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Yellen's Big Day, Urban's Un-Hot Earnings, and Sprint's Acquisition Fever

By Jack Kramer and Nick Martell – Feb 12, 2014 at 6:00AM

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Good morning, good lookin'. Here are the three things you need to know on Feb. 12.

Boom. Someone on Wall Street just popped open some vintage Four Loko cans and gave the stock market a swig. The Dow Jones Industrial Average (^DJI) surged 193 points Tuesday for its biggest gain in two months, thanks to some adrenaline-pumping words from the new head of the Fed.

1. New Fed Chair Yellen's first big stimulus speech
Don't fear the bowl cut, because the new chair of the Federal Reserve, Janet Yellen, gave her first public speech on the central bank's monetary policy since she kicked things off on Feb. 1 -- and Wall Street slurped up her words like fro-yo.
 
What's on Yellen's mind? She confirmed that the economy improved notably over the second half of 2013, and she's optimistic about 2014. But investors were most concerned about her opinions on stimulus -- aka "quantitative easing," the policy in which the Fed's been buying $85 billion in long-term bonds monthly to keep interest rates low, which boosts the economy by encouraging borrowing at the attractive interest rates.

Here's the thing. As the economy did improve over 2013, Yellen's predecessor, the famous bearded Ben Bernanke, slowed down QE stimulus by cutting the amount of bonds bought to $65 billion monthly last month -- but with January's poor econ data, investors were wondering Tuesday what the new Fed chair's plan would be for the stock-pumpin' stimulus juice that Wall Street craves.

And Yellen's stimulus decision is that the Fed will continue to scale back stimulus but has no set schedule for it -- that means quantitative easing isn't going away tomorrow. And investors like that.

2. Sprint earnings spur acquisition rumors
Can you say "menage a trois"? The CEO of Sprint (S) announced the company's quarterly earnings Tuesday, but the headline-making news was in the post-conference call -- he made clear his hopes for a big acquisition to create a third competitor for the current "big two": Verizon and AT&T.

Investors love acquisitions, so the stock climbed more than 2% after the CEO's remarks on hopes that it would either make an acquisition (most likely of smaller T-Mobile) or that it would be acquired. Either of those events would be lucrative for Sprint stockholders, as larger scale would help it compete with the two mobile monsters that dominate our smartphone plans.

Is a merger going to happen? Not if the U.S. Justice Department has anything to say about it. DOJ officials have made it clear that they don't want to see any more consolidation in the lucrative U.S. wireless phone provider industry. For the DOJ, the more competitors, the better -- but a healthy four competitors is uber-important for consumers. Nonetheless, Sprint's clear desire to create a "tri-opoly" in the U.S. market got investors psyched.

The takeaway is that Sprint's actual earnings were OK. The company lost less money in the fourth quarter than analysts expected and also lost fewer of its most profitable phone plan subscribers. Clearly, things aren't looking too dandy at Sprint, but the hope of a possible merger is driving the stock's potential value.

3. Urban Outfitters earnings saved by Anthropologie gifts
Attention, faux hipsters: Your artificially weathered T-shirts are at risk. Urban Outfitters (URBN 0.57%) reported that sales dipped 6% at the company's flagship Urban Outfitters stores, which unfortunately make up 45% of the company's total revenues. That's not a good look.
 
But there's good news. Urban owns two other major brands: Free People (for customers cooler than Urban Outfitters customers) and Anthropologie (for customers cooler/older than both the others). Sales at those two stores jumped 21% and 14%, respectively, over the past year. If you're a guy dragged through Christmas shopping with your girlfriend, you've seen the action at those two brands firsthand.
 
The takeaway is that while sales at Urban Outfitters brand stores were down, the overall sales (including Free People and Anthropologie) resulted in a 3% sales increase for the company over the holidays -- given the struggles of this past Christmas season for most retailers, that number looks kind of hot.
Today:
  • Fed President James Bullard speaks
  • Fourth-quarter earnings reports: Dr Pepper Snapple, Manchester United

MarketSnacks Fact of the Day: The company behind the business school entrance exam, the GMAT, has greater profit margins than Apple.

As originally published on MarketSnacks.com

Nick Martell and Jack Kramer have no position in any stocks mentioned. The Motley Fool recommends Apple and Urban Outfitters and owns shares of Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
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S
Urban Outfitters Stock Quote
Urban Outfitters
URBN
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