Pence Wealth Management’s Financial Market Report

US FINANCIAL MARKET

• Fourth quarter earnings season kicks off. Aluminum maker Alcoa reports its fourth-quarter financial results after the market closes.
• Yum Brands that it expects that KFC’s sales in China will suffer due to a recent government investigation of its poultry. Shares are down 5%. It anticipates revenue from its stores in China will be down 6% versus its prior forecast of a 4% decline. Yum’s shares have fallen roughly 9% since late November when it issued its full-year forecast for 2013 and told investors that growth in China was moderating.
• First there were McNuggets. Then there were Chicken McBites. Now McDonald’s could be adding “Mighty Wings” to its chicken menu. It is set to expand its test of chicken wings to Chicago (with 500 stores) this week, after a successful run in Atlanta last year. Prices for chicken wings have been climbing over the past year, reflecting an increase in the number of restaurants serving them. Rather than becoming a permanent part of the menu, McDonald’s could offer the dish for a limited time; the chain has said it plans to ramp up the frequency of such special offers as a way to give customers more variety.
• Monsanto’s (fiscal) first-quarter profit nearly triples as biotech seeds expand in Latin America. It boosted its full-year forecast.
• Johnson & Johnson’s experimental diabetes pill may carry heart risks, U.S. regulators said in a review that threatens to delay the company’s first-to-market status among a new family of medicines.
• Merck’s CEO Kenneth Frazier said the drugmaker may be interested in buying Bausch & Lomb, the eye-care company for sale by Warburg Pincus for at least $10 billion.
• Target said on Tuesday it will match on a year-round basis the prices found on the websites of key rivals Amazon.com, Best Buy, Wal-Mart and Toys R Us.
• Samsung said it likely earned a quarterly profit of $8.3 billion. Samsung is currently valued at close to $230 billion. Analysts forecast Samsung will sell 290 million smartphones this year, up from a projected 215 million in 2012 and 32 million tablets.
• Apple’s CEO Tim Cook made his second visit to China in less than 10 months, after almost doubling retail outlets in the nation.
• Amazon.com announced Tuesday it has picked a site just outside Trenton, NJ for a planned distribution center that’s expected to create hundreds of jobs.
• Bank of America, other banks move closer to ending mortgage mess. Bank of America announced more than $14 billion of legal settlements over bad mortgages it sold to investors and flaws in its foreclosure process. Analysts have estimated that Bank of America has paid out some $40 billion for mortgage settlements since the crisis began.
• Burlington Northern Santa Fe, the railroad owned by Warren Buffett, will boost crude-oil shipments by 40% this year, helping blunt a decline in coal cargo. Crude from the Bakken is helping the second-biggest U.S. railroad buck an industry wide slump in commodity cargoes. Crude oil shipments will grow to 700,000 barrels daily by the end of this year.

US ECONOMY & POLITICS

• Small business optimism index clawed back from a 2-1/2 year-low in December. The NFIB (The National Federation of Independent Business) said its optimism index edged up half a percentage point to 88 last month (vs. 87.2 consensus), but retraced very little of last month’s record drop.
• U.S. apartment vacancies declined and rents rose again in the fourth quarter. The national apartment vacancy rate dropped to 4.5% in the last three months. It was the lowest vacancy rate since the third quarter of 2001, according to Reis data. The average asking rent is $1,097.
• State and local governments are in their best financial shape since the recession, giving them leeway to cushion the U.S. economy from federal budget cuts with spending and hiring of their own. States and municipalities, which accounted for 12% of GDP in 2011, won’t be a drag on growth this year for the first time since 2009. State revenue will increase 3.9% during the 2012-2013. Fifty-seven% of cities said they were “better able to meet financial needs” in 2012 than in 2011.
• U.S. municipal issuers may have to call as much as $150 billion of debt if President Barack Obama’s plan to limit income-tax deductions is applied to interest on the bonds, according to Citigroup.

EUROPE & WORLD

• Business morale in the euro zone improved again in December, but unemployment hit a new record and households held back from spending before Christmas. Economic sentiment in the 17 countries using the euro rose by 1.3 points to 87 in the second straight month. Unemployment rose to 11.8% of the working population or 18.82 million people.
• Economic weakness in Europe dragged down the amount of exports from Germany.  Exports dropped 3.4%.
• German factory orders fell more than economists expected. Orders dropped 1.8% from October.
• Australia’s trade deficit widened in November to the most since 2008 as transport equipment helped drive imports to a record.
• China’s economy has the potential to grow 8% annually over the next 20 years should the nation reduce support for state companies and unshackle banks, according to Lin Yifu, a former World Bank chief economist.

TODAY in HISTORY

• The Battle of New Orleans, the last battle in the War of 1812, was fought (1815)
• Woodrow Wilson outlined his Fourteen Points peace program (1918)
• King of Rock ‘n’ Roll, Elvis Aron Presley was born (1935)
• Bobby Fischer won the United States Chess Championship for the first time at age 14 (1958)
• Charles de Gaulle became the first president of France’s Fifth Republic (1959)
• The AT&T Bell System telephone monopoly agreed to divest itself of 22 Bell System companies and split itself into seven “Baby Bells.” (1982)
• The Dow Jones Industrial Average closed over the 2000 mark for the first time ever (1987)

Sources: Reuters, Yahoo Finance, Google Finance, Bloomberg, CNN Money.

This information has been prepared from sources believed to be reliable, but no representation is being made as to its accuracy or completeness. The information provided should be used only as general information and is not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth in the material may not develop as predicted. All indices, such as the S & P 500, are unmanaged and may not be invested into directly.