IRS Scandal, Economic Idling, and Advancing Stocks: Week in Review
All told, it was a pretty quiet week on Wall Street. Most of the media’s attention was focused on the developing scandal at the Internal Revenue Service, while economic indicators showed that growth trajectories in the United States, Europe, and Japan remain on track.
What Happened at the IRS, and is Obama Accountable? Last week, Lois Lerner, who leads the Exempt Organizations Division at the IRS, issued an apology admitting that the agency had engaged in “inappropriate” targeting of conservative 501c(4) groups during the 2012 election. According to Lerner, lower-level IRS employees pursued additional review of groups containing keywords like “tea party” or “patriot” that were suspected of violating the conditions necessary to qualify for tax-exempt status… (Read more.)
The American economic narrative continues to be one of slow but determined growth. Retail sales and inflation data topped the major economic releases in the U.S. this week, although a higher-than-expected volume of initial jobless claims did make a few waves. Headline retail sales climbed 0.1 percent on the month, beating expectations for a 0.3 percent contraction. The core rate climbed 0.6 percent… (Read more.)
A 0.1 percent increase in both the core producer price and core consumer price indices suggests that inflationary pressures remain well below the Federal Reserve’s trigger rate of 2.5 percent. Overall inflation is running at an annual rate of about 1.8 percent… (Read more.)
Europe continues to be the biggest global economic risk. Economic growth in both the EA17 and the EU27 contracted by 0.1 percent in the first quarter, according to preliminary data released by Eurostat. This follows respective growth rates of -0.6 and -0.5 percent in the fourth quarter. New data released by Pew Research suggests that the European Union is “the new sick man of Europe,” with domestic support for the monetary union falling to just 45 percent. Only 28 percent of Europeans surveyed think that economic integration has strengthened overall conditions… (Read more.)
Japan’s economy grows under Abenomics. First-quarter gross domestic product increased at a seasonally-adjusted rate of 3.5 percent in the first quarter of 2013, better than the 2.8 percent consensus growth estimate. GDP climbed 0.9 percent on the quarter, driven primarily by personal consumption — about 60 percent of Japan’s GDP — which was up an annualized 3.7 percent. On the other side of the coin, capital expenditures (a proxy for business investment) declined 0.7 percent on the quarter. Exports were climbed 3.8 percent on the quarter, while imports were up 1.0 percent.
Here’s your Cheat Sheet to this week’s top stock stories:
A four-day rally in the S&P 500 looks like it was broken on Thursday when San Francisco Federal Reserve President John Williams suggested that the Fed could reduce the pace of bond purchases this summer. Mr. Market has revealed that he has become addicted to quantitative easing, and the ongoing conversation about an end to QE is having a tremendous impact on equities… (Read more.)
Tesla Motors (NASDAQ:TSLA) has been on a tear. The stock climbed more than 31 percent over the past five trading days and is fast approaching $100. The company turned a profit of $0.12 per share in the first quarter on a 1,762 percent year-over-year surge in revenue to $562 million, beating estimates on both counts. Riding the momentum, the electric-vehicle maker announced that it would be issuing a new round of stock and a pile of convertible notes in efforts to raise another $830 million in order to pay off government loans and expand operations… (Read more.)
Dell (NASDAQ:DELL) traded the week in a pretty tight band between $13.40 and $13.50 per share as the battle for future ownership of the company rages on. The company reported financial results early that revealed a 2.4 percent drop in revenues on the year to $14.1 billion, ahead of expectations for $13.5 billion. However, adjusted earnings decreased 51.2 percent to $0.21 per share, below estimates for $0.35 per share. At this point, the battle for Dell’s future is between Michael Dell and Carl Icahn and crew… (Read more.)
Sony (NYSE:SNE) stock jumped just more than 10 percent over the past 5 trading days, fueled by last week’s generally positive earnings and some bullish comments from Third Point, the hedge fund run by Dan Loeb. Loeb suggests that the company should spin off its entertainment division through an IPO, which, according to the hedge-fund manager, could send Sony stock up as much as 60 percent.
Cisco (NASDAQ:CSCO) stock climbed more than 13 percent over the past 5 trading days as a result of its fiscal third-quarter earnings. Revenues climbed 5.4 percent on the year to $12.22 billion, beating the average analyst estimate of $12.18 billion. Adjusted earnings climbed 6.3 percent to $0.51 per share, beating estimates for $0.49 per share. This is the ninth consecutive quarter that the company has posted record revenue, and the company indicated that it will be able to maintain momentum moving forward.
Does Jamie Dimon Wield Too Much Power? Warren Buffett has long admired the skills of JPMorgan Chase (NYSE:JPM) Chief Executive Officer and Chairman Jamie Dimon, and praised the executive in his annual letter to shareholders. But many investors have begun to question whether he has made too many mistakes during his tenure to hold both positions. On a related note, analysts and shareholders have also begun to wonder whether he has too much power… (Read more.)
David Tepper Is Not the Only One Dumping Apple: Apple (NASDAQ:AAPL) closed down 3.38 percent at $428.85 Wednesday, falling below its 50-day moving average for the first time in close to a month. The fact that shares fell below this psychologically important level for the second time in less than a month, the stock hit a new 52-week low, and the company reported its first quarter-over-quarter earnings decline in a decade all in the same four-week span has made investors nervous… (Read more.)
Is the McDonald’s Menu Short On Innovation? Hedgeye Risk Management rebuts claims offered by Wall Street analysts that McDonald’s (NYSE:MCD) needs a “hero-like lifting” from U.S. consumers, arguing that their expectations for reflation are stretched. It instead predicts that the fundamentals of McDonald’s business will simply lead it to lower its 2013 earnings per share estimate… (Read more.)