late November to the end of December 2011.  Mortgage applications rose 4.5%, the refinance index increased 3.3%, and the purchase index was up 8.1%, during the week ended January 6.  Leaders in the banks were Citigroup, up 4.2% to $31.27 and Bank of America, rose 3.6% to $6.87.  Raymond James agreed to purchase Morgan Keegan for $930 million, after the close, plus a dividend of $250 million prior to closing the deal which is related to tangible equity and employee retention. 

The SNL U.S. Bank Index increased 0.4% and the SNL U.S. Thrift Index rose 0.3% on Thursday.  KeyCorp announced an agreement to buy 37 locations with $2.4 billion in deposits and $400 million in loans from First Niagara and closed up 0.3% to $8.22.  Regions sold off after the deal announcement, down by 2.3% to $4.69 as speculation rose that this deal would not provide the company with ample capital to repay TARP, so an offering is likely in the cards.  Moody’s may place Raymond James on negative watch following the deal to acquire Morgan Keegan as a result of the additional debt and leverage.

The SNL U.S. Bank Index dropped 1.0% and the SNL U.S. Thrift Index slid 0.2%, after jumping 3.8% and 1.6%, respectively, last week.  While still under-owned, the financials have rallied over the last few weeks, and investors appear to be booking some profits ahead of next week’s avalanche of earnings reports.  JPMorgan led the charge with $0.90, as expected, but revenues were light and shares sank 2.5% to $35.92. Bank of America fell 2.7% to $6.61 amid further speculation that the company may need to sell assets to boost capital if conditions become more severe for the bank. Bucking the overall trend, BankUnited, finished up 1.3% to $23.44, hired Goldman to check the temperature of a sale, according to Bloomberg News.

The broader markets opened strong in the New Year, as the Dow Jones added 1.5% to finish at 12,397.38, the S&P 500 was up 1.6% to 1,277.06, and the NASDAQ gained 1.7% to 2,648.72.  The December PMI came in better than expected, depicting faster growth in manufacturing, rising 1.2% to 53.9.  In addition, global PMI readings came in above projections which helped fuel the rally.

Modest gains posted Tuesday with the Dow Jones up 0.2% to 12,418.42, the S&P 500 rose 0.02% to 1,277.30, while the NASDAQ was off 0.01% to 2,648.36.  New orders for manufactured goods rose 1.8% during the last month.  Ford rallied on better than expected December sales.  President Obama, installed Richard Cordray as the consumer watchdog or head of the Consumer Financial Protection Bureau, using a recess appointment which has stirred much controversy.

The broader markets were mixed on Thursday with the Dow Jones Industrial Average off 0.02%, the S&P 500 up slightly at 0.29%, and the NASDAQ Composite Index increased 0.81%.  The initial unemployment insurance claims were better than expected at 372,000 for the week ended Dec. 31, down 15,000 from the previous week.  The ADP report indicated that nonfarm private business sector employment increased by 325,000 in December from November, on a seasonally adjusted basis. A report from Challenger Gray announced the number of job cuts by U.S. employers declined to 41,785 in December, representing the lowest monthly total since June 2011. Net-net these reports are better than projections, but not adding jobs simply decreasing at a declining pace.

Jobs Friday!  And it did not disappoint.  The unemployment rate fell to 8.5% with 200,000 new jobs created, which were above projections of an uptick in the rate and 175,000 jobs and market futures rose modestly.  By the days end, however, the broader markets were mixed with the Dow Jones off by 0.45% to 12,360.22 and the S&P 500 declined by 0.25% to 1,277.81, while the NASDAQ inched up 0.16% to 2,674.22.  While the jobs number was good, there are still approximately 13.1 million people unemployed, according to the Employment Situation.  Spanish and Italian 10-year bonds yields pushed higher, hitting 5.69% and 7.14%, respectively, according to Bloomberg.

FINANCIALS-Their Moment in the Sun

And they’re off! The SNL U.S. Bank Index increased 3.7% well ahead of the broader markets, while the SNL U.S. Thrift Index was up 1.7%. The Federal Open Market Committee remained cautious on its economic outlook.  JPMorgan jumped 5.2% to 34.98, Citigroup soared 7.7% to 28.33 and Wells Fargo increased 3.2% to $28.43.  According to reports, BAC is cutting lines of credit to small business clients in an effort to shore up capital.  BK rose 3.0% to $20.51 as the company announced that it closed a deal that generated more than $200 million in capital, thereby adding approximately 20 bps to capital.

The SNL U.S. Bank Index inched up 0.1%, and the SNL U.S. Thrift Index rose 1.0% on Tuesday. Mortgage applications fell 3.7% for the week ended December 30, 2011.  The volume of applications jumped 39% during the last two weeks of 2011 compared to 2010.  Meanwhile, investors remained cautious of offerings by European financials.

Speculation about large-scale mortgage refinancing drove banks higher on Thursday. The SNL U.S. Bank Index gained 2.2% and the SNL U.S. Thrift Index rose 0.7%. Bank of America jumped 8.6% to $6.31, SunTrust soared 5.4% to $19.66, Regions increased 4.2% to $4.50, and JPMorgan rose 2.1% to $35.68. 

The SNL U.S. Bank Index slipped 0.54%, while the SNL U.S. Thrift Index advanced 0.37%, similar to the performance of the broader markets.  The large cap banks felt the pressure on Friday with Bank of America down 2.1% to $6.18; JPMorgan dropped 0.9% to $35.36, and Wells Fargo off 0.3% to $28.94. 

It has been speculated for some time that both Stifel and Raymond James have been snooping around Morgan Keegan, which is owned by Regions and perhaps the interest has reached deal stage as a price of between $900 million to $1 billion was mentioned by The Wall Street Journal.  

The newly appointed director of the CFPB (Consumer Financial Protection Bureau), Richard Cordray, in a speech at the Brookings Institution articulated that financial companies taking undue advantage of consumers would face “real consequences.”  Hmm … financial companies have been under intense scrutiny for years, so we are intrigued by this categorization of “real consequences.”

US equity markets closed fairly flat in light trading on Tuesday.  The markets were closed on Monday, December 26th, 2011 in observance of the Christmas holiday.  The S&P 500 Index added 0.1 points to close at 1,265.43 and the DJIA slipped 2.65 points to 12,291.35.  The Conference Board reported that the Consumer Confidence Index improved further in December, on top of the increase in November.  The Index rose to 64.5, up from 55.2 in November, indicating that consumers are more optimistic about current economic conditions.  Alternately, the S&P/Case Shiller home price index fell 1.1% in October, for a 3.0% drop year/year.

Light volume continued in trading on Wednesday and pessimism prevailed.  The S&P 500 Index lost 15.79 points to 1,249.41 and the DJIA fell 139.94 points to 12,151.41.

The successful Italian bond auction results included 9 billion euros of 6 month bills at an average yield of 3.251%, down from 6.504% in November and 1.732 billion euros of 2 year notes at 4.853%, down from 7.814% in November’s auction.  The Financial Times also reported that almost 452 billion euros had been deposited into the ECB’s deposit facility overnight by Eurozone banks, a record high.  Analysts point to continued pessimism over Europe as overshadowing the strengthening economic reports in the US.

Light Week for Bank Stocks to Close Out 2011

Bank stocks performed slightly worse than the broader indices on Tuesday.  The SNL US Bank Index slid 0.89% to 222.33.  Money center banks were generally down, but smaller banks fared better.  The housing data report was in-line with expectations but the Consumer Confidence report beat estimates and provided some support for financial shares.

GE Capital, a division of General Electric, announced they would acquire almost $7.5 billion in deposits from Metlife Inc.  Analysts believed this could be indicative of the type of transactions this sector would see in the coming months as insurance companies and larger banks divest targeted assets to reduce their balance sheets.

US Bank stocks underperformed broader indices on Wednesday.  The SNL US Bank Index lost 1.90% to 218.10.  Investors in large cap US banks were more concerned over uncertainty in Europe than positive momentum in the US economy.  Volumes continued to be light throughout the market and in the banking sector.  Bank of America dropped 3.56% to $5.28, Citigroup fell 2.86% to $26.13, Wells Fargo slid 1.81% to $27.11 and JPMorgan Chase lost 1.15% to $32.65.

On Thursday, Bank stocks outperformed the broader markets.  The SNL US Bank Index rose 2.19% to 222.87.  The Financial Times reported that a Fed-sponsored task force is devising a plan to prevent a repeat of the 2008 repo market debacle.  This move could reduce the role of JPMorgan Chase (JPM) and Bank of New York Mellon (BK) as the main clearing banks.  Both stocks finished strongly with JPM up 2.36% to $33.42 and BK up 2.5% to $20.07.  Other large cap banks finished up solidly on this news as well as the US Department of Labor’s report for initial unemployment claims.

Bank stocks traded with light volume again on Friday.  The SNL US Bank Index lost 0.70% to 221.30, slightly underperforming the broader indices.  There was a lack of headline news and economic reports on Friday that lead to a relatively quiet trading session.  For the week, the Bank Index lost 4.03 points, down 1.35%.

US equity markets struggled again in trading on Monday.  The S&P 500 Index lost 14.31 points to 1,205.35 and the DJIA fell 100.13 points to 11,766.26, extending losses from last week.  There were no new headlines from Europe over the weekend, but investors remained skittish.  Trading volumes were relatively light and most likely will remain so through year-end.  The Financial sector continued to be the worst performing sector of the S&P 500 Index, driven lower by an article in the “Wall Street Journal” that discussed how the Fed will adopt Basel rules to toughen the regulations that apply to banks, particularly the larger banks.  Another hindrance to market enthusiasm was the gridlock in Congress over the payroll tax cut extension.  The Senate passed a 2-month extension and on Monday, it appeared as though the House would not approve it, being more in favor of a 12-month extension.

The markets seemed unphased by the press release from the Fed confirming the “Wall Street Journal” article from Monday suggesting that the Basel rules will be adopted and US banks will be subject to annual stress tests.  Also, the gridlock continued in Washington, D.C. over the payroll tax cut extension.

On Tuesday, US equity markets surged ahead, gaining nearly 3% across the board.  The S&P 500 Index gained 35.86 points to 1,241.21 and the DJIA soared to 12,101.92, up 335.66 points. 

The successful Spanish Treasury bill auction drove markets higher and hurled financial shares up to outperform the broader indices.  The Spanish debt auction was better than expected as more T-bills were sold than planned and at lower yields (i.e. higher prices) than previous auctions.  Investors viewed this as a sign that the debt market in Europe is improving.  US Housing Starts increased 9.3% in November to 685,000, largely due to multi-family starts.  Although the single family construction market has been depressed, housing starts for that group increased 2.3%, and over the past 6 months has increased at about a 15% annualized rate.

US equity markets rebounded in late trading on Wednesday after relatively large early losses to finish slightly higher for the day.  The S&P 500 Index was up 2.42 points to 1,243.72 and the DJIA finished at 12,107.74, up 4.16 points.  Early trading was negatively impacted by the ECB’s announcement of aggressive lending to European banks and the National Association of Realtor’s downward revision of their sales data for the past 4 years.  Technology was the worst performing sector after Oracle (ORCL) reported worse than expected earnings after the close on Tuesday.  ORCL fell more than 10% in after-hours trading following its report of $0.43/share for the quarter ended November 30, 2011 versus analysts’ expectations of $0.57/share.  On Wednesday, ORCL shares slipped to $25.77, down $3.40 from Tuesday’s close at $29.17.

US existing home sales rose 4% in November to 4.42 million, driven entirely by single family home sales.  Data in pending home sales and mortgage applications indicate that home sales should continue to improve.

Positive US economic data was the backdrop for rising markets on Thursday.  The S&P 500 Index rose 10.28 points to 1,254.65.  Investors responded to several US economic headlines and further progress in Europe.  Initial jobless claims fell again, down 4,000, for the week ending December 17^th, 2011, to 364,000, the lowest level since April 2008.  The US Michigan sentiment index rose to 69.9 in December, 5.8 points higher than November.  The Financial sector was the best performing sector of the S&P 500 Index.  Other strong sectors were Technology, Materials, Industrials and Energy.

Friday’s markets were slow and quiet.  Sentiment had been improving over Europe and investors were encouraged by recent US economic reports.  The S&P 500 Index rose 11.33 points to 1,265.33 and the DJIA gained 124.65 points to 12,294.00.

In Washington, the House GOP finally voted in favor of the 2-month payroll tax cut as proposed by the Senate.  US home sales also showed some slight improvement.  New single family home sales rose to 315,000, up 1.6% in November.  US durable goods index also increased 2.8% in November and real consumption rose 0.2%.  Personal income rose 0.1% in November but the savings rate (savings as a percentage of disposable income) slipped to 3.5%.

All in all, the economic reports on Friday were slightly disappointing, falling short of economists’ expectations.  However, investors were encouraged by the housing data that suggested stabilization in the housing market.

Positive US Economic Data Lifts Bank Shares

Bank stocks underperformed the broader indices on Monday.  The SNL US Bank Index fell 2.92% to 206.22 following a slide in European markets.  Bank shares were also weak because of the prospect of the implementation of the Basel rules by the Fed to further tighten bank regulations.  Bank of America (BAC) fell to $4.99, down 4.13%, the first time BAC has closed below $5/share since March 2009.  Wells Fargo lost 2.58% to $25.31.

Builder confidence rose in December for newly built single family homes.  The index rose 2 points to 21, the third consecutive month of increases.

The SNL US Bank Index soared in trading on Tuesday to finish the day at 214.97, up 4.25%.  The strength in bank shares was driven by the Spanish debt auction, which went better than expected.  More debt was issued than expected and at lower yields than forecast, signaling some strength in the eurozone debt markets.  Banks also responded positively to the increase in housing starts, an early signal to a housing recovery, perhaps.  

The ECB lending plans and the National Association of Realtor’s downward revision of home sales data for the last 4 years drove bank stocks lower in early trading on Wednesday.  The SNL US Bank Index managed to gain 0.90% in a late day rally to 216.90.  

Bank of America (BAC) made headlines once again, announcing a settlement with the Justice Department over Countrywide Financial’ s alleged discriminatory mortgage lending practices.  BAC agreed to pay $335 million towards the settlement. Investors had been expecting a larger settlement and were encouraged by this agreement.  BAC shares rose 1.16% to $5.23.

Bank stocks soared in trading on Thursday.  The SNL US Bank Index rose 2.74% to 222.84.  The positive report for initial jobless claims and the improvement in the consumer confidence index drove financial shares higher, outperforming the broader indices.  

Bank of America gained 4.59% to $5.47, continuing the rise in price since the Countrywide settlement on Wednesday.  Other large cap banks improved as well.  JPMorgan Chase moved ahead 3.5% to $33.45, Citigroup rose 5.94% to $27.65 and Wells Fargo gained 1.34% to $27.25.

The US economic reports on Friday were mildly negative.  Bank stocks moved higher but underperformed the broader indices.  The SNL US Bank Index rose 0.67% to 224.34 on Friday, to post a 5.61% gain from a week ago. 

Even though the economic reports for the day were viewed slightly negatively, the housing data which showed an increase in single family home construction encouraged investors.  Also, a relief was the approval by Congress of the two-month extension to the payroll tax cut.  The cut will remain in effect at 4.2% until the end of February 2012, instead of the “regular” 6.2% rate.

The broader domestic markets were weak on Monday as a result of investor disappointment with the European Summit on Friday and the anticipation of S&P’s potential rating downgrade of AAA entities in Europe.  The S&P 500 Index lost 18.72 points to 1,236.47 and the DJIA fell 162.87 points to 12,021.39.  Investors had second thoughts about what the joint agreement from the Summit last week could really accomplish. 

The Technology Sector was down for the day, but in line with the S&P.  Intel (INTC) issued a profit warning and shares dropped 4.04%, down $1.01 to $24.00.  The Healthcare Sector managed to outperform the tape, led by pharmaceuticals.  Pfizer (PFE) announced a $10 billion share buyback program and increased their quarterly dividend to $0.22 from $0.20, which brought the dividend yield to 4.32% based on PFE’s closing price of $20.39, down $0.17 for the day.

Hopes for a year-end rally were beginning to be dashed on Tuesday.  Shares of US stocks fell further as the S&P 500 Index lost 10.74 points to 1,225.73 and the DJIA fell 66.45 points to 11,954.94.  A lack of bad news from Europe allowed the US equity markets to rally in early trading.  Stocks traded higher until the statement was released from the FOMC meeting.  The Fed’s statement included some hawkish commentary, proclaiming that “strains in global financial markets continue to pose significant downside risks to the economic outlook”.  The Fed’s comments reminded investors that we are not yet out of the woods in this recovery.  

Among individual names, Amazon (AMZN) shares dropped 4.75% to $180.51 on concerns over margins for the current quarter.  Even though sales of the Kindle continue to be strong, AMZN is basically breaking even on each unit sold. 

Healthcare outperformed the broader markets slightly, driven once again by pharmaceuticals.  Eli Lilly (LLY) shares had been rising in recent days due to positive results from a Phase I study of a drug to treat a group of blood cancers.  LLY added 1.69%, $0.66 to $39.65 and hit another 52-week high.  Pfizer (PFE) also added to gains from Monday and closed up 1.81% to $20.76.

Added uncertainty in Europe affected US equity markets again on Wednesday.  Greece reemerged as the source of concern as they Greek debt swap arrangement was falling apart.  This vital element to their second bailout caused discord among negotiators who struggled to find agreement in some of the important elements of the deal.  The S&P 500 Index fell 13.91 points to 1,211.82 and the DJIA dropped 129.45 to 11,823.48.  Energy was the worst performing sector of the day replacing the Financial Sector, the usual laggard.  Every sub-industry of the Energy Sector lost value as crude oil slid more than $4 per barrel to $94.95.  

The markets managed to post gains on Thursday, the first positive close since Friday of the prior week.  The S&P 500 rose 3.93 points to 1,215.75 and the DJIA gained 45.33 points to 11,868.81.  Positive economic data and no bad news from Europe allowed markets to move ahead.  The US Producer Price Index (PPI) for finished goods increased 0.3% in November.  Ex-food and energy, the index rose just 0.1%.

Initial jobless claims decreased by 19,000 to 366,000 for the week ending December 10^th.  This index has been improving for the past few months, signaling an improving labor market.  There has been a positive trend in this data for several months.  Economists view a claims level of 350,000 to be encouraging.  Weekly reductions in the initial claims have outpaced short-term expectations and investors have been pleased with the continuing decrease in claims even though the level remains high.

The major US equity indices had mixed results on Friday.  The S&P 500 Index gained 3.91 points to 1,219.66 but the DJIA lost 2.42 points to 11,866.39.   The good news that came from the eurozone was that Italian Prime Minister Mario Monti won a confidence vote on his proposed austerity plan in the lower house of Parliament.  Yields on sovereign debt retreated and helped to modestly ease the debt crisis sentiment.  

Also encouraging to investors was the CPI report.  Inflation remains modest as the CPI showed consumer prices were virtually unchanged in the month of November.   Economists had been expecting a 0.1% increase.  The 0.1% decline in October remained unrevised.  Core CPI, ex-food and energy, rose 0.2% versus 0.1% expected.  On a year-over-year basis, CPI rose 3.4% versus 3.5% expected.  Core CPI was up 2.2% annually, versus 2.1% expected.  

Research In Motion (RIMM) reported third quarter earnings of $1.27, better than $1.24 expected.  Revenues slipped 6% year-year and fell short of analysts’ expectations.  Shares moved lower as RIMM lowered fourth quarter guidance and announced the delay of the Blackberry 10 to the second half of 2012 instead of the first part of the year.  RIMM closed at $13.44, down $1.69 (11.17%).

United Technologies (UTX) reaffirmed 2011 guidance and issued 2012 guidance of $5.80 - $6.00 /share, in line with $5.95 estimates.  UTX forecasts 2012 to be a transitional year and expects moderate global economic growth driven mostly by emerging markets.  UTX, a Dow component, lost $1.14 (1.55%) to $72.39.   

Bank shares rose slightly for the week

Bank stocks dragged down the broader markets in trading on Monday.  The SNL US Banks Index slid 2.80% to 214.95 amid the renewed eurozone sovereign debt worries.  Among large banks, JPMorgan Chase lost 3.44% to $32.04, Bank of America fell 4.72% to $5.45, and Citigroup dropped 5.39% to $27.22. 

Shares of bank stocks underperformed the broader markets once again on Tuesday. The SNL US Bank Index lost 1.71% to 211.28.  Bank shares fell heavily after the FOMC statement, which also drove the broader indices lower. 

Citigroup announced it would sell the remaining stake in Primerica Inc. through a public offering.  Citigroup fared better than the other large cap banks, down 1.18% versus JPM down 2.34%, Wells Fargo off 1.9% and BAC lower by 2.39%.