The Weekly View

Week of February 18, 2013

It was the first weekly decline of the year for S&P 500. Debate over the quantitative easing led the market into a selling frenzy. Looming sequester along with lowering estimates by the retailers paved the way for anticipation of recession risk. While European market performed positively over Germanys st rong economic situation; debate over possible US downturn is increasing. On a good tone, HP led the rally on Friday to minimize some of the damages done over the previous two days. Housing sales for the first two weeks in February inched from January. Even though retailers are complaining a decline in sale, consumer confidence is shown to be up as per the Bloomberg Consumer Comfort Index (COMFCOMF:IND). More locally, Philly Feds gauge of regional manufacturing activity fell from negative 5.8 in January to negative 12.5 in February. It seems that falling retail sales is passing down the effects to the manufacturer in the form low new orders. Overall, this was a tricky week for economic news; consumer sentiment is up but retails sales is decreasing; economic shrinking in last quarter but the housing keeps growing; EU economy shrinks but Germany keeps standing as the strong man. Good and bad mixed together into an ambiguous situation.

Hedge with Staples As the month of February wraps up, the Consumer Staples sector continues to experience an economic gain. As I have said week after week, this sector is very inelastic and is not affected by price changes. Recently, I read a report about the top 5 stocks in the Consumer Staples sector. Among these stocks are companies like General Mills, Heinz Company, Campbell Soup, Whirlpool Corporation, and Kellogg Company. Not only do these companies have high and consistent sales, but they have high shareholder values. According to the article, even though day traders wont gravitate toward these stocks many will use them in their growing portfolios. Thus, although traders do not view these stocks as primary investments, they are very safe and stable enough to be considered. While many people will not invest in the consumer staples sector due to its inelasticity and slow rate of growth, it seems that now is the time to invest. The economy is currently in a bull market which will force stocks and investments up. And when the market falls, there can be a safety in this sector from a total disaster.

Retail condition worries the discretionary Vanguards Consumer Discretionary ETC or VCR opened on Tuesday at $81.86. By the end of Friday, the price dropped by 1.92% to become $80.29. The decrease in price and volume reflects investors concern for the future. They are suspicious of slowing retail spending and whether forecasts will be met. Other factors that play into effect are consumer income and gas prices. Gas prices are on the rise again and consumers are being taxed higher on their earnings. These changes usually result in a decrease in retail and luxury item spending. Although this week hasnt done so well as in previous weeks, there are still people like Robert Pavlik, the chief market strategist at Banyan Partners LLC, who believe that consumers are resilient and will keep consumer spending leveled. The results for January will be released on March 1 and along with sequester; we should have a big reaction from the investors. Rising gas price: decline in Energy The energy sector was only up one percent this week, comparable lower to ever week since the beginning of the year. Prices of gasoline have been rising in several states this week, and it seems as if the prices will continue to rise over the next few weeks. Gasoline prices have been

Drexel Finance and Investment Group; Weekly View of February 18, 2013 reported to have rose four cents this week in Massachusetts, five cents in Rhode Island, and four cents in Virginia. Continuous increases in gasoline prices in the United States have the potential to have a negative impact on the energy sector in the short run; because of gasoline-users tendency to consume much less gasoline during price increases. Although gasoline prices pose a threat to the energy sector, lawmakers in Washington are attempting to change the clean energy act with the claim that the act actually reduces the effectiveness of our renewable energy standard. This could help the energy sector because businesses will not have to spend as much clean energy as they usually are required to. This will result in companies purchasing more oil and gas, creating a higher demand for energy sources. PNC paves way for change in the sector It was recently announced that PNC Financial Services Group chairman and CEO James Rohr will be stepping down as CEO of the firm in April in favor of current president William S. Demchak, who left J. P. Morgan for PNC back in 2002. Rohr will likely retain his role as executive chairman as part of the personnel transition resulting in a division on the duties of CEO and chairman of the board. In the last year, PNC has been rather flat in terms of net income and have consequently adjusted their strategy moving forward. In the upcoming year, the firm plans to close around 200 locations while opening 20 to 30 new ones in the Carolinas and Georgia. The focus is to attract new investors by increasing PNCs revenue in the southeastern United States. While PNC has been a rather non-eventful firm in recent years, a shift in strategy as well as new personnel surely makes PNC an interesting firm to follow in the upcoming months. Just as Demchaks move to CEO will split the roles of CEO and chairman within PNC, there has been increased pressure on other major banks to follow suit and split the duties of CEO and chairman in their respective firms. Chief among these firms dealing with that pressure are J. P. Morgan Chase and Goldman Sachs. Many believe that splitting these roles will lead to increased accountability amongst those holding the positions, thus decreasing the chances that disastrous trades such as those that caused $6 billion in losses for J.P. Morgan last year will be made. If these companies opt to comply with popular demand, it may ultimately be beneficial for business by increasing confidence amongst investors. Industrials move with the market Over the past week, the industrials sector has slid slightly, declining 0.56% over the past week. The Dow Jones Transportation Average has dipped back down around 5943 after briefing passing 6000. Boeing (NYSE: BA) makes the news again as it proposes fixes for its 787 Dreamliners, offering to redesign the batteries that have been the cause of much concern in the aerospace industry. Meanwhile, the Federal Aviation Administration is requiring Boeing to be entirely certain that any fixes will fully rectify the issue before allowing the firm to go ahead. In light of this news, Boeings stock has risen to around $76.66. Office Depot (NYSE: ODP) and OfficeMax (NYSE: OMX) respectively the second and third biggest office supplies retailers, are reported to be merging, following an accidental press release. Their goal of combining is to cut costs through online selling and reducing stores with overlapping territories, potentially saving half a billion dollars annually. The merger will also help the firms survive competition from office supplies giant Staples (NASDAQ: SPLS) As sequestration looms, the markets as a whole will likely slow. Additionally, with automatic cuts on military expenditure, the United States government demand for industrial products such as airplanes will decline. Railroad stocks continue to consistent, reliable investments.

Drexel Finance and Investment Group; Weekly View of February 18, 2013 The week of February 25, 2013 The sequester looms and is scheduled to come in to effect on Friday of this week. So, we can expect a nervous week along with some heated deal discussion. So far, we have not heard of any headway into coming to an agreement; and four days may not be enough time to have one. It may be likely that automatic sequester comes into effect at least for some time. Fed chairman Ben Bernanke is scheduled to testify in congress on monetary policy; economic situation and effects of sequester may also come into the discussion. And we may get some more clarification of Fed minutes published last week. We will also get a revision on the fourth quarter GDP; previous report showed a contracting economy; more data may show different trajectory. ISM manufacturing report will also be published; a combination of reports on employment, production inventories new orders, supply and deliveries will give us a clear idea of the panic in retail and overall economic trajectory. A new governor will be appointed for Bank of Japan. The world will wait to see if the new governor is friendly of weak yean idea. Election drama will intensify in Italy. 5 out 7 top parties have pledged to stop some of the structural reform outlined and accepted by the EU leaders. This can again throw the EU away from solutions. The other big news of the week is going to be Apple Inc. Apple has called a meeting of the shareholders and is going to vote on David Einhorns idea of preferred stock.

Contributors: Hedge with Staples Joseph Amato Retail condition worries the discretionary Jane Beadling Rising gas price: decline in Energy George DiNicola PNC paves way for change in the sector Vincent Laudicina Industrials move with the market Jeffrey Herr

Director: Maureen Gribb Editor: Tafhimul Huda Assistant Editor: Phillip Nabedrik