The European elections, over the weekend, initially weighed heavily on the markets as constituents voted against austerity, but then by the end of the day, there was hardly a sign of the swoon.  The Dow finished off 0.23% to 13,009, the S&P 500 inched up 0.04% to 1,369, and the NASDAQ rose 0.05% to 2,958.  The new French President, Hollande is schedule to meet with Germany Chancellor, Merkel next week and the stage is set for tough negotiations between austerity and growth policies.

The broader markets were down on Tuesday, with the Dow Jones off 0.59% to finish at 12,932, the S&P 500 fell 0.43% to 1,364, and the NASDAQ Composite Index declined 0.39% to 2,946. Dun & Bradstreet lowered its revenue growth expectations for 2012 to 0%-3% from 3%-5%. In a positive automotive comment, Ford stated that it would not close plants for as long this summer, to keep up with demand.

Concerns grew around Greece and funding after the elections created uncertainty regarding the follow through of various austerity plans throughout the region.  These concerns kept the markets in negative territory on Wednesday with the Dow down 0.75% to 12,835, the S&P 500 off 0.67% to 1,355, and the NASDAQ declined 0.39% to 2,935.

Imports continue to outpace exports, thereby further widening the trade deficit by 14% to $51.8 billion in March from the previous month.  The Dow Jones climbed 0.16% to 12,855 and the S&P 500 increased 0.25% to 1,358, while the NASDAQ Composite Index slipped 0.04% to 2,934 on Thursday. Cisco pressured the NASDAQ as it was down more than 10% to $16.81 as its outlook for technology spending disappointed the market. With ninety percent of the S&P 500 companies reporting earnings, sixty-four percent beat consensus, according to Thomson Reuters.

On Friday the broader markets were mixed as the Dow Jones Industrial Average decreased 0.27% to 12,821; the S&P 500 declined 0.34% to 1,353, while the NASDAQ inched up 0.01% to 2,934.  Last night’s news from JPMorgan pressured the large-cap financials significantly. The second largest natural gas producer, Chesapeak Energy received a $3 billion loan at about 8.5% from Goldman Sachs and Jeffries which should allow time to dispose of assets and shore up funding this year. The PPI, producer price index fell 0.2% in April led by a drop of 1.4% in finished energy good prices.  Michigan consumer sentiment came in above forecast, increasing to 77.8 in May from 76.4 in April.  Facebook’s roadshow took place this week and while there is talk of the offering being oversubscribed and possibly raising the price range, it was not a love fest, except for Zuckerberg’s “hoody”.

FINANCIALS- Move Lower as Sector Risk Looks Higher

The SNL Bank Index underperformed the broader markets, falling by 2.72%, while the Thrift Index rose 0.13% for the week.  The most pressing issues on the sector were Greece and the JPMorgan $2 billion trading loss.  The market’s perception of the euro with Greece and without Greece and whether that will open the door for possibly Spain or Portugal to exit was substantially enhanced this week after the plethora of European elections last weekend.

The SNL U.S. Bank Index increased 0.93 % and the SNL U.S. Thrift Index advanced 0.95%, handedly outpacing the broader markets at the start of the week.   The tailwind for the banks was positive comments from the Berkshire annual meeting this past weekend.  Ally Financial may place its mortgage lending unit, Residential Capital, into bankruptcy and losses could be between $400 million and $1.25 billion, according the SNL Interactive.   

Reversing the gains of the prior day, the SNL U.S. Bank Index fell 0.85%, while the SNL U.S. Thrift Index was up 0.18%.  In the Morgan Stanley 10Q a scenario was outlined in which the company would need to pledge additional collateral should its long-term credit be downgraded.  Recall in February that Moody’s stated it may downgrade the ratings of 17 global lenders which included MS.  Additional attention is being given to Spain’s largest banks to ensure solvency and adequate liquidity as the European crises continues to unfold.  Bank of America is offering delinquent homeowners some break on their principal balance, if they qualify.  While this is part of a settlement agreement and there were certainly questionable mortgage practices taking place, it does not seem right?  Is the system rewarding the appropriate behavior? 

The weight of Greece seceding from the euro began settling into the markets and hit the financials particularly hard. The SNL U.S. Bank Index dropped 1.56% and the SNL U.S. Thrift Index fell 0.96% on Wednesday.  To be clear, it is not only the Greek drama that is sitting on the markets, but more southern European countries potentially departing.  The Federal Reserve Board approved the Industrial and Commercial Bank of China’s application to acquire a US bank, Bank of East Asia, according to SNL Interactive, as well as two other Chinese banks to have branches.  On the US front, Mortgage applications rose 1.7% for the week ended May 4, according to the Mortgage Bankers Association, and the refinance share declined to 72.1% of total applications from 72.6% during the previous week. 

Bernanke’s comments were viewed positively by the markets as he said via satellite, that the banking system is healthier and still faces some challenges.  The SNL U.S. Bank Index rose 0.94% to 264.95, and the SNL U.S. Thrift Index climbed 0.63% to 517.71 on Thursday. CEO of Fannie Mae spoke out against principal write-downs as both Fannie and Freddie favor reducing interest rates or waiving payments. SunTrust may be in talks again to shed RidgeWorth Investments. Trading of the largest banks were under pressure after the markets closed on Thursday due to JPMorgan’s announcement that its chief investment office has mark-to-market losses that are substantial, $2 billion, in its synthetic credit portfolio since the end of March.  CEO, Jamie Dimon hosted a call with investors and called these losses egregious and self-inflicted.  Late evening commentaries were questioning Dimon’s reputation, which is scarred but should heal, in our view. 

The SNL U.S. Bank Index fell 2.17% and the SNL U.S. Thrift Index was off 0.65% on Friday.  The JPMorgan hedging loss from Thursday night sat of the performance of the larger banks as investors feared others may announce similar challenges.  JPM dropped 9.3% to $36.96, Bank of America was down 2.0% to $7.55, and Citigroup decreased 4.2% to $29.35. Both S&P and Fitch reduced JPMorgan’s ratings.

A decline in GDP from Spain weighed on Monday’s markets.  Spain’s GDP decreased 0.3% in 1Q12 and recall that the unemployment rate is north of 20%.  Lackluster US economic data was unable to buck the momentum of the euro zone. The Dow Jones slipped 0.1% to 13,214, the S&P 500 fell 0.4% to 1,398 and the NASDAQ Composite Index declined 0.7% to 3,046. The ISM decreased in April to 56.2, a 29-month low.  March personal income data came in on the weak side, up 0.4% in March and consumer spending rose 0.3%.

The first day of May closed on a positive note with the Dow Jones Average rose 0.5% to 13,279, the S&P 500 increased 0.6% to 1,406 and the NASDAQ Composite Index inched upward by 0.1% to 3,050. The ISM for April came in at 54.8%, up 1.4% from the previous month.  Construction spending for March rose 0.1% during the month and 6% over the last 12-months to $808B.

The ADP employment report depicted an increase of 119,000 in April, which was not enough to truly sway the market in either direction on Wednesday.  The Dow Jones Average slipped 0.1% to finish at 13,269, the S&P 500 was off 0.3% to 1,402 and the NASDAQ was higher by 0.3% to 3,060. New orders for manufactured goods fell 1.5% in March, reversing the 1.1% rise in February. 

In anticipation of a poor jobs number, due out Friday, the broader markets finished lower on Thursday with the Dow Jones down 0.5% to 13,207, the S&P 500 was off 0.8% to 1,392 and the NASDAQ dropped 1.2% to close at 3,024.  The consensus range for April’s employment was 163,000 to 170,000 with an employment rate between 8.1% to 8.3%, and meanwhile the March nonfarm payroll stood at 120,000.  Initial unemployment claims improved by 27,000 to 365,000 for the week ended April 28, but remains at a lofty level.  Jobs were further reduced in April by 7.1% or 40,559 positions, according to Challenger Gray.

April jobs came in on Friday below expectations at 115,000, which was not poor enough to reignite fever of QE3, but not strong enough to support the slow US growth.  The unemployment rate improved to 8.1% in April from 8.2% in March.  There is more market pundit talk of yet another slow patch and there was much discussion around the “participation” rate which is at 30-year lows and the 10-year yield fell to 1.88%.  The civilian labor force participation rate declined to 63.6% in April and the driver behind the drop in the unemployment rate are people leaving the workforce.  It is estimated that 342,000 people exited the workforce in April. The Dow Jones fell 1.3% to 13,038, the S&P 500 dropped 1.6% to 1,369, and the NASDAQ decreased 2.3% to 2,956.

Concerns about the global slowdown pressured oils prices even more on Friday.  While the new margin requirements, announced on Thursday do not take hold until August that too weighed on pricing as WTI was off 4% to $98.49 per barrel.  Let us not forget Facebook which launched its roadshow this morning in NYC and should price on May 18.  Initial pricing on Facebook looks to be between $28 and $35 per share, representing a value of $77B to $96B for the company.  It bears noting that this IPO should raise about $12B, and that represents only about 12.5% of the company, at the upper end of the price range.  Also, this weekend both France and Greece are holding elections which could be volatile.

Europe & Lackluster US Recovery Weigh on Financials

European fears weighed on banks and thrifts which outpaced the broader markets to the downside on Monday.  The SNL U.S. Bank Index fell 1.2% and the SNL U.S. Thrift Index was down 1.0%. S&P lowered its rating on several Spanish banks, following the downgrade of its sovereign rating last week.  Showing signs of underlying capital strength Stonegate Bank of Fort Lauderdale, Florida initiated a dividend and First Merchants of Muncie, Indiana raised its dividend.

The SNL U.S. Bank Index jumped 1.4%, while the SNL U.S. Thrift Index declined 0.4%. Deal activity ushered in on the first of May with Independent Bank Corp of Somerville, MA announcing its intent to acquire Central Bancorp and American Perspective Bank announcing a deal with PacWest Bancorp.  Deal activity and pricing is picking up according to statistics at SNL Interactive.  The number of bank and thrift transaction is up 38% during the first quarter 2012 and up 31% over the last year.  The deal value rose substantially in 1Q12 compared to 4Q11.  The price as a percentage of tangible book value stood at an average of 130% in 1Q12, compared to 102% in 4Q11 and to 107% in 1Q11.

The SNL U.S. Bank Index dropped 1.1% and the SNL U.S. Thrift Index was up 0.2% on Wednesday.  The Mortgage Bankers Association’s weekly mortgage applications increased 0.1%, while the refinance index fell 0.7%. Private equity company, Carlyle Group priced its IPO at $22, below the range of $23-$25 on its registration statement. SEI reported 1Q EPS of $0.28, down from $0.31 in the year ago period, just shy of consensus.  Visa posted F2Q net income of $1.3 billion, or $1.91 per share compared to $881 million, or $1.23 per share, a year ago.  Payment volume increased 11.0% to $956 million over the last 12-months, while total operating expenses jumped nearly 13% to $972 million, over the same time period.  Visa increased the upper end of its guidance range to EPS growth to be in the high teens to low 20s for fiscal year 2012.

The battle of wills continues in Spain between the country and the banks.  The bank managements in Spain insist that they have the ability and expertise to work through the poor performing asset process; while some believe the government would like to set up a bad bank.  But questions loom such as who would fund it and who would run it? Perhaps the ESFS?  Not likely, at this time. BBVA and Banco Santander recently filed to raise capital to pay share dividends, according to SNL Interactive.

The view that the jobs number was going to be disappointing on Friday weighed on the SNL U.S. Bank Index and the SNL U.S. Thrift Index which both fell by 0.7%.  Capital One is closing a former HSBC office in CA and will shed 850 positions by mid-2013.  In an interesting move, Freddie Mac posted net income of $577 million, but the provision fell to $1.8B from $2B over the last year and only represented 57% of net charge-offs. Perhaps this is a minor criticism given that the company’s equity is at a deficit of $18 million as of the end of 1Q12, compared to $1.2B in 1Q11.

The SNL U.S. Bank Index shed 2% and the SNL U.S. Thrift Index fell 1% as the weight of the jobs report fell heavily on the financials on Friday.  Would you like a Mercedes?  In exchange for a $1 million 5-year CD, C1 Bank of Florida is offering a new Mercedes with a limit of 2 per household.  Bank of America dropped 3.3% to $7.74 and may settle a suit with former Merrill brokers who departed after the deal.  The Berkshire Hathaway annual meeting is this weekend and the company posted 1Q12 operating earnings of $1,615 per class A share, up 67% from a year ago.

Stocks struggled on Monday, following a rocky start to the week in Europe.  Mark Rutte, Dutch Prime Minister, resigned after failing to win Parliament’s support for austerity measures.  In France, political unrest was developing as French President Nicolas Sarkozy lost the first two rounds of voting to his socialist opponent, Francios Hollande.  

Domestically, an article in The New York Times last weekend accused WalMart (WMT) of bribing local officials in Mexico to facilitate the opening of new stores in that country.  Many of the instances in question occurred over 6 years ago and may be outside the statute of limitations.  An investigation is underway.  WMT closed at $59.03 on Friday, down 5.48% for the week.  

The DJIA and the S&P 500 Index rebounded on Tuesday, nearly recouping the losses of Monday.  The NASDAQ fell 30 points on Monday (down 1%) to 2970.  Another drop on Tuesday left the NASDAQ down another 9 points primarily due to pressure on shares of Apple (AAPL) prior to its quarterly earnings release due out after the close that day.  

The S&P 500 Index and the DJIA were boosted by generally positive corporate earnings reports accompanied by better than expected US economic news on Tuesday.  New home sales declined 7.1% month-month in March.  The decline was primarily due to a large upward revision in February’s data and March’s annualized rate of 328.000 units beat economists’ projections of 319,000.  Home prices, while still declining, appear to be stabilizing.  The S&P/Case Shiller Home Price Index fell 3.49% year-year in February.  However, prices were up 0.2% month-month, seasonally adjusted.  

On Wednesday, the FOMC minutes were released.  The Fed kept its outlook unchanged and characterized the economy as “expanding moderately”.  Bernanke noted that labor market conditions have improved and that unemployment remains elevated, but is improving.  The Fed maintained their stance on the low level for the fed funds rate and it should remain low through late 2014.  Inflation has picked up somewhat in the Fed’s view and they believe the increase in oil and gasoline prices is expected to “affect inflation only temporarily”.  

Despite several corporate earnings reports below expectations and a greater than expected jobless claims level for the past week, US markets moved higher on Thursday.  Weekly jobless claims declined by 1,000 to 388,000 last week versus 375,000 expected.  Pending Home Sales, reported on Thursday, posted gains of 4.1% month-month, versus 1% expected.

US markets shrugged off the S&P downgrade of Spain’s credit rating on Friday.  European markets took it in stride as well.  US GDP for the 1^st quarter was lower than projected at 2.2%, slowing from 3% in the 4^th quarter and less than the 2.5% rate that was expected.  The University of Michigan’s Consumer Sentiment Index was higher than expected at 76.4, up from 76.2 in March.  Economists had been expecting the reading to be unrevised from the initial reporting of 75.7 for the month.  

Corporate earnings highlights for the week showed mixed results:

Conoco Phillips (COP) reported $2.02/share, 6¢ less than expected, but with revenues of $56.1 billion versus $53.6 expected.  On May 1^st, COP will become two separately traded companies:  Conoco Phillips and Phillip 66.  COP declined 1.23% to $71.98 for the week.

AT&T (T) reported 60¢/share versus 57¢ expected and revenues of $31.8 billion, shy of $31.9 billion expected.  T boasted 726,000 total wireless net subscriber additions in the quarter.  T gained 5.87% for the week to $32.67.

3M (MMM) reported $1.63/share beating consensus of $1.49 on revenues of $7.5 billion, in line with expectations, and raised their full year EPS guidance.  MMM closed at $89.36 on Friday, up 2.15% for the week.

Netflix (NFLX) posted a loss for the quarter, down 8¢/share, better than the loss projected by analysts of -27¢.  Revenues were higher than expected at 87.0 million versus 86.6 million.  NFLX expects subscriptions to slow in the 2^nd quarter due to seasonality.  Despite their better-than-expected results, NFLX traded lower on the forecast for the 2^nd quarter and closed the week at $83.74, down 21.08% for the week.

Market mover Apple (AAPL) reported $12.30/share after the market close on Tuesday.  Analysts had estimated $10.04/share.  AAPL revenues grew to $39.2 billion, better than $36.8 billion expected.  AAPL sold 35.1 million iPhones and 1.8 million iPads (both double digit percentage increases).  AAPL recovered losses suffered in the days approaching this earnings release, posting a one-day gain of $49.72 (8.9%) and 5.24% for the week.  AAPL closed at $603.00 on Friday.

Caterpillar (CAT) posted $2.37/share versus $2.73 expected.  Revenues of $16.0 billion fell short of the $16.2 billion expected.  CAT raised their guidance for full year results, but the new level was still below consensus expectations.  Shares finished lower for the week, down 2.94% to $104.56.

Boeing (BA) reported better-than-expected EPS of $1.11/share versus 94¢ estimated.  Revenues rose 30% to $19.4 billion, ahead of $18.4 billion estimated.  BA finished higher for the week, up 5.06% to $77.27.

United Parcel Service (UPS) reported $1.00 share on Thursday versus $1.02 expected.  Revenues fell short of expectations at $13.1 billion versus $13.3 billion projected.  Domestic revenue growth was strong; the shortfall came from Asian markets.  UPS closed at $78.44 on Friday, down 2.28% for the week.

PepsiCo (PEP) beat estimates of 67¢/share by posting earnings of 69¢ and in-line revenues.  PEP pointed to effective pricing and packaging initiatives as growth drivers.  Despite these positive results, PEP traded lower on the release and closed at $66.10 on Friday, off 0.8% for the week.  

ExxonMobil (XOM) posted $2.00/share for the quarter versus $2.09 estimated, on revenues of $124.1 billion, less than $124.8 billion expected.  XOM sited higher operating expenses and lower sales volumes in their exploration and production segments.  XOM traded slightly lower on the announcement on Thursday, but managed to post gains for the week, closing at $86.08 on Friday, up 0.91% week-week. 

Balance Sheet Health Outweighs Earnings

Bank shares generally outperformed the broader US indices for the week, rising on improving US economic releases and better than expected earnings reports across all sectors.  The SNL US Bank Index closed on Friday at 276.23 and the SNL US Thrift Index closed at 528.56, up 1.96% and 2.94% for the week, respectively. 

News from Europe put pressure on bank stocks on Monday, as the broader indices suffered as well.  The political uncertainty in Holland and France rattled investor psyches and drove share prices down in Europe and then in the US.  The balance of the week saw positive performance in the banking sector, as US economic releases have been encouraging.  

The low interest rate environment has driven banks to get their efficiency ratios in line by aggressive cost-cutting measures.  The banks that have reported earnings have shown stronger balance sheets, which has been the real driver behind bank stock performance.  

Although Zions Bancorp (ZION) reported earnings that beat estimates (14¢/share versus 8¢) the stock traded lower on Tuesday after the announcement.  Zion reported only moderate improvement in their credit metrics.  The stock fell 3.58% for the day and posted only a modest gain of 0.54% for the week to $20.65.  

Alternatively, Regions Financial Corp (RF) reported a large decline in nonperforming assets and an improvement in their net charge offs.  Their 1^st quarter earnings came in at 11¢/share ahead of 8¢ expected.  Due to their improved balance sheet, RF shares rose 5.91% on Tuesday after the earnings report and were up 13.34% for the week to finish on Friday at $6.88.

On Monday, retail sales for March gained 0.8% month-month, ahead of the 0.3% increase expected.  The largest categorical increase was in the building materials and gardening equipment sector, up 3% for the month, aided by the unseasonably warm weather in March.  Eleven of the thirteen categories showed broad-based strength. 

The Empire Manufacturing Index slipped more than expected in April, to 6.56 versus 18 expected.  A reading above zero still shows expanding activity, so the report was not an indication of a contraction in manufacturing, just a more pronounced slowdown than had been expected.  The National Association of Home Builders Housing Market Index report also fell short of expectations.  Home builder sentiment slipped to an Index level of 25 in April, down from 28 in March.  Economists had expected an unchanged reading.  An Index level below 50 indicates that the majority of home builders view the housing market as “poor”. 

On Monday, US Investors learned that over the weekend, China announced they would widen the trading band for their yuan currency versus the US dollar, allowing it to fluctuate by 1%, up from the 0.5% restriction in place since 2007.  This action showed that China has confidence in their ability to avoid a hard landing for their economy. 

On Tuesday, housing starts for March came in below expectations, to 654,000 units versus 705,000 expected.  The dip was caused primarily by the decrease in multi-family starts.  Alternatively, building permits beat forecasts, up 4.5% month-month in March, an annual pace of 747.000 versus 710,000 expected, suggesting a future pickup in construction activity.  Spain had a successful auction of short-term debt on Tuesday.  They sold more than €3 billion ($3.9 billion) of one year and 18 month bills.  Spain was viewed as no longer being in immediate risk of default. 

Markets began their two-day slip on Wednesday.  There was an absence of US economic data so investor attentions turned towards Europe.  Anxiety over the impending Spanish long-term debt auction prevailed in European trading and spilled over to US markets.  The Spanish auction on Thursday proved to be relatively favorable.  However, concerns over France’s sovereign credit rating overshadowed the relief of the successful bond auction in Spain.  No new major US economic news was released on Friday and events around the globe were relatively quite.  US Investors turned their attentions to domestic corporate earnings reports.  The NASDAQ suffered particularly on Friday due to some investor shakiness in advance of AAPL’s earnings report due out next week.  Shares of AAPL fell $14.46 on Friday to finish the week at $572.98.  AAPL had been sliding since Wednesday, posting a 5.33% loss for the week. 

A plethora of corporate quarterly earnings reports were scattered throughout the week.  Some of the highlights were as follows: 

In the technology sector, IBM reported $2.78/share versus $2.65 expected.  Revenues were $24.7 billion versus $24.8 billion expected.  IBM finished the week at $199.60, off 1.58% for the week.  Intel (INTC) reported $0.56/share versus $0.50 expected.  Revenues rose to $12.9 billion, ahead of estimates.  INTC closed at $27.60 on Friday, down 1.74% for the week.  Yahoo (YHOO) reported $0.23/share versus $0.17 expected.  Revenues were $1.08 billion versus $1.05 expected.  YHOO posted gains for the week, up 4.91% to finish on Friday at $15.60.  Microsoft (MSFT) reported $0.60/share on Friday versus $0.57 expected.  Revenues increased 6% to $17.4 billion and beat expectations of $17.2 billion.  MSFT finished the week at $32.42, up 5.23% for the week with most of the gain being on Friday, after the earnings report.   

Several industrial companies reported this week as well.  Johnson & Johnson (JNJ) reported $1.37/share versus $1.35 estimated, but revenues declined to $16.1 billion versus $16.3 billion expected.  JNJ closed at $63.71 on Friday, up 0.27% for the week.  CSX Corp (CSX) reported $0.32/share versus $0.38 expected.  Revenues increased to $3.0 billion versus $2.9 billion estimated.  CSX closed at $21.61, down 1.41% for the week.  Verizon (VZ) reported $0.59/share versus $0.58 estimated.  Revenues rose 4.6% to $28.2 billion, in line with expectations.  VZ gained 3.95% for the week, to finish at $38.73.  DuPont (DD) reported $1.61/share versus $1.55 estimated on revenues of $11.2 billion, up 12% and in line with estimates.  DD was up 1.15% for the week, to $52.62.  General Electric (GE) reported $0.34/share versus $0.33 expected and revenues of $35.2 billion versus $34.7 expected.  GE gained 2.54% for the week and closed at $19.36 on Friday.  McDonalds (MCD) reported $1.23/share and revenues of $6.5 billion, both in line with estimates.  MCD shares slid lower for the week, down 1.06% to $95.94.

Better-Than-Expected Earnings Gets Mixed Results

Bank shares underperformed the broader US indices for the week, despite outperforming on Monday and Tuesday.  The SNL US Bank Index closed on Friday at 270.93 and the SNL US Thrift Index closed at 513.48, up 0.5% and 1.3% for the week, respectively.   

US economic reports and corporate earnings drove bank shares higher early in the week.  Bank shares drifted lower by Wednesday, slipping primarily due to valuations.  Thursday and Friday saw further declines in large cap banks. 

Financial shares Citigroup (C), Bank of America (BAC) and American Express (AXP) all reported better-than-expected quarterly earnings, with mixed results for the week.   

C reported $1.11/share versus $1.00 consensus estimates.  Revenues declined to $19.4 billion versus $19.8 billion expected.  C closed at $33.89 on Friday, up 1.44% for the week.   

BAC reported $0.31/share versus $0.12 estimated – however, it is unclear if analysts’ estimates included a “debt securities valuation adjustment”.  BAC shares slipped in the week, down 3.69% to $8.36 on Friday.   

AXP reported $1.07/share versus $1.00 expected and revenues of $7.66 billion, up 8% and in line with expectations.  AXP rose 0.3% to finish the week at $57.45.

Trading on Monday began with the market reaction to the disappointing nonfarm payroll report released on Friday when US equity markets were closed for the holiday.  The report showed a 120,000 month-month increase for March, versus an estimate of a 205,000 increase.  The February data was revised upwardly to 240,000 from 227.000.  The disappointment was obvious as the Dow dropped 131 points (1.0%) and the S&P and NASDAQ each fell 1.1% (16 points and 33 points, respectively). 

The malaise continued into Tuesday with a precipitous slide across the board as the Dow and S&P dropped another 1.7% each and the NASDAQ fell 1.8%.  Growing concerns of global economic weakness resurfaced and disheartened investors.

Markets moved higher on Wednesday and Thursday, but not enough to retrace the losses for the week-to-date.  On Wednesday, Spanish and Italian bond yields decreased (i.e. prices increased), allaying some of the recent renewed concerns over sovereign European debt.  The Fed also released its Beige Book, which noted moderate domestic expansion, although rising energy costs remain a concern.

On Thursday, markets moved markedly higher, as no new bad news was reported and most of the early earnings reports were beating expectations.  Between Wednesday and Thursday, the DJIA rose 270 points and the S&P rose 29 points.

The Producer Price Index, reported on Thursday, showed that wholesale prices were flat month-month in March versus a 0.3% gain expected.  This was an encouraging read on inflation.  Alternatively, the initial jobless claims report was disappointing.  Initial claims for the week ending April 7^th rose to 380,000, up 13,000 and higher than the 355,000 expected.  Typically this sort of news would have sent the markets reeling, but analysts suspect that investors may be almost wishing for bad news so the Fed will take action with another quantitative easing.

On Friday, markets slid further on concerns over Chinese growth and continued uneasiness over eurozone sovereign debt.  China reported their slowest GDP growth in nearly three years.  While GDP growth was still healthy at 8%, the disappointment came at the change in the pace of growth.  On the other side of the globe, attentions turned to Spain again as it was noted that the country’s financial firms borrowed capital from the ECB in March at twice the rate noted in February. 

The CPI report on Friday was benign, showing an increase of 0.3% month-month, in line with expectations.  Year-year, consumer prices were up 2.7%, also in line with estimates.  Broad based inflation is highly unlikely without wage increases and with unemployment at still elevated levels.  A preliminary report from the University of Michigan on the Consumer Sentiment Index showed an unexpected slip in consumers’ confidence in April to 75.7, down from 76.2 in March.  The decline in the current economic conditions component more than offset the increase in the economic outlook portion of the index.

US Treasury prices were higher for the week as equities struggled.  The yield on the 30-year note slid from 3.21% to 3.13%, the 10-year fell from 2.05% to 1.99% and the 2-year went from 0.32% to 0.27% in the week.

In corporate news, AOL reported that they would sell over 800 of their patents to Microsoft (MSFT) for $1.06 billion in cash.  AOL expects to return most of the proceeds to shareholders and is investigating the most effective way to do so.  AOL increased 40% for the week, closing at $25.79.  Shares of MSFT slipped 2.2% for the week to $30.81.

Shares of Nokia (NOK) dropped 15.7% on Wednesday after announcing they expected tighter margins in mobile devices and services due to competition in India, the Middle East, Africa and China.  NOK closed on Friday at $4.02, down 21.3% for the week. 

After the market closed on Wednesday, the earnings season kicked off with Alcoa (AA) reporting better-than-expected EPS of $0.10 versus analysts’ estimates of a loss of $0.04.  AA shares jumped 2.7% in trading on Thursday and managed to post 2.3% gains for the week to close at $9.85, despite the decline in the broader markets.

Google (GOOG) announced earnings after the close on Thursday at $10.08/share, ahead of $9.65 expected.  The board also announced a stock dividend.  Each shareholder will receive one share of a new class of non-voting stock, which will be listed on NASDAQ under a different symbol.  Shares of GOOG dropped 4.1%, $26.41, to $624.60.

Rite Aid (RAD) posted a fiscal 4^th quarter loss of $0.04/share versus $0.07/share expected.  Revenues were better than expected at $7.1 billion and same store sales grew 3% year-year.  

Hewlett Packard (HPQ) rose after Gartner Inc. (IT) and IDC both announced that their first quarter shipments of PCs rose unexpectedly and noted that HPQ remained the top PC maker based on shipments.  HPQ gained 6.3% for the week.

JPMorgan Chase (JPM) reported earnings of $1.31/share on Friday beating analysts’ forecast of $1.18/share.  They also increased the quarterly dividend by 20% to $0.30/share and announced a new $15 billion share buyback program.  CEO Jamie Dimon stated that overall performance was strong but that he expects “elevated levels of costs and losses associated with mortgage-related issues for a while longer”.  JPM lost 3.6% for the day and dropped 2.5% for the week, to close at $43.21. 

Wells Fargo (WFC) also reported earnings on Friday.  Analysts had expected $0.73/share for the first quarter but WFC reported a slightly better $0.75/share and a 20% increase in revenues, also slightly ahead of expectations, citing deposit growth and an increase in core loans along with improvement in its capital position and credit quality.  Despite the encouraging report, WFC lost 3.5% on Friday and posted a loss of 2.6% for the week, closing at $32.84.

Bank Shares Slide Further

Both the SNL US Bank Index and the SNL US Thrift Index underperformed the broader indices for the week, down 3.3% and 3.0% respectively.  Despite encouraging earnings reports from some of the larger banks and a mid-week rally, inflation fears and worse than expected employment data drove bank shares lower.  The same pressures that affected the broader markets this week plagued bank shares as well, although to a more drastic degree.

North Carolina based BB&T Corp. (BBT) plans to open a regional headquarters and branch in San Antonio.  BBT will establish permanent office space within the next 30 days and plans to expand throughout the state through organic growth and potential acquisitions of institutions of at least $1 billion in asset size.  BBT expects to have at least 29 branches in Texas by the end of this calendar year. 

JPMorgan Chase (JPM) announced that they incurred a $2.5 billion pretax expense for litigation reserves in the first quarter.  JPM is a party to several outstanding litigation issues primarily related to transactions structured by acquired Bear Stearns and Washington Mutual.  The reserve will cover mortgage-related matters.  They also reported a mortgage loan repurchase liability of $3.52 billion, down from $3.56 billion the prior quarter. 

Bank of America (BAC) continues to be plagued by litigation as well.  In their most recent 10-K, they reported that their exposure could leave them $5 billion in excess of current accruals.  BAC will report earnings in the coming week and as a part of that will provide more transparency. 

Fitch reported commercial real estate loan CDO (collateralized debt obligations) delinquencies rose slightly in March to 13.6%, up from 13.4% in February.  Fitch cited a decrease in collateral due to realized losses (i.e. declining market values of real assets).  Asset managers reported realized losses of $35 million.

The SNL US Bank Index finished the week at 269.42 and the SNL US Thrift Index closed at 506.80.  

On Monday, investors were encouraged by a strong US manufacturing report.  The ISM Manufacturing Index rose to 53.4 in March, up from 52.4 in February and ahead of economists’ expectations of 53.  As a leading indicator, this report encouraged investors that economic activity is picking up.  

Minutes from the latest Fed meeting were released late Tuesday afternoon.  Chairman Bernanke noted that accommodative monetary policy is still necessary to bolster the US economic recovery amid growing global economic concerns.  The prospect of another quantitative easing temporarily encouraged investors, but hopes were quickly dashed as Bernanke neither confirmed nor denied further policy accommodation.  More time was spent on current economic conditions, acknowledging an expanding economy, but not enough improvement to nudge members away from their long-term outlooks.  This announcement from the Fed’s March 13^th meeting rocked the markets late on Tuesday and spilled over into Wednesday’s trading activity.  The DJIA gave up all of Monday’s gains and then some on Tuesday (down 65 points) and slid down another 124 points on Wednesday.  The S&P 500 Index fared similarly, dropping 20 points in the two days.  

European debt crisis concerns resurfaced, but this time with Spain.  The hope and expectation is that the Eurozone “learned their lesson” with the debacle in Greece and will handle this crisis with more efficiency.  Spain’s public debt will reach 79.8% of its GDP this year, well ahead of the European Union’s recommended 60% limit.  It is also the country’s highest level since its return to democracy in 1978.  Adding to concern, Spain’s unemployment level continues to tick higher.

On Wednesday, the ADP Employment Change Report revealed that private sector payrolls rose by 209,000 jobs in March, better than expectations of 206,000, and February’s data was revised upwardly to a 230,000 gain.  The unemployment rate is expected to remain at 8.3%.

US Equity markets traded nearly flat on Thursday, limiting the losses for the shortened trading week.  Supporting the markets was the Initial jobless claims for the week ending March 30^th, 2012 which slid by 6,000 to 357,000, the lowest level since April 2008 and the four week moving average dropped by 4,250 to 361,750.  Continuing claims also declined by 16,000 to 3,338,000.  

Other encouraging news on Thursday included US retailer same store sales reports for March.  Most of the reports exceeded expectations.  Notable mentions are Target (TGT) up 7.3% year-year and Macy’s (M) up 7.3%, both exceeding expectations.  Costco (COST) up 6% year-year fell slightly short of analysts’ estimates of 6.7%.

In individual company news, Coty Inc, a global, privately-held beauty company announced that it had made a bid to acquire Avon Products (AVP) for $23.25/share in cash.  AVP shares had been trading in the high-teens year to date, and on this news, jumped to finish at $22.83.  AVP rejected the offer indicating their belief that Coty’s interest is opportunistic and not in AVP shareholders’ best interest.

Groupon (GRPN) reported a revision of their 4^th quarter financial results, which caused a reduction in their reported 4^th quarter revenue by $14.3 million and an increase in operating expenses.  These revisions impacted 4^th quarter operating income by $0.04/share.  Shares of GRPN dropped $3.10 (16.9%) in trading on Monday to $15.28 and slid further by the end of Thursday to $14.18. 

Molson Coors Brewing (TAP) reached an agreement to acquire Star Bev, a European beverage company owned by private equity firm CVC Partners.  The deal is priced at $3.5 billion.  The acquisition will give TAP an enhanced product portfolio and access to new markets, such as Eastern Europe.  

Monsanto (MON) reported their 2^nd fiscal quarter earnings ex-items of $2.28, beating analyst’s expectations of $2.12.  Revenues were up 15% year-year to $4.7 billion, also better than expected.  MON also raised their full year EPS outlook.  Shares slipped along with the broader markets, despite the positive report.  MON finished the week at $79.02.

The major US automakers reported sales for the US market in March.  Ford (F) reported a 5.1% year-year increase, Chrysler sales jumped 34.2% and GM sales were up 11.8%.  Foreign rivals also posted strong results.  Toyota Motor’s (TM) US sales were up 15.3%, Nissan Motor (NSANY) sales rose 12.5% and Volkswagen (VLKAY) sales jumped 35%.  Shares of the automakers all slipped lower on Tuesday despite the encouraging sales reports, due to broader market malaise.   

Bank Shares Take a Breather…    

Bank stocks moved in tandem, directionally, with the broader markets this week but underperformed on a percentage basis.  The SNL U.S. Bank Index finished the week at 278.60, down 6.32 points or -2.2% and the SNL U.S. Thrift Index closed at 522.57, off 6.72 points or -1.3%.  

The week started with positive US economic reports and financial shares rallied with the broader markets.  However, bank stocks slipped in trading the rest of the week after the release of the Fed minutes on Tuesday, concern over Europe (Spain in particular) and the prospect of impending quarterly earnings report releases in the coming weeks drove shares lower.

JPMorgan Chase (JPM) announced Wednesday that they have reached a $20 million settlement with the CFTC over an investigation into their ties to the collapse of Lehman Brothers.  JPM also announced that they paid total compensation to Chairman, President and CEO, Jamie Dimon, $23.1 million in 2011.  

PNC Financial Services (PNC) increased their quarterly dividend by $0.05/share and disclosed plans to repurchase up to $250 million of common stock.  PNC lost 1.49% for the week, closing at $63.53 on Thursday.

Other large cap banks fared similarly this week.  JPM dropped 3.57% to $44.34, Wells Fargo (WFC) fell 1.2% to $33.73, and Citigroup (C) finished the week at $34.79, dropping 4.82%, while Bank of America (BAC) fell 3.55% to $9.23. 

However, there is still much global turmoil, reduced growth from China, Spain’s unemployment is close to 23%, sanctions on Iran and remember the US national debt is at about $15.6 trillion.  And what should be done to move Fannie and Freddie off the government’s support system?  At some point, the global economies will need to stand on their own, without the support of their respective government sponsored funds and programs.  This transition is not likely to be seamless.

Bernanke made comments on Monday that were interpreted by the markets as favoring further easing of monetary policy. The Dow Jones advanced 1.2% to 13,241.63, the NASDAQ jumped 1.8% to 3.122.57 and the S&P 500 increased 1.4% to 1,416.51.  The market shrugged off the lackluster pending home sales data which fell 0.5% in February to 96.5 and were 9.2% above a year earlier.

The JOBS Act passed the House by a wide margin on Tuesday.  Recall that this act is to ease certain regulatory burdens on small companies and thereby, increase job creation.  Specifically, it increases the number of investors to 2,000 from 500 before registering with the SEC and exempts employees.  Further, it should streamline the hurdles to bring a company public. The broader markets shed some of its gains from Monday due primarily to lackluster consumer confidence and housing data.  The Dow Jones declined 0.3% to 13,197.73, the S&P 500 decreased 0.3% to 1,412.52 and the NASDAQ fell 0.1% to 3,120.35.  The S&P Case-Shiller home price 20-city index fell 3.8%, over the last year.

The Affordable Health Care Act was debated for the third day before the US Supreme Court and there was much speculation in support of and against the Act, but from here it looks like we may have a public decision by the end of June from the high court and much speculation beforehand.  On Wednesday, concerns about Spain relatively weak durable goods kept a lid on the broader markets.  The major averages retreated on Wednesday with the Dow Jones declining 0.5% to 13,126.21, the S&P 500 decreased 0.5% to 1,405.54 and the NASDAQ fell 0.5% to 3,104.96.

Initial unemployment claims were 359,000, off 5,000 for the week ended March 24 which was within the forecasted range.  The broader markets were mixed on Thursday with the Dow Jones moving up slightly to 13,145.82, up 0.15%, the S&P 500 slipped 0.16% to 1,403.28 and the NASDAQ declined 0.31% to 3,095.36.  The Greek government moved the deadline for YE2011 results for banks to April 20 from March 31.

Coming in ahead of forecast, personal and disposable personal income rose 0.2% in February, while consumer spending advanced 0.8%, mostly due to car purchases. Consumer sentiment climbed to 76.2 in March, well above of the expectations of 74.7.  Partially offsetting the positive consumer data was the ISM, the business barometer, of 62.2, which was below projections of 63. Richmond Fed Chairman Lacker splashed some cold water on Bernanke’s comments earlier in the week, by stating that QE3 or more quantitative easing was not necessary and rates may need to move upward in the middle of next year.  Groupon, already down from its IPO level, released revised financial results which further increases internal control questions. Visa and MasterCard reported that a breach of security occurred at Global Payments and millions of cardholders could be affected.  Stay tuned!

FINANCIALS-Uptick in M&A

During the first quarter 2012, bank and thrift deals numbered 49 with 86% stemming from the bank sector.  The deal volume of both banks and thrifts jumped 36% linked quarter and by 26% over the last 12 months.  The other very noticeable change, in addition to volume has been price.  The average price-to-book in 1Q12 stood at 119%, up from 98% in 4Q11 and from 99% in 1Q11.  The average price as a percentage of deposits was 13.84% in the first quarter 2012 compared to 12.01% in the prior quarter and to 13.19% in the first quarter of 2011.  The SNL U.S. Bank Index gave stunning performance, advancing 28.8% and the SNL U.S. Thrift Index gained 10.0%, during the first quarter 2012 driven in large part by positive US economic data and the results of the financial stress tests lent underlying support to the sector.

Comments by Bernanke kicked off the week and drove the markets broader markets higher.  The SNL U.S. Bank Index advanced 1.7% and the SNL U.S. Thrift Index gained 0.9% on Monday. American Express rose 2.5% to $58.66 on the announcement of its dividend hike of 11% as well as the share buyback of 150 million shares.  Citigroup shares were up 0.8% to $37.43 on news that the company will cut its interest in Akbank TAS in half to below 10%.  City National closed up 1.3% to $54.44 on a Jack in the Box judgment in their favor of $8.5 million.  M&A continues with FNB Bancorp agreeing to purchase Oceanic Bank in a cash deal valued at $28 million representing 86.2% of book value or 23% of deposits.

Retreating from Monday’s gains the SNL U.S. Bank Index fell 1.3% and the SNL U.S. Thrift Index was down 0.8% on less than expected consumer and housing data.  M&A persisted on Tuesday with Capital Bank Financial purchasing Southern Community and AmericanWest Bank buying Security Business. Southern Community (SCMF) jumped more than 35% and Security Business (SBBC) soared approximately 20%.  Other relatively small regionals have filed shelfs to raise capital and one clear use would be M&A.

BAC, up more than 75% year-to-date as of Wednesday, announced fairly impressive executive bonus packages.  In a small deal, FBT Bancshares is acquiring Bank of Risen, both of Arkansas, and should have proforma assets of about $150 million.  Bucking the trend of the broader markets, the SNL U.S. Bank Index jumped 1.0% and the SNL U.S. Thrift Index rose 0.9%. Many banks hit new highs with PNC Financial ending at $64.70, up 2.5% and BB&T Corp soared 2.6% to close at $31.88.

Giving up gains from the previous day, again, the SNL U.S. Bank Index dropped 1.3% and the SNL U.S. Thrift Index fell 0.8% as economic indications were in-line with expectations.  South Street Financial of North Carolina suspended its dividend in order to preserve capital given the economic environment which seems prudent given its credit quality ratios as well.

Financials tried hard to break into the green on Friday and rally with the broader markets that were lifted by positive consumer data points. Across the pond, the Eurogroup raised its lending ceiling of its two bailout funds, European Stability Mechanism (ESM) and European Financial Stability Facility (EFSF), to $700 billion euro from $500 billion euro, with $500 billion euro coming from ESM and $200 billion euro from EFSF.  This deal is intriguing as New York Community agreed to receive approximately $2.3 billion of deposits in a mix of $1.5 billion of brokered CDs, $800 million of retail and institutional CDs and $30 million of money market funds from Aurora Bank and to get paid $24 million.  S&T Bancorp announced its intent to buy Gateway Bank of Pennsylvania in a stock/cash deal valued at $22 million that should close in 3Q12.  Continuing this consolidation activity, Flint Hills Bank of Kansas is seeking to acquire certain assets and deposits from First State Bank of Burlingame.

The broader markets advanced Monday with the Dow Jones edged higher by 0.05% to 13,239.13, the S&P 500 rose 0.4% to 1,409.75 and the NASDAQ increased 0.8% to 3,078.32.   The National Association of Home Builders announced that homebuilder confidence in the market for new single-family homes was steady and the index held at 28.  The big news of the day was Apple, not out with another product, but rather a capital plan to utilize a fraction of its hoard of cash.  Apple will pay a quarterly dividend of $2.65 per share beginning in July, representing a dividend yield of 1.8% and a share buyback of $10 billion beginning next fiscal year.

Private housing starts slid 1.1% to 698,000 in February, but were up 34.7% from a year earlier, according to the US Census Bureau and US Department of Housing and Urban Development.  China significantly raised fuel prices which spooked the markets. The broader markets fell modestly on Tuesday, with the Dow Jones down 0.5% to 13,170.19, the S&P 500 was off 0.3% to 1,405.52 and the NASDAQ finished at 3,074.15, sliding 0.1%.  Apple’s heating up—yes the stock but, also the New iPad radiates at a higher temperature. Should that be a concern?

The broader markets turned in a mixed performance on Wednesday with the Dow Jones fell 0.4% to 13,124.62, and the S&P 500 declined 0.2% to 1,402.89, while the NASDAQ rose 0.04% to 3,075.32. Existing home sales declined by 0.9% in February to 4.59 million and mortgage applications dropped by 7.4% for the week ended March 16.

Nike was up 0.5% to $110.99 on an earnings beat and a stock buyback plan of 2.5 million shares on Thursday.  With the Olympics this year and world cup in Brazil, world-wide future orders for the Nike brand were up 15% to $9.4 billion.  A version of the STOCK Act (Stop Trading on Congressional Knowledge) received U.S. Senate approval.  It is a scaled-down bill to prohibit members of Congress, the president and thousands of other federal workers from profiting from nonpublic information learned on the job.  When this first came to light in a 60-minutes episode late last year, it seemed odd that this simply was not against the law that the rest of the US citizens must adhere to, but that’s just my opinion. Despite some positive US economic data, the slowdown in China, related to the European crises, continued to weigh on the markets with the Dow Jones down 0.6% to 13,046.14, the S&P 500 off 0.7% to 1,392.78 and the NASDAQ decreased 0.4% to 3,063.32.

Despite disappointing new single family home sales, the broader markets advanced modestly with the Dow Jones up 0.3% to 13,080.73, the S&P 500 increased 0.3% to 1,397.11 and the NASDAQ rose 0.15% to 3,067.92 on Friday.   New single family home sales were off 1.6% to 313,000 in February and the median sales price was $233,700, while the supply on the market is nearly 6 months. Late in the day, the MF Global, where’$ Waldo, continued to unfold with information that the former head, indeed may have known of the funds transfer.  Expectations are off the charts for the movie, Hunger Games, and the stock of Lionsgate, LGF is up approximately 75% year-to-date reflecting a box office gross above $120 million!

FINANCIALS—M&A Activity Rising, But Lackluster Economic Indicators

The SNL U.S. Bank Index rose 0.6% and the SNL U.S. Thrift Index improved 0.7%. Regions raised approximately $900 million from a public stock offering on Monday and fell about 1% to $6.35.  Bank of America crossed $10 per share before closing at $9.53, down 2.8%. 

Iberia was off 1.6% to $54.56 after agreeing to purchase Florida Gulf Bancorp in a deal valued at $45 million.  Iberia is paying 141% price-to-book value and a price-to-deposits of 16% at the announced deal value per share of $23.00. The SNL U.S. Bank Index rose 0.6% and the SNL U.S. Thrift Index fell 0.2% on Tuesday.   Once the integration of Marshall & Ilsley is completed later this year, BMO Financial stated that it plans to be acquisitive in the US, according to Bloomberg News.

The financials were weighed down by lackluster existing home sales and mortgage applications on Wednesday.  Testimony and questioning by Federal Reserve Chairman, Ben Bernanke and US Treasury Secretary, Tim Geithner were restrained in their comments about the US and Europe.  The SNL U.S. Bank Index declined 0.5% and the SNL U.S. Thrift Index fell by the same percentage.

The US Senate passed a bill that is also likely to pass the House, which raises the investor cap to register with the SEC to 2,000 from 500 on Thursday.  This is a positive move as it allows additional access to capital for these institutions without adding burdensome costs. Underperforming the broader markets, the SNL U.S. Bank Index dropped 1.6% and the SNL U.S. Thrift Index was off 1.1%.  Raymond James filed an 8-k indicating that the Morgan Keegan purchase from Regions should  negatively impact earnings in the current quarter and the deal should still close on April 2.

Trading issues hit Apple which halted trading for a while and BATS Global Markets which decided to withdraw its IPO on Friday.  The SNL U.S. Bank Index increased 1.0% and the SNL U.S. Thrift Index advanced 0.9%.  Bank of America finished at $37.13, up 2.6% on news of a pilot program called Mortgage to Lease to convert underwater homeowners into rentals tenants.  This invitation only program was being rolled out in hard hit states such as Nevada, Arizona, and New York and would encompass about 1,000 customers.  While BAC will initially retain ownership of the properties, they will eventually be sold to investors.  Wells Fargo rose 0.5% to $33.53 as the SEC is pushing for more documentation relating to the sale of mortgage backed securities during the financial crises.  Overseas, the Bank of England’s Financial Policy Committee urges banks to raise more capital, especially for those institutions that have exposure to countries with economic challenges.

Holding the markets back on Monday was reduced growth from China, higher oil prices and mixed economic data. The Dow Jones Index fell 0.1% to 12,962.81, the NASDAQ declined 0.9% to 2,950.48 and the S&P 500 decreased 0.4% to 1,364.33.  New orders for US factory goods fell 1% in January which was less than expected, according to the Commerce Department, but the December number was revised upward by 0.3% to 1.4%.  Meanwhile, the ISM’s services index increased to 57.3 in February from 56.8 in January which was above consensus and represented the 26^th consecutive month of growth.  The Greek bondholders have till Thursday evening to participate in the Government’s tender offer which may result in a loss of more than 60% of the value.  Chinese Premier Wen Jiabao reduced the country’s 2012 growth target to 7.5% from 8%, according to Reuters and Mr.  Jiabao set boosting consumer demand as the top priority of 2012.

Super Tuesday at the polls! It is a tough battle and there are still no clear contenders for the Republicans, although Romney took five states, Santorum three states, and Gingrich only one state.  In the race toward 1,144, Romney has approximately 332 delegates; Santorum has 139, Gingrich 75 and Paul 35.  The market swooned lower on Tuesday as the Greek debt fears on the swap deal deadline approach.  The Dow Jones fell 1.6% to finish at 12,759.15, the S&P 500 declined 1.5% to 1,343.36, and the NASDAQ was down 1.4% to 2,910.32.  The expectation is that Greece will have 75% to 80% participation in a bond swap, short of the 90% required to avoid the activation of collective action clauses that will compel unwilling investors, according to The Wall Street Journal. In an effort to help, President Obama announced a plan to reduce fees for FHA-backed borrowers when they refinance their loans.

In the broader markets, the Dow Jones increased 0.6% to 12,837.33, the NASDAQ rose 0.9% to 2,935.69 and the S&P 500 advanced 0.7% to 1,352.63. Apple’s New iPad release was a net-net positive with a high-end model priced north of $800 and traveling at speeds of 4G LTE or long-term evolution, which equates to nearly 10x faster than present 3G technology. The ADP report came in better than expected at 216,000 versus consensus of 208,000 on Wednesday.  Productivity increased at an annualized rate of 0.9% during the final quarter of 2011 and there is some thought that while slower productivity is not good for company profits it may bode well for future hiring.  Behind the scenes there was some market talk of US quantitative easing.  Further, Brazil cut rates by 75bps which was more than expected and Australia’s GDP fell shy of projections. 

Fears of a Greek default due to lack of participation in the swap were diminishing heading into trading on Thursday morning.  Fueling the rally during the day was news that more than 75% had participated in the deal which called for a 53.5% loss and the initial results are to be released on Friday.  The Dow Jones Industrial increased 0.6% to 12,907.94, the NASDAQ advanced 1.2% to 2,970.42 and the S&P 500 rose 1.0% to 1,365.91.    

The much anticipated jobs number is expected to be 210,000 and the unemployment rate is expected to remain stable at 8.3% with the solid jobs number buoyed by warmer weather in February.  Coming in better than expected, employment rose 227,000 and the rate held firm at 8.3% on Friday morning.  The US posted a trade deficit in January that was at its widest in 3-years as imports hit highs representing purchases of items such as foreign cars, computers and food.  Greece secured nearly 84% participation of its bond swap which will enable them to force participation up to almost 96%, through collective action clauses.  This Greek bond swap was deemed a credit event by the International Swaps and Derivatives Association thereby triggering approximately $3.2B which was less than projected in CDS or insurance policies that pay if a bond issuer defaults. 

While there were several positive indicators this week, in our view there are more items on the list to be checked off.  Some of the more pressing items, and these are in no particular order, are slowing global growth, rising oil prices, the standoff between Iran and Israel, as well as several other countries in stations of unrest.  And oh yes, the US still has this housing issue to deal with plus Fannie and Freddie are still in conservatorship and run by FHFA, the Federal Housing Financial Authority with balance sheets that top $5T!

Financials-Wowed the Market

Broadly speaking, banks and thrifts outperformed the major markets during trading with noticeable performance booked in the SNL Small Cap US Bank & Thrift Index which jumped 3.8% during the week.

Once upon a time Wells Fargo would not contemplate moving east of the Mississippi, but on Monday the company outlined plans for its overseas operations and wants to expand into 20 markets worldwide, according to the London’s Financial Times. The SNL U.S. Bank Index was off 0.9%, while the SNL U.S. Thrift Index was slightly by 0.05%.

Outpacing the broader markets to the downside, the SNL U.S. Bank Index dropped 2.8%, its steepest decline since December 19^th 2011 when it was off 2.9%. The SNL U.S. Thrift Index was down 1.4%, which was more in-line with the broader markets on Tuesday.  Why all of the profit taking?  Well, it seems on some days, what happens in Greece does matter!  And there are fears that slowing growth in China and Brazil for instance could further slow the US economy and thereby, stall our modest recovery.  On the M&A front, Cadence Bancorp announced its intent to acquire Encore Bancshares in a deal valued at $250 million, representing 2.4x tangible book value and 23% of deposits.

Outperforming the broader markets, the SNL U.S. Bank Index increased 1.8% and the SNL U.S. Thrift Index advanced 1.5% on positive jobs data from ADP and encouraging productivity information. Leading the charge higher on Wednesday was Bank of America, up 4.0% to $8.02, Citigroup jumped 3.5% to $33.24, and JPMorgan rose 1.6% to $39.95.  Mortgage application fell 1.2% during the week of March 2 and national home prices, including distressed sales dropped 3.1% in January versus the prior year, according to CoreLogic. 

Wells Fargo was back in the news on a Reuters report that the company will continue to consider European asset sales.  Bank stress test results are due on March 15 and these tests are expected to be an annual event as was reported late last year.  In addition to the stress tests, several banks must also pass shock tests. While mortgage applications fell yesterday, Freddie Mac posted the 30-year fixed rate averaged at 3.88% for the week ended March 8, down from 3.90% the prior week and the 15-year fixed was 3.13% compared with 3.17% for the same times periods. The SNL U.S. Bank Index rose 1.7%, and the SNL U.S. Thrift Index climbed 0.04% higher on Thursday.

The financials outperformed the broader markets on this jobs Friday!  The moderately better than expected employment report as well as the Greek bond swap helped lift stocks.  The OCC approved the Capital One deal to acquire about $30B in credit card assets from HSBC Bank Nevada NA as well as certain liabilities which had a lengthy comment period.  According to Bloomberg, the Federal Reserve may delay some banks proposals to pay dividends and repurchase shares because of a difference in calculating potential consumer losses in the event of a financial crisis.  The SNL U.S. Bank Index was up 1.0% and the SNL U.S. Thrift Index increased 1.4%.