Robust Market Tumbles in Third Quarter

Wall Street came off a robust spring and early summer to tumble sideways into August. As our quarterly session ended Nov. 30, 2012, markets struggled to maintain forward momentum with limited success. Although stocks rallied with the Fed’s unexpected $40-billion-per-month stimulus effort in September, the jump was short-lived. Retail sales and consumer sentiment were up, but any gains fell short in October as third quarter earnings reporting started. Though earnings did not always disappoint, it was outlooks investors eyeballed. Then Hurricane Sandy rolled over the Eastern Seaboard and closed exchanges for two consecutive days.

After Sandy, elections in the U.S. followed, and Wall Street watched politicians in Washington grapple with the fiscal cliff. Volume was light as November progressed and stocks see-sawed on budget comments. The bright points in the economic landscape tended to be the slowly improving labor market, housing and consumer sentiment. In October, the Thomson Reuters/University of Michigan index of consumer sentiment increased to 82.6, from 78.3 in September, its highest level since September 2007, but still missing economists’ expectations of 83. The preliminary November reading came in at a five-year high: the reading was 84.9, stronger than the reading of 83 that economists were anticipating and the fourth month in a row that reflected better consumer sentiment. Other reports indicated November manufacturing grew at the highest rate in five months, and preliminary reports on post-Thanksgiving shopping were positive. The Standard & Poor’s/Case-Shiller index of home prices grew 0.3 percent in September. “With six months of consistently rising home prices, it is safe to say that we are now in the midst of a recovery in the housing market,” David Blitzer, chairman of the index committee at S&P Dow Jones Indices, said in a release.

The Residential Building Products Stock Index reflected the robust performance of the housing industry in the quarter as it stormed past the national markets and jumped 82.48 points, or 6.31 percent, closing at 1389.03 in its launch. Advancing issues dominated declining issues at a 35-to-9 count.

Although Whirlpool earnings in the third quarter fell below last year’s, results beat analysts’ expectations. WHR took off after the company upped its guidance and garnered an analyst upgrade. Demand in the quarter was weak, but pricing saved the day as Whirlpool reported net income of $74 million, or $0.94 per share, compared to $177 million, or $2.27 per share, in the year-ago quarter. Excluding restructuring and other one-time expenses, WHR earned $1.80 per share. Analysts polled by Thomson Reuters, on average, expected earnings of $1.60 per share. Whirlpool increased its full-year guidance, citing strong U.S. sales, to $6.90 to $7.10 per share, up from earlier guidance of $6.50 to $7 per share. KeyBanc Capital Markets analyst Kenneth Zener upped his rating to “buy” from “hold,” and Goldman Sachs analysts upgraded Whirlpool to “buy” from “sell” and nearly doubled his six-month price target to $110. WHR reached new 52-week highs, and gained 26.38 points, or 34.96 percent, and closed at 101.84. It was the top dollar gainer this quarter.

Shares of L.S. Starrett stumbled after the company swung to a loss for its fiscal first quarter. For the session ended Sept. 30, SCX said it lost $351,000, or $0.05 per share, versus net income of $2.2 million, or $0.33 per share a year ago. Net sales were $56.9 million, from $63.4 million last year. Starrett cited weak sales internationally, in part, and currency conversion rates. TheStreet Ratings cut its rating on SCX to “hold” from “buy,” with weaknesses in net income and profit margins. Starrett slid 2.47 points, or 19.48 percent, and closed at 10.21 to be the top percentage loser.

Hovanian was a strong performer on earnings and fourth quarter revenue projections. HOV rose 2.3 points, or 78.77 percent following unexpected third quarter earnings. For its fiscal third quarter, ended July 31, Hovanian reported net income of $34.7 million, or $0.25 per share, turning from last year’s loss of $50.9 million, or $0.47 per share. Revenue was up 35 percent, to $387 million. HOV stomped on analysts’ earning expectations: those surveyed by FactSet expected a loss of $0.14 per share on revenue of $413.2 million. Hovanian said demand for new homes was steady despite a weak U.S. economy. In early November, HOV said fiscal fourth quarter revenue would meet or exceed expectations, which are around $460 million. Hovanian ended at 5.22 and was the top percentage gainer.

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