Weekly Notes from Paul Resnik, CFA: Feb 02, 2016

Paul Resnik operates Resnik Asset Management Co. (RAMCO), a registered investment advisor.

Overview

A huge rally on Friday enabled the major averages to finish the week higher; the Dow Jones Industrial Average ended up 372.79 points (2.32%), the S&P 500 gained 33.34 points (1.75%), and the Nasdaq Composite advanced 22.77 points (0.50%). Stocks struggled through most of the week with the Federal Reserve's Wednesday statement not ruling out another rate hike in March disappointing investors who have become increasingly skittish about the health of the economy. Interestingly, Friday's advanced fourth quarter Gross Domestic Product (GDP) report of only 0.7% growth seemed good news to those who are looking for reasons for the Fed to put any further rate hikes on hold. The ability for crude oil prices to rebound from Monday's low and maintain levels reached after a strong rally on Thursday also bolstered stocks. However, perhaps the biggest boost for the market was the Bank of Japan's decision to move its benchmark lending rate below zero. The proportion of global GDP governed by central banks with negative policy rates (Japan, Eurozone, Denmark and Sweden) now stands at 23%.

In the News

A line of Stephen Curry basketball sneakers which it began selling last year and increased demand for its athletic wear helped Under Armour post better-than-expected financial results in the fourth quarter. The Company reported net income EPS of $0.48 ,up from $0.40 in the year-earlier period and $0.02 above the consensus estimate. Revenue rose nearly 31% to $1.17 billion in the period, also exceeding forecasts which were $1.12 billion. For the year, the Company reported EPS of $1.05 vs. $0.95. Revenue was reported as $3.96 billion vs. $3.08 billion. Curry, who plays for the Golden State Warriors, now has a deal with Under Armour that extends through the end of 2024. Under Armour said that its footwear revenue in the fourth quarter jumped 95% to $167 million. Apparel revenue rose 22% to $865 million, helped by higher demand for training, running, golf and basketball gear. Under Armour now expects full-year revenue for 2016 of $4.95 billion, slightly above the prior average analyst estimate of $4.91 billion. The stock finished the week up 21%.

Amazon.com net profit for the fourth quarter, which includes the holiday shopping season, rose to $482 million, or $1.00 per share, up from $214 million, or $0.45 per share, a year earlier. While this was Amazon's most profitable quarter ever, the EPS figure, held back by rising operating costs, was well below analysts' average forecast of $1.56. The results, as well as Amazon's determination to invest more in new areas and its extremely low profit margins, brought back perennial questions for investors about the Company's ability to consistently earn money. For every dollar the Company takes, it makes just 0.75 of a cent in profit. Net sales rose 21.8% to $35.75 billion, but missed analysts' expectations of $35.93 billion (excluding a $1.2 billion unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 26%). Net sales from its cloud services business, Amazon Web Services, rose 69.4% to $2.41 billion, compared with a growth of more than 78% in the third quarter. The Amazon forecast sales for the first quarter of between $26.5 billion and $29 billion, up between 17% and 28% compared to the same quarter last year, and operating income between $100 million and $700 million, compared to $255 million. Analysts had forecast $27.6 billion in sales and $400.3 million in profit. The stock dropped 7.6% on Friday.

The Week Ahead

The economics data releases scheduled for this include January nonfarm payrolls where growth is expected to decelerate. The December quarter earnings reports should continue to be mostly flat with the exception of sharply lower results in the energy sector. The Iowa caucuses take place on Monday. The Bank of England announces its current interest rate policy on Thursday. The Treasury auctions scheduled for this week are on: Monday: $37 billion three-month bills and $30 billion six-month bills; and Tuesday: $18 billion one-year notes.