Three approaches for managing pre-Obamacare healthcare costs

(This is part of a six-story package on household finance. Lou Carlozo is a Reuters contributor and the opinions are his own.)
New York (Reuters) - Having just earned his master's degree in written communication, Eric Kaplan should feel triumphant. But his academic success has been tempered by a failure outside the classroom: He can't find health insurance he can afford on his earnings as a freelance writer.
Like many other Americans waiting for key provisions of the Affordable Care Act to kick in, Kaplan, 32, of Chicago, is adopting a novel strategy for protecting his health. He applied for another master's degree, this time in social work, because his target school offers health insurance to students.
Without the lure of the affordable insurance, he's not sure that program would be his first choice.
"It's a peace-of-mind issue," says Kaplan, who believes the health care act will make things easier for him when it is fully phased in, in 2014. "I'm lucky in that I don't have any major health issues, but facing the year ahead, I worry a lot about accidents and sickness."
Kaplan is one of many people trying alternative strategies to get them through one more year of healthcare coverage before the new law takes effect - though it's not clear that the new law will make insurance affordable for everyone who needs it.
Roughly one in three Americans put off medical care for themselves or their family in 2012 due to the cost, according to a Gallup poll released in December. That's the highest level since Gallup started tracking such figures in 2001, when the figure was just 19 percent. And there is an estimated 50 million Americans who no longer have health insurance.
There are a number of temporary approaches, says Carrie McLean, senior manager of consumer health insurance for ehealthinsurance.com.
Some people pay significant sums to keep the policies they had at their last jobs, via so-called COBRA benefits (named for the Consolidated Omnibus Budget Reconciliation Act, which created them.) Others are buying short-term plans or catastrophic-only coverage, seeking state policies, buying plans through professional organizations or, in many cases, simply gambling that they could get through a year without insurance.
"If you are healthy and don't have insurance, it is tempting to lift out that expense from your budget," McLean says "But it's not a good idea to go uninsured in 2013."
Though he knows the risks, Kaplan plans to gamble until he matriculates or finds a full-time job.
"I'm arming myself with Airborne to get through 2013," he says, going without insurance until he either starts his new program in the fall or lands a job with benefits. "I really find myself being extra germaphobic."
GOING NAKED
Mindi Sue of Santa Monica, California, is consciously going without insurance, too. The self-employed publicist gave up her coverage as she saw clients cutting back and monthly retainers getting scaled down during the last recession.
Instead, she started paying out of pocket for doctor visits only when she needed them. It worked, and "saving almost $4,000 a year made a huge difference in my personal and business life," she says.
Of course, that only works if Sue doesn't develop a catastrophic illness or injury.
"If anything happens to me beyond a yearly doctor's visit that requires ongoing care, I'm going to be in a financial hole trying to pay it off," says Sue. She says she's confident that she would get emergency care even if she showed up at a hospital without coverage.
Sue says she plans to get through 2013 by staying in fabulous shape and playing competitive sports five times a week, though she concedes that carries risks, too.
"I continually call the major insurance companies to get quotes to see if there are plans that fit into my budget," she says. "If I can get coverage that is reasonable and realistic, I'll definitely purchase it, but at the moment, I'll continue to risk it."
RELIGIOUS COLLECTIVES
Then there's John Ellis, a certified public accountant in Long Beach, California. Laid off from his job in 2009, it was the first time in his career he had to pay for health insurance by himself.
"It was a shock," recalls Ellis, now 58. After COBRA ran out, he had to pay $700 a month for health insurance.
Desperate for an alternative, Ellis checked out Christian Healthcare Ministries after hearing a news report about it in early 2011. The program -- a cost-sharing collective nonprofit that is not a state-regulated insurance plan -- caters to conservative evangelical Christians, and Ellis had to get a letter from his pastor to verify that he regularly attends church.
Still, the model is controversial. Religious-based collectives may have requirements that exclude some participants who do not adhere to particular beliefs or lifestyles. (In October 2012, the state of Kentucky shut down a similar plan called Medi-Share after a multiyear legal battle in which the state claimed the program was sold like insurance but wasn't a bona-fide state-regulated insurance plan.)
Now paying $150 a month, Ellis gets basic coverage that does not include vision or dental. Maintenance check ups for his pre-existing condition are covered. Prescriptions are not covered though a discount card helps cut some costs. It's a "good deal" that should get him through 2013, he says.

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Markets cautious ahead of US corporate earnings

LONDON (AP) — Global stock markets mostly fell on Tuesday as investors prepared for the start of the U.S. corporate earnings season and digested a mixed batch of European economic indicators.
The markets will get a feel for the health of corporate America as earnings reports start coming in. Aluminum producer Alcoa Inc. will be the first major company to release results for the fourth quarter of 2012 on Tuesday after U.S. markets close.
Events during the quarter such as Superstorm Sandy, the presidential election, and worries about the narrowly avoided "fiscal cliff" could lead to some unexpected results.
Germany's DAX shed 0.5 percent to close at 7,695.83 while Britain's FTSE 100 fell 0.2 percent to 6,053.63. France's CAC-40 ended flat at 3,705.88. The euro edged down 0.3 percent to $1.3075.
Stocks on Wall Street were lower a few hours into trading— both the Dow Jones industrial average and the broader S&P 500 were down 0.5 percent, to 13,320.66 and 1,454.84.
In Europe, markets were dented by a report showing unemployment in the 17-country eurozone hit 11.8 percent in December, a record high and up from 11.7 percent the previous month. The figure highlights the huge economic challenge facing Europe — although financial market turmoil has subsided, the labor market continues to weaken.
A separate report was more upbeat, showing business and consumer sentiment in the eurozone rose in December by more than analysts were expecting and that retail sales edged up in November. That suggests that the improvement in financial markets during those months helped economic activity stabilize.
Analysts warned, however, not to expect any imminent turnaround in the economy.
"While it looks like economic activity may have bottomed out around October, any recovery still looks a hard slog," said Howard Archer, an economist with HIS Global Insight.
Earlier, Japan's Nikkei 225 index tumbled 0.9 percent to 10,508.06 as the yen crept upward against the U.S. dollar. With the dollar down 0.6 percent at 87.28 yen, some investors sold export shares that had surged as the currency weakened in recent weeks. Toyota Motor Corp. fell 2 percent while Mazda Motor Corp. plunged 5 percent. Nintendo Co. shed 3.1 percent.
Hong Kong's Hang Seng fell 0.9 percent to 23,111.19. South Korea's Kospi lost 0.7 percent to 1,997.94. Benchmarks in Singapore, Taiwan and Thailand fell, while Malaysia and the Philippines rose. Mainland Chinese shares were mixed. Australia's S&P/ASX 200 shed 0.6 percent to 4,690.20.
"Investors are taking a wait-and-see attitude," said Evan Lucas, strategist at IG Markets in Melbourne, adding that many investors went for profits ahead of the release Wednesday of weekly jobless claims in the U.S. and the European Central Bank's rate-setting meeting Thursday.
"A lot of eyes are watching what will happen in Europe and America over the next couple of days," he said.
Major indexes surged last week after U.S. lawmakers passed a bill to avoid a combination of government spending cuts and tax increases that have come to be known as the fiscal cliff. The deal, however, remains incomplete. Politicians will face another deadline in two months to agree on more spending cuts.
"The looming budget battle in the U.S. has also prompted some hesitancy to buy risk assets," said analysts at Credit Agricole CIB in Hong Kong.
In commodity markets, benchmark crude for February delivery was down 21 cents to $92.98 per barrel in electronic trading on the New York Mercantile Exchange.

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Oil down slightly, natural gas continues to drop

NEW YORK (AP) — Oil prices ended a little lower on Tuesday, as traders took their cue from U.S. stock markets and investors awaited the start of the earnings season.
Natural gas prices fell again following a report showing production is at record levels and mild early winter weather.
Benchmark oil fell 4 cents to finish at $93.15 a barrel in New York. The price was close to $94 a barrel earlier, but then followed the stock market lower. Alcoa posts fourth-quarter results after the markets close, the first of the major companies to announce earnings. Investors are concerned that many will have weak showings in the coming weeks, reflecting the economy's sluggish recovery.
Natural gas fell 5 cents to end at $3.22 per 1,000 cubic feet, continuing a decline that started Monday when the Energy Department reported that natural gas production rose to a record 73.54 trillion cubic feet a day in October. In addition some analysts lowered their estimates for natural gas prices because of the mild weather that much of the country experienced in November and December.
Oil traders will be monitoring fresh information this week on U.S. supplies of crude and refined products.
Data for the week ending Jan. 4 is expected to show a rise of 1.5 million barrels for crude oil and an increase of 2.6 million barrels in gasoline stocks, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos. The Energy Department's Energy Information Administration releases its crude inventories report on Wednesday.
Brent crude, used to price international varieties of oil, rose 5 cents to finish at $111.94 a barrel on the ICE Futures exchange in London.
In other energy futures trading on the Nymex:
— Wholesale gasoline added 2 cents to end at $2.79 a gallon.
— Heating oil rose 3 cents to $3.06 a gallon.

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RIM shares jump in Toronto, rebound from sharp decline

TORONTO (Reuters) - Shares of Research In Motion Ltd jumped nearly 10 percent on the Toronto Stock Exchange on Thursday, following similar gains in New York on Wednesday, in a rebound from last week's sharp decline.
Last Friday, the volatile stock plunged more than 20 percent after the company said on an earnings conference call that it was rolling out a new fee structure for its services segment, which some investors fear could pressure the high-margin business.
"It got hit so hard after the conference call," said Ed Snyder, an analyst with Charter Equity Research. "People are still fairly optimistic about (BlackBerry 10) coming out in January, so (the rebound is) really just a value play."
The new fee structure overshadowed stronger-than-expected quarterly results.
RIM shares were up 9.7 percent to C$11.42 in midday trade on the Toronto Stock Exchange. The company's Nasdaq-listed stock was down 2 percent to $11.60 after big gains on Wednesday, when Canadian equity markets were closed for Boxing Day.
Through the autumn of 2012, RIM rallied as investors grew optimistic about prospects for its new make-or-break BlackBerry 10 devices, to be formally unveiled January 30. On Thursday, the shares were still up more than 80 percent from the year's low, touched in September.
The Wednesday and Thursday gains also came after several websites posted photos of what they said could be the first BlackBerry 10 phone with a physical keyboard.
Evercore Partners analyst Mark McKechnie said the photos boosted RIM's stock, which he said was depressed from last week's selloff, on a quiet trading day.
"There certainly are folks that believe in the new product cycle," he said. "The whole Wall Street community's been trying to handicap how strong that product cycle will be for RIM."
RIM has said it plans to roll out touchscreen-only devices first, a few weeks before it releases a smartphone with the QWERTY keyboard many longtime BlackBerry users rave about. But some analysts believe devices with hard keyboards will not hit the market until spring.
Management has touted BlackBerry 10's new on-screen keyboard, but some see the company's reputation for building solid, usable physical keyboards as an important competitive advantage as RIM fights for market share against Apple Inc and Samsung Electronics .
McKechnie said volatility is not unusual ahead of big smartphone launches.
"There's so much scale involved in this industry, one way or the other. A successful product versus a failure is going to really change the earnings power of a company," he said.

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A surprisingly good vintage as market logs gains

If you'd told investors what was going to happen in 2012 — U.S. economic growth at stall speed, an intensifying European debt crisis, a slowdown in China, fiscal deadlock in Washington, decelerating corporate earnings growth — and asked how the stock market would perform, few would have predicted a good year.
But that's just what they got.
The Dow Jones industrial average, the Standard & Poor's 500 and the Nasdaq composite index all ended the year substantially higher, despite losing ground in the final days of year as concerns about the looming "fiscal cliff" mounted.
The Dow gained 7 percent for the year, its fourth consecutive annual advance, having started the year at 12,217. The S&P 500, which started the year at 1,257, is up 13 percent, beating the 7.8 percent average annual gain of the past 20 years. The Nasdaq also logged a better-than-average gain, 16 percent.
Including dividends, the total return on the S&P 500 index was even better: 16 percent.
Financial companies led the gains among S&P 500 stocks, advancing 26 percent, as banks continued their restructuring efforts after the recession. Bank of America more than doubled, gaining $6.05 to $11.61 and Citigroup advanced $13.25, or 50 percent, to $39.56. Utilities, the best-performing industry group last year, was the only sector of 10 industry groups in the index to decline, dropping 2.9 percent.
"There's been a lot thrown at this market, and it's proven to be very resilient," said Gary Flam, a portfolio manager at Bel Air Investment Advisors in California. "Here we are at the end of the year, and it's still relatively strong."
Stocks started the year on a tear, with optimism about an improving job market and a broader economic recovery providing the backdrop to the S&P 500's best first-quarter rally in 14 years.
The index advanced 12 percent by the end of March, closing the quarter at 1,408, its highest in almost four years, with financial companies and technology firms leading the charge. The Dow ended the first quarter at 13,212, logging an 8 percent gain.
Apple was one of the star performers of the first quarter and was probably the year's most talked-about company.
The popularity of the iPhone and iPad led to staggering sales growth that helped push its stock up 48 percent to almost $600 at the end of March. Apple also announced a dividend and overtook Exxon Mobil as the U.S.'s most valuable company.
At the start of the second quarter, the intensifying European debt crisis and concerns about the impact that it would have on global economic growth prompted a sell-off.
By the start of June, U.S. stocks had given up the year's gains. Borrowing costs for Spain surged and investors fretted over the outcome of Greek elections that had the potential to pull the euro currency bloc apart.
The outlook for growth in China, the world's second-largest economy, also began to weigh on investors' minds. Economic growth there slowed to 8.1 percent in the first quarter as export demand waned, and investors worried that it would keep falling.
The Dow fell as low as 12,101 June 4. The S&P dropped to 1,278 June 1.
The second quarter was also marred by Facebook's initial public offering.
The stock sale was one of the most keenly anticipated initial public offerings in years, but investors didn't "like" the $16 billion market debut. The social network priced its IPO at $38 per share, and the stock started to fall soon after the first day of trading on concern about the company's mobile strategy.
Facebook closed as low as $17.73 on Sept. 4 before recovering some of the ground it lost to close the year at $26.62.
Company earnings reports were also starting to make uncomfortable reading for investors. Earnings growth for S&P 500 companies fell as low as 0.8 percent in the second quarter, according to S&P Capital IQ data.
The stock market only recovered its poise after the European Union put together loans to bail out Spain's banks on June 10 and the head of the European Central Bank, Mario Draghi, pledged to do "whatever it takes" to save the euro.
Speculation that the Federal Reserve was set to provide the economy with more stimulus to prevent it from slipping back into recession also bolstered stocks.
The rally even survived a blip when a software glitch at trading firm Knight Capital threw stock prices into chaos Aug. 1.
The firm said the problem was triggered by new trading software it installed. Erroneous orders were sent to 140 stocks listed on the New York Stock Exchange, causing sudden price swings and surging trading volume.
Apple launched the iPhone 5, the latest version of its smartphone, in September, and the company's stock climbed to a record close of $702.10 on Sept. 19. That gave Apple a market value of $658 billion, and many analysts predicted more gains lay ahead.
By the time Fed Chairman Ben Bernanke announced Sept. 13 that the U.S. central bank would start a third round of its bond-purchase program, which is intended to push longer term interest rates lower and encourage borrowing and investment, the S&P 500 had surged 14 percent from its June 1 low. A day later, the index peaked at five-year high of 1,466. The Dow Jones reached its peak for the year of 13,610, Oct. 5.
As is often the case on Wall Street, investors "bought the rumor and sold the fact," and quickly turned their attention to the challenges that lay ahead.
Analysts had also been cutting their outlook for growth in the final quarter of the year. At the start of the second quarter, estimated earnings growth for the period was 15.7 percent. That forecast had fallen to 3.4 percent by Dec. 27.
"One of the blessings that supported the stock market's moves in prior years was earnings growth," said Lawrence Creatura, a portfolio manager at Federated Investors. "That's true this year, but at a decelerating rate. It's not gone unnoticed that earnings growth is slowing, and many forecasts now include a full stall."
Apple's halo also began to slip in the final three months of the year. Its iPad Mini tablet, launched Nov. 2, met with lukewarm reviews, there were hints of unrest among its executive ranks. Investors began to fret that the intensifying competition in the smartphone market would crimp Apple's profits. The stock tumbled, and despite rallying in recent days is still down 27 percent from its September peak.
The year's final twist came in Washington.
Stocks wavered ahead of a presidential election that at times seemed too close to call, and while President Barack Obama ultimately reclaimed the White House by a comfortable margin, the Republicans retained control of the House.
The divided government set the stage for a tense end to the year as Democrats and Republicans sought to thrash out a budget plan that would avoid the U.S. falling off the "fiscal cliff," a series of tax hikes and government spending cuts that economists say would push the economy back into recession.
Initially, markets fell as much as 5 percent in the 10 days after the elections as investors worried that a divided government would not be able to agree on a budget plan to cut the U.S. deficit.
While the S&P 500 managed to recoup those losses by December on optimism that a deal would be reached, some investors are still urging caution. Any agreement will still be "ill-tasting medicine" to the economy, as it will almost certainly involve both spending cuts and tax hikes, says Joe Costigan, director of equity research at Bryn Mawr Trust Company.
"The question is, how much will the drag from the government be offset by business and personal spending," says Costigan. "The market has reasonable expectations for growth priced in, so I don't think we're going to see a big run-up."

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Eli Lilly banks on cost controls for higher 2013 profit

(Reuters) - Eli Lilly and Co said on Friday it expects profit in 2013 to increase by more than Wall Street had been forecasting, primarily due to cost controls and improved productivity.
Lilly, whose shares were up nearly 4 percent on Friday, said 2013 sales will be flat to a bit higher, despite the loss of patent on its $5 billion-a-year antidepressant, Cymbalta, in December.
The Indianapolis-based drugmaker is coming off a particularly difficult 2012 when sales declined sharply because of competition from cheaper generics.
It expects 2013 earnings to increase to $3.75 to $3.90 per share excluding items, from a forecast of $3.30 to $3.40 per share in 2012. In 2011, its adjusted earnings were $4.41 per share.
Analysts on average forecast earnings of $3.71 for 2013 and $3.36 per share for 2012, according to Thomson Reuters I/B/E/S.
"Overall, it was better than anyone expected," said Barclays Capital analyst Tony Butler. "From an earnings perspective, no one believed that operating expenses would be kept in check."
Morningstar analyst Damien Conover said, "They're cutting costs at a pace that's maybe a little quicker than people were anticipating, and that was one of the reasons for the outperformance in their guidance."
The company said 2013 net profit would benefit from a tax credit that had been pushed into this year because of the late signing of the American Taxpayer Relief Act of 2012 - the legislation that prevented the so-called fiscal cliff.
The company said it is not sure yet of the amount of the tax credit, which is related to research and development accounting, and said it would provide more information during its January 29 earnings conference call. Lilly said it excluded the impact from all of its financial guidance.
Similar uncertainty could face other drugmakers, as well as other corporate sectors with extensive research budgets, such as technology and defense. However, "It could be resolved by the time everybody else reports," Butler said of the pharmaceutical industry. "We've got another three weeks before anyone reports."
Lilly said the adjusted earnings forecast also excludes payment and income for revenue sharing with Bristol-Myers Squibb Co's Amylin unit on Byetta, a diabetes drug, and restructuring charges. Lilly severed ties with Amylin when it agreed to collaborate with Boehringer Ingelheim on diabetes drug development.
HELP ON THE WAY
Lilly forecast 2013 revenue of $22.6 billion to $23.4 billion, driven by sales of its drugs for diabetes, osteoporosis, cancer, erectile dysfunction and animal health. The company said it also expects significant revenue growth from Japan and emerging markets, such as China.
Analysts are looking for 2013 revenue of $22.82 billion.
While Cymbalta is not expected to start facing generic competition until the end of the year, the company cautioned that sales declines could begin sooner if wholesalers start to reduce inventory supplies prior to the patent expiration.
As a result, it said, the fourth quarter could look significantly different than the first three.
Lilly has already been battered by generic competition for its once top-selling schizophrenia drug, Zyprexa, and will face generic competition for its $1 billion-a-year Evista osteoporosis drug in early 2014.
But help is on the way. Lilly said it now has 13 drugs in late-stage testing, the most at any one time in its history. It could seek approvals this year for drugs for Type 1 and Type 2 diabetes, gastric cancer and for a type of lymphoma.
Chief Financial Officer Derica Rice told analysts on a conference call that the company was firmly focused on replenishing the developmental pipeline. "This is our future and it's our first priority."
The company also vowed to maintain its dividend payout and complete its share repurchase plan.
"Lilly has financially done a really good job. Obviously, you need the pipeline to come through," said Barclay's Butler, adding that positive late-stage data on ramucirumab in breast cancer could signal an important new product for Lilly. The drug is also in late-stage testing for the smaller gastric cancer market.
Other key events for Lilly in 2013 include the start of a new Phase III trial of solanezumab in patients with mild Alzheimer's disease after an earlier study failed but showed some signs of hope for the memory-robbing condition, and an August trial challenging a method of use patent on the $3 billion-a-year lung cancer drug Alimta.
Should Lilly prevail in court, the company could have patent protection on the medicine into 2022 even though the basic patent lapses in 2016.
Asked if the company would consider settling the case before it comes to trial, Phil Johnson, Lilly's vice president for investor relations, said: "Nothing is off the table, but we have not historically entered into those kinds of agreements."
Eli Lilly shares were up 3.8 percent at $51.60 on Friday afternoon on the New York Stock Exchange.

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FedEx says it can grow by cutting costs

NEW YORK (AP) — FedEx may be pessimistic about the U.S. economy, but it's confident about growing its earnings.
The world's second-largest package delivery company, a bellwether for economic health because of the vast number and kinds of shipments it handles, lowered its economic forecast for the U.S., saying there remains a lot of uncertainty for the country.
FedEx maintained its earnings forecast for the full fiscal year ending in May, counting on a massive cost reduction plan and a slightly more optimistic view of growth overseas. Shares rose 84 cents to close at $93.20 Wednesday, even though its forecast for the current quarter, which includes the critical holiday season, falls short of Wall Street expectations.
FedEx Corp. posted earnings of $438 million, or $1.39 per share for the quarter that ended in November, compared with $497 million, or $1.57 per share, a year ago. Superstorm Sandy shaved 11 cents per share off of earnings in this year's quarter, as shipping volumes fell and costs rose.
Revenue rose to $11.1 billion from $10.6 billion a year ago, as the company scaled back its operation to better match demand and some of its raised rates.
Wall Street expected $1.41 per share in the recent quarter on revenue of $10.84 billion, according to FactSet.
Growth in the company's freight and ground operations boosted results, but FedEx reported "persistent weakness" in its core express network. Operating income in that segment fell 33 percent. FedEx and its larger rival UPS Inc. have seen consumers and businesses opt for slower shipping options to cut costs. As a result, FedEx is offering buyouts and shedding aircraft and other assets to reduce its costs and adjust to the new normal.
Earlier this month FedEx said it will offer some employees up to two years pay to leave, starting next year. The voluntary program is part of an effort to cut annual costs by $1.7 billion within three years.
FedEx said on Wednesday that it expects earnings of $1.25 to $1.45 per share in the third quarter. Analysts predicted per-share earnings of $1.45.
The company, based in Memphis, Tenn., also estimated $6.20 and $6.60 per share for the year ending in May, excluding charges from the company's buyout plan. Wall Street is looking for $6.34 per share.

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Burundi tea earnings rise 27 pct in November on high prices

BUJUMBURA (Reuters) - Burundi's tea export revenues rose 27 percent in November from the same month last year thanks to a stronger regional market, a tea board official said on Thursday.
The state-run tea board (OTB) said it collected $1.80 million from the sale of 589,907 kg, up from $1.42 million earned in November 2011 from the export of 563,140 kg.
"Supplies of the commodity in the region were low following a fall in overall production, especially with Kenya," Joseph Marc Ndahigeze, OTB's export official, told Reuters.
"This has boosted prices and earnings for Burundi's tea."
Kenya is the top tea producer in the East African region and landlocked Burundi exports 80 percent of its tea through a weekly auction held in Kenya's Indian Ocean port city of Mombasa.
Ndahigeze said the export average price per kg jumped to $3.06 from $2.54 the previous year.
OTB said total export earnings between January and November reached $24.7 million, exceeding the $22.2 million collected in 2011.
Tea is Burundi's second largest hard currency earner after coffee and employs some 300,000 small holder farmers in a nation of 8 million people.

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Discover Financial Services 4Q net income rises

 Discover Financial Services on Thursday reported higher earnings for its fiscal fourth quarter, as users of its namesake credit card stepped up purchases and the company wrote off fewer unpaid balances.
Even so, the Riverwoods, Ill.-based company's results fell short of Wall Street expectations, and investors sent its shares down over 3 percent Thursday.
Discover, the nation's sixth-largest credit card issuer, said total loans, credit card loans and Discover card sales volume increased 6 percent in the quarter, which coincided with the tail end of the back-to-school shopping season and the ramp up to the December holidays — key periods when consumers traditionally spend more.
Discover card sales volume increased to $26.5 billion, while credit card loans at the end of the quarter totaled $49.6 billion. Private student loans rose 6 percent, while personal loans climbed 24 percent, the company said.
"Our strong receivables and sales growth results demonstrate the effectiveness of our marketing programs, consumers' preference for cash rewards and our acceptance and awareness initiatives," Chairman and CEO David Nelms said during a conference call with analysts.
While Discover's customers racked up more debt, more of them paid off credit card balances on time. The delinquency rate on credit-card loans over 30 days past due was 1.86 percent, an improvement of 53 basis points from a year earlier. The rate of charge-offs, when the company writes off unpaid credit card balances, dropped to a historic low of 2.29 percent.
"While the continued improvement in credit appears to be nearing an end, we don't believe we are at a point where charge-offs are poised to rise significantly," Nelms said.
Nationwide the rate of credit card payments at least 90 days overdue edged up in the third quarter to 0.75 percent, according to credit reporting agency TransUnion. The rate is coming off historically low levels, however.
Discover has traditionally had one of the lowest rates for default and delinquency in the credit card industry, the result of tighter lending standards and close monitoring of problem accounts.
The company has reported improvement in its customers' default and late-payment rates since the Great Recession, as cardholders moved to pay down debt and boost savings.
Late-payment rates tend to creep higher in the fall, particularly as cardholders spend more money on holiday shopping, travel and other expenses. The company said that seasonal factor led to a slight increase in its credit card loan delinquency rate between the third and fourth quarter.
While Discover's rates for late payments and defaults remain low, the company has been making more loans. As a result, it has been setting aside more funds to cover potential loan losses.
In the September-to-November quarter, Discover increased its provision for loan losses by 6 percent to $338 million, noting that was somewhat offset by a drop in the number of unpaid credit card balances that had to be written off.
Meanwhile Discover's payment-services business, which competes with Visa and MasterCard, saw dollar volume increase 13 percent in the latest quarter.
In a client note Thursday, RBC Capital Markets analyst Jason Arnold said Discover is benefiting from increased acceptance of its cards and favorable credit trends.
"We remain very enthused by Discover's fundamental position and believe the company remains well positioned for loan and (earnings per share) growth," wrote Arnold, who has a $50 price target on the stock.
For the period ended Nov. 30, Discover earned $541 million, or $1.07 per share. That compares with $513 million, or 95 cents per share, a year earlier.
Analysts surveyed by FactSet expected earnings of $1.12 per share.
Revenue climbed 11 percent to $2 billion, after interest expense. Wall Street forecast $1.96 billion.
Also on Thursday, Discover declared a dividend of 14 cents per share. It will be paid on Jan. 17 to shareholders of record on Jan. 3.
Discover shares fell $1.36, or 3.4 percent, to close at $38.41 Thursday. The stock is up 60 percent this year.

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Macy's key revenue figure rises in December

 Macy's said Thursday that revenue in stores open at least one year rose 4.1 in December, edging past Wall Street estimates.
But the figure grew less than the company expected during the combined two-month November and December period, the key holiday shopping months, and Macy's lowered its fourth-quarter guidance.
The department store chain also said it will close six underperforming stores.
Analysts had expected the December figure to rise 4 percent, according to Thomson Reuters.
Total revenue for the five weeks ended Dec. 29 rose nearly 4 percent to $5.1 billion from $4.92 billion last year.
The two months of November and December is a key holiday shopping period for retailers, which can make up to 40 percent of annual revenue during that time. Macy's said revenue in stores open at least one year rose 2.5 percent during the two months combined.
CEO Terry Lundgren said the rate of growth of revenue in stores open at least one year was less than expected, but that was due partly to uncertain economic news and the lingering effect of Superstorm Sandy.
Revenue in stores open at least one year is a key measure of a retailer's health, because it excludes revenue at stores that recently opened or closed.
Year-to-date, revenue in stores open at least one year rose 3.3 percent and total revenue also rose 3.3 percent to $25.89 billion from $25.07 billion.
The company now expects revenue in stores open at least one year to rise 3 percent to 3.5 percent in the fourth quarter, down from prior expectations of 4.2 percent.
Macy's now expects earnings of $1.91 to $1.96 for the fourth quarter, excluding costs related to a tender offer and store closings. Previously it expected earnings of $1.94 to $1.99 per share. Analysts expect $1.98 per share, according to FactSet.
Meanwhile, Macy's said it will close six underperforming stores as part of a normal review of its business. The stores include a Bloomingdales Fashion Show Home Store in Las Vegas, Nev.; and Macy's in the Paseo Colorado mall in Pasadena, Calif.; Belmont, Mass.; Honolulu, Hawaii; St. Paul, Minn.; and Houston, Texas. Closing the stores will cost $2 million to $4 million taken in the fourth quarter.
After the closings, Macy's will operate 798 stores in 45 states. Macy's said it plans to open nine other Macy's and Bloomingdale's around the country to replace the stores it is closing.
Macy's shares slipped 22 cents to $38.09 in morning trading. Its shares have traded in a 52-week range of $32.29 to $42.17.

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Stocks sink as Congress heads for another showdown

 The stock market pulled back slightly Thursday, a day after the Dow Jones industrial average posted its strongest gain in more than a year.
Retailers reported mixed sales and the prospect of a new budget battle in Congress helped nudge stocks lower.
The Dow Jones industrial average was down 25 points to 13,387 an hour after the opening bell. UnitedHealth Group led the Dow lower, sinking $1.65 to $52.88, a 3 percent drop, after analysts at Deutsche Bank and other firms cut their ratings on the insurer's stock.
The Standard & Poor's 500 index was off two points at 1,460 and the Nasdaq composite slipped three points to 3,110.
The Dow soared 308 points Wednesday, its largest point gain since December 2011. The rally was ignited after lawmakers passed a bill to avoid a combination of government spending cuts and tax increases that have come to be known as the "fiscal cliff." The law passed late Tuesday night averted that outcome for now, but other fiscal squabbles are already looming in Congress including disagreements over raising the government's borrowing limit.
Ross Stores led the S&P 500 with a 6 percent gain in early trading. The retailer said sales at stores open for at least a year increased 11 percent during the holiday shopping season. Ross Stores' stock was up $3.65 to $58.09.
Nordstom Inc. surged 2 percent after the department-store chain also reported strong holiday sales, especially in the South and Midwest. Nordstrom's stock was up $1.21 to $54.84.
Other retailers struggled during the holidays as shoppers held out for deep discounts.
Family Dollar Stores sank 12 percent after reporting earnings that fell short of analysts' projections. The company also forecast a weaker outlook for the current period and full year. Family Dollar's stock lost $7.25 to $56.75.
Hormel Foods, known for making Spam and other meat products, said Thursday that it's buying Skippy, the country's No. 2 peanut butter brand, for about $700 million, from Unilever. Hormel's stock jumped 5 percent, or $1.56, to $33.60.

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Stocks pause on Wall Street after a two-day rally

Stocks are little changed on Wall Street as the market pauses following a huge two-day rally.
The Dow Jones industrial average was off four points at 13,408 at midday Thursday. UnitedHealth Group led the Dow lower after analysts at Deutsche Bank and other firms cut their ratings on the insurer's stock.
The Standard & Poor's 500 index edged up a point to 1,463 and the Nasdaq composite rose three points to 3,115.
The Dow soared 308 points Wednesday, its largest point gain since December 2011. The rally was ignited after lawmakers passed a bill to avoid a combination of government spending cuts and tax increases that have come to be known as the "fiscal cliff." The Dow also rose 166 points on Monday, before the New Year's holiday.

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World stocks put relief rally on pause

 Enthusiasm faded on Wall Street and in European markets Thursday over U.S. legislators' deal to stave off the so-called fiscal cliff, a series of automatic tax increases and spending cuts that could have hurt the world's largest economy.
While the deal passed by Congress this week avoids the near-term risk of a major blow to businesses and households, it left unsolved several budget measures, mainly government spending cuts.
Major indexes fell modestly or saw only small gains as investors considered that U.S. politicians now have only two months to negotiate those cuts.
Wall Street lacked momentum after strong gains the previous day. The Dow industrials average was flat at 13,415.12 and the broader Standard & Poor's 500 index was up barely 0.1 percent at 1,464.31.
In Europe, Germany's DAX shed 0.3 percent to close at 7,756.44 and France's CAC-40 lost 0.3 percent to 3,721.17. Britain's FTSE 100 rose 0.3 percent to 6,047.34. Shares rose sharply in Switzerland, however, as markets there were closed on Wednesday.
A last-minute deal agreed to by U.S. lawmakers late Tuesday triggered a global market rally on Wednesday. But while it settled tax rates, the deal only postponed automatic spending cuts to defense and domestic programs for two months. And it doesn't include any significant deficit-cutting agreement, meaning the country still doesn't have a long-term plan on how to curb spending.
Rabobank analyst Jane Foley said that a "more realistic sense" of the situation with U.S. budget affairs "has started to trickle into market sentiment this morning."
"Over the next couple of months, U.S. budget talks are set to remain a threat to risk appetite," Foley wrote in a note to investors.
Looking ahead, investors will keep an eye on the U.S. monthly jobs report due Friday. The figures often move markets as they are a key indicator for the health of the U.S. economy, which has struggled to gain steam in recent months.
Figures from human resources firm ADP showed U.S jobless claims rose by more than expected to 372,000. But that was offset by more positive figures showing the economy created 215,000 new jobs during the month.
The ADP numbers are a prelude to Friday's official U.S. government numbers.
Earlier in Asia, benchmarks in Hong Kong and Sydney rose modestly and crested above the 19-month highs hit Wednesday. Hong Kong's Hang Seng Index rose 0.1 percent to 23,398.98, while Australia's S&P/ASX 200 rose 0.7 percent to 4,740.70. Benchmarks in Singapore, Taiwan, Indonesia, Thailand, the Philippines and New Zealand also rose.
Still, South Korea's Kospi fell 0.6 percent to 2,019.41 amid fears the weakening Japanese yen could hurt South Korean exporters.
Markets in Japan and mainland China were closed for extended holidays until Friday.
In currencies, the euro was down 0.6 percent at $1.311 while in commodity markets the benchmark crude oil contract was trading 5 cents higher at $93.17 in New York.

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Stocks tread water as next fiscal showdown looms

The stock market crept higher in midday trading Thursday, one day after the Dow Jones industrial average posted its biggest gain in more than a year.
Retailers reported mixed sales and the prospect of a new budget battle in Congress loomed.
The Standard & Poor's 500 index inched up one point to 1,463 and the Nasdaq composite rose four points to 3,116.
UnitedHealth Group held back the Dow, sinking $1.65 to $52.88, a 3 percent drop, after analysts at Deutsche Bank and other firms cut their ratings on the insurer's stock. The Dow was up just seven points to 13,419 as of 12:22 EST.
"It's natural to relax a bit after such a huge day as yesterday," said Lawrence Creatura, who manages a small-company fund at Federated Investors.
The Dow soared 308 points Wednesday, its largest point gain since December 2011. The rally was ignited after lawmakers passed a bill to avoid a combination of government spending cuts and tax increases called the "fiscal cliff."
That deal gave the market a jump start into the new year. The Dow and the S&P 500 are already up more than 2 percent.
"We're off to a very strong start," Creatura said. "The dominant reason is the resolution of the fiscal cliff. But January is usually a strong month, as investors all shift money into the market at the same time. When the calendar flips, it's as if you're allowed the begin the race anew."
Economists had warned that the full force of the fiscal cliff could drag the country into a recession. The law passed late Tuesday night averted that outcome for now, but other fiscal squabbles are likely in the months ahead. Congress must raise the government's borrowing limit soon or be forced to choose between slashing spending or paying its debts.
Ross Stores surged 6 percent in early trading. The retailer said sales at stores open at least a year increased 11 percent during the holiday shopping season. Ross Stores rose $3.65 to $58.09.
Nordstom Inc. surged 2 percent after the department-store chain also reported strong holiday sales, especially in the South and Midwest. Nordstrom's stock was up $1.21 to $54.84.
Other retailers struggled during the holidays as shoppers held out for deep discounts.
Family Dollar Stores sank 12 percent after reporting earnings that fell short of analysts' projections. The company also forecast a weaker outlook for the current period and full year. Family Dollar's stock lost $7.25 to $56.75.
Among other stocks making big moves:
— Transocean jumped $3.33, or 7 percent, to $49.57. The owner of the oil rig that sank in the Gulf of Mexico in 2010 after an explosion killed 11 workers reached a $1.4 billion settlement with the Justice Department.
— Hormel Foods, known for making Spam and other meat products, said that it's buying Skippy, the country's No. 2 peanut butter brand, from Unilever for about $700 million. Hormel's stock jumped 5 percent, or $1.56, to $33.60.

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A look back at memorable days on Wall Street

2012 had its fair share of big days on the stock market. Here's a look back at what set off the biggest moves in the Dow Jones industrial average.
The Biggest Drops:
— Nov. 7: Down 313 points. On the day after the presidential election, investors worried that a divided government wouldn't reach deal on the budget in time to avoid across-the-board government spending cuts and tax increases Jan. 1.
— June 1: Down 275 points. A dismal report on hiring and employment for May sent the market swooning.
— June 21: Down 251 points. A sharp decline in a closely watched measure of manufacturing in the Northeast got investors worried about the U.S. economy. China also reports a slowdown at its factories.
— October 23: Down 244 points. Big companies including Xerox, DuPont and 3M report slumping revenues for the third quarter.
— April 10: Down 214 points. Rising borrowing costs for Spain and Italy made investors worry that those two major countries would become the latest to be engulfed in Europe's government debt crisis.
The Biggest Gains:
— June 6: Up 287 points. Hope that European officials would find ways to ease the region's debt crisis launched a rally.
— June 29: Up 278 points. Markets stormed higher after European leaders came up with a plan to rescue banks, relieve debt-burdened governments and restore investor confidence.
— Sept. 6: Up 244 points. Mario Draghi, the head of the European Central Bank, unveiled a program to buy government bonds from the region's struggling countries with the aim of lowering their borrowing costs.
— March 13: Up 218 points. U.S. banks led a powerful rally after JPMorgan Chase said it plans to buy back as much as $15 billion of its stock and raise its dividend. The government also reported strong retail sales for February.

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Stocks shoot up as investors bet on 'cliff' deal

 The stock market shot higher on Monday even as the "fiscal cliff" neared. By the time trading ended, Republicans and Democrats still hadn't reached a budget compromise — but investors were betting that they would.
It was a dramatic day on what turned out to be a strong year for stocks. The Standard & Poor's 500 index rose 13.4 percent for the year, after finishing flat in 2011. It was the index's best year since 2009, and it came despite overhanging problems like Europe's debt crisis and anemic U.S. growth, bringing U.S. indexes close to their highs reached before the 2008 financial crisis.
Including dividends, the gain for the S&P 500 was even higher — 16 percent.
The close Monday was a high note in what had been a choppy day for the market, as choppy as the "fiscal cliff" deal-making that has been yanking it around. It also marked a turnaround after five straight days of "cliff"-influenced losses. The Dow Jones industrial average and the Standard & Poor's 500 both climbed more than 1 percent. The Nasdaq composite index rose 2 percent.
Stocks fell at the opening of trading Monday and struggled for direction throughout the morning. The indecisiveness overlaid a day of dramatic budget negotiations in Washington, where lawmakers were trying to hammer out a new budget deal to avert the "fiscal cliff." That refers to automatic tax increases and government spending cuts that will kick in without a budget deal.
Stocks jerked higher at midday following reports that the bare outline of a deal to avoid the "cliff" had been knit together. The gains faded after President Barack Obama said in the early afternoon that a compromise was "within sight," but not finalized. Then, in the late afternoon, the indexes shot higher again. Congressional Republicans and the Democratic White House said they had agreed on some measures, but still had no final deal in hand.
At the close of trading, Dow Jones industrial average was up 166.03 points, finishing the year at 13,104.14. That's a gain of 7.3 percent for the year, its fourth straight year of gains.
The S&P 500 rose 23.76 to 1,426.19. The Nasdaq composite climbed 59.20 to 3,019.51. For the year the Nasdaq rose 15.9 percent.
With the "fiscal cliff" still closing in, investors' opinions about its potential impact varied, making its long-term effect on the market hard to guess.
Some investors are unruffled. They think that even if the U.S. does go over the "cliff," it would be more akin to the anti-climactic Y2K scare than a true Armageddon. The "cliff's" impact would be felt only gradually, they reason. For example, workers might get more taxes withheld from their first couple of paychecks in the new year, but it's not as if they'd have to pay all their higher taxes up front on Tuesday. And Congress could always retroactively repeal those higher taxes.
Others are more concerned. The higher taxes and lower government spending could take more than $600 billion out of the U.S. economy and send it back into recession. Investors would have no good read on the country's long-term policy for taxes and spending.
The psychological impact — the U.S. would essentially be broadcasting that its lawmakers can't compromise — would also hurt.
"We're having a fragile recovery, with the pain of 2008 still fresh on everybody's mind," said Joe Heider, principal at Rehmann Group outside Cleveland. "It's fear of the unknown. And fear is one of the greatest drivers of the financial markets."
Tim Speiss, partner in charge of the personal wealth advisers practice at EisnerAmper in New York, followed the "cliff" negotiations on Monday and wondered if the U.S. would get its debt rating cut again. The Standard & Poor's ratings agency cut its rating of the U.S. government amid similar negotiations in August 2011, when lawmakers were arguing over the government's borrowing limit. S&P said at the time that the "political brinksmanship" highlighted how "America's governance and policymaking (is) becoming less stable, less effective, and less predictable." Its rating cut sent the stock market into a tailspin.
The other major ratings agencies, Moody's and Fitch, have suggested that they might lower their ratings of the U.S. because of the "fiscal cliff."
"That is, unfortunately, the big story," Speiss said.
It's also one of the only stories. There's been little other news to trade on during the holiday season, giving the "fiscal cliff" drama outsized influence. No major companies are scheduled to report earnings this week. The most significant economic indicator scheduled for this week, the government's monthly jobs report, won't be released until Friday.
The yield on the benchmark 10-year Treasury note rose to 1.76 percent from 1.70 percent late Friday, a sign that investors were moving money into stocks.
Some of the best-performing stocks for the year were those that were making up for deep losses in 2011. Homebuilder PulteGroup nearly tripled after falling for five of the previous six years. Appliance maker Whirlpool and Bank of America more than doubled over the year, after falling by double-digit percentages in 2011.
Some of the worst performers of 2012 were Best Buy, Hewlett-Packard and J.C. Penney. All are struggling to keep up with competitors who have adapted more quickly to changing technologies and customer tastes. They were all up for the day, but were all down at least 44 percent for the year.

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A surprisingly good vintage as market logs gains

 If you'd told investors what was going to happen in 2012 — U.S. economic growth at stall speed, an intensifying European debt crisis, a slowdown in China, fiscal deadlock in Washington, decelerating corporate earnings growth — and asked how the stock market would perform, few would have predicted a good year.
But that's just what they got.
The Dow Jones industrial average, the Standard & Poor's 500 and the Nasdaq composite index all ended the year substantially higher, despite losing ground in the final days of year as concerns about the looming "fiscal cliff" mounted.
The Dow gained 7 percent for the year, its fourth consecutive annual advance, having started the year at 12,217. The S&P 500, which started the year at 1,257, is up 13 percent, beating the 7.8 percent average annual gain of the past 20 years. The Nasdaq also logged a better-than-average gain, 16 percent.
Including dividends, the total return on the S&P 500 index was even better: 16 percent.
Financial companies led the gains among S&P 500 stocks, advancing 26 percent, as banks continued their restructuring efforts after the recession. Bank of America more than doubled, gaining $6.05 to $11.61 and Citigroup advanced $13.25, or 50 percent, to $39.56. Utilities, the best-performing industry group last year, was the only sector of 10 industry groups in the index to decline, dropping 2.9 percent.
"There's been a lot thrown at this market, and it's proven to be very resilient," said Gary Flam, a portfolio manager at Bel Air Investment Advisors in California. "Here we are at the end of the year, and it's still relatively strong."
Stocks started the year on a tear, with optimism about an improving job market and a broader economic recovery providing the backdrop to the S&P 500's best first-quarter rally in 14 years.
The index advanced 12 percent by the end of March, closing the quarter at 1,408, its highest in almost four years, with financial companies and technology firms leading the charge. The Dow ended the first quarter at 13,212, logging an 8 percent gain.
Apple was one of the star performers of the first quarter and was probably the year's most talked-about company.
The popularity of the iPhone and iPad led to staggering sales growth that helped push its stock up 48 percent to almost $600 at the end of March. Apple also announced a dividend and overtook Exxon Mobil as the U.S.'s most valuable company.
At the start of the second quarter, the intensifying European debt crisis and concerns about the impact that it would have on global economic growth prompted a sell-off.
By the start of June, U.S. stocks had given up the year's gains. Borrowing costs for Spain surged and investors fretted over the outcome of Greek elections that had the potential to pull the euro currency bloc apart.
The outlook for growth in China, the world's second-largest economy, also began to weigh on investors' minds. Economic growth there slowed to 8.1 percent in the first quarter as export demand waned, and investors worried that it would keep falling.
The Dow fell as low as 12,101 June 4. The S&P dropped to 1,278 June 1.
The second quarter was also marred by Facebook's initial public offering.
The stock sale was one of the most keenly anticipated initial public offerings in years, but investors didn't "like" the $16 billion market debut. The social network priced its IPO at $38 per share, and the stock started to fall soon after the first day of trading on concern about the company's mobile strategy.
Facebook closed as low as $17.73 on Sept. 4 before recovering some of the ground it lost to close the year at $26.62.
Company earnings reports were also starting to make uncomfortable reading for investors. Earnings growth for S&P 500 companies fell as low as 0.8 percent in the second quarter, according to S&P Capital IQ data.
The stock market only recovered its poise after the European Union put together loans to bail out Spain's banks on June 10 and the head of the European Central Bank, Mario Draghi, pledged to do "whatever it takes" to save the euro.
Speculation that the Federal Reserve was set to provide the economy with more stimulus to prevent it from slipping back into recession also bolstered stocks.
The rally even survived a blip when a software glitch at trading firm Knight Capital threw stock prices into chaos Aug. 1.
The firm said the problem was triggered by new trading software it installed. Erroneous orders were sent to 140 stocks listed on the New York Stock Exchange, causing sudden price swings and surging trading volume.
Apple launched the iPhone 5, the latest version of its smartphone, in September, and the company's stock climbed to a record close of $702.10 on Sept. 19. That gave Apple a market value of $658 billion, and many analysts predicted more gains lay ahead.
By the time Fed Chairman Ben Bernanke announced Sept. 13 that the U.S. central bank would start a third round of its bond-purchase program, which is intended to push longer term interest rates lower and encourage borrowing and investment, the S&P 500 had surged 14 percent from its June 1 low. A day later, the index peaked at five-year high of 1,466. The Dow Jones reached its peak for the year of 13,610, Oct. 5.
As is often the case on Wall Street, investors "bought the rumor and sold the fact," and quickly turned their attention to the challenges that lay ahead.
Analysts had also been cutting their outlook for growth in the final quarter of the year. At the start of the second quarter, estimated earnings growth for the period was 15.7 percent. That forecast had fallen to 3.4 percent by Dec. 27.
"One of the blessings that supported the stock market's moves in prior years was earnings growth," said Lawrence Creatura, a portfolio manager at Federated Investors. "That's true this year, but at a decelerating rate. It's not gone unnoticed that earnings growth is slowing, and many forecasts now include a full stall."
Apple's halo also began to slip in the final three months of the year. Its iPad Mini tablet, launched Nov. 2, met with lukewarm reviews, there were hints of unrest among its executive ranks. Investors began to fret that the intensifying competition in the smartphone market would crimp Apple's profits. The stock tumbled, and despite rallying in recent days is still down 27 percent from its September peak.
The year's final twist came in Washington.
Stocks wavered ahead of a presidential election that at times seemed too close to call, and while President Barack Obama ultimately reclaimed the White House by a comfortable margin, the Republicans retained control of the House.
The divided government set the stage for a tense end to the year as Democrats and Republicans sought to thrash out a budget plan that would avoid the U.S. falling off the "fiscal cliff," a series of tax hikes and government spending cuts that economists say would push the economy back into recession.
Initially, markets fell as much as 5 percent in the 10 days after the elections as investors worried that a divided government would not be able to agree on a budget plan to cut the U.S. deficit.
While the S&P 500 managed to recoup those losses by December on optimism that a deal would be reached, some investors are still urging caution. Any agreement will still be "ill-tasting medicine" to the economy, as it will almost certainly involve both spending cuts and tax hikes, says Joe Costigan, director of equity research at Bryn Mawr Trust Company.
"The question is, how much will the drag from the government be offset by business and personal spending," says Costigan. "The market has reasonable expectations for growth priced in, so I don't think we're going to see a big run-up.

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Housing and jobs key to lifting S&P toward record

It may be a big if, but assuming Washington lawmakers can get past the "fiscal cliff," many analysts say that the outlook for stocks next year is good, as a recovering housing market and an improving jobs outlook helps the economy maintain a slow, but steady recovery.
An advance of 10 percent in 2013 would send the S&P 500 toward, and possibly past, its record close of 1,565 reached in October 2007.
A mid-year rally in 2012 pushed stocks to their highest in more than four years. Both the Standard & Poor's 500 and the Dow Jones industrial average gained in 2012. Those advances came despite uncertainty about the outcome of the presidential election and bouts of turmoil from Europe, where policy makers finally appear to be getting a grip on the region's debt crisis.
"As you remove little bits of uncertainty, investors can then once again return to focusing on the fundamentals," says Joseph Tanious, a global market strategist at J.P. Morgan Funds. "Corporate America is actually doing quite well."
Although earnings growth of S&P 500 listed companies dipped as low as 0.8 percent in the summer, analysts are predicting that it will rebound to average 9.5 percent for 2013, according to data from S&P Capital IQ. Companies have also been hoarding cash. The amount of cash and cash-equivalents being held by companies listed in the S&P 500 climbed to an all-time high $1 trillion at the end of September, 65 percent more than five years ago, according to S&P Dow Jones Indices.
By the time trading ended Monday, Republicans and Democrats still hadn't reached a budget compromise — but investors were betting that they would — after President Barack Obama said that a compromise was "within sight," but not finalized. Without a budget agreement, millions of Americans face the prospect of higher taxes and the government would be forced to slash spending, measures that would probably push the economy into recession, economists say.
Assuming a budget deal is reached in a reasonable amount of time, investors will be more comfortable owning stocks in 2013, allowing valuations to rise, says Tanious.
Stocks in the S&P 500 index are currently trading on a price-to-earnings multiple of about 13.5, compared with the average of 17.9 since 1988, according to S&P Capital IQ data. A lower-than-average ration suggests that stocks are cheap.
The stock market will also likely face less drag from the European debt crisis this year, said Steven Bulko, the chief investment officer at Lombard Odier Investment Managers. While policy makers in Europe have yet to come up with a comprehensive solution to the region's woes, they appear to have a better handle on the region's problems than they have for quite some time.
"There is still some heavy lifting that needs to be done in Europe," said Bulko. Now, though, "we are dealing with much more manageable risk than we have had in the past few years."
Next year may also see an increase in mergers and acquisitions as companies seeks to make use of the cash on their balance sheets, says Jarred Kessler, global head of equities at broker Cantor Fitzgerald.
While the number of M&A deals has gradually crept higher in the past four years, the dollar value of the deals remains remains well short of the total reached five years ago. U.S. targeted acquisitions totaled $964 billion through Dec. 27, according to data tracking firm Dealogic. That's slightly down from last year's total of $1 trillion and about 40 percent lower than in 2007, when deals worth $1.6 trillion were struck.
M&A deals are good for stock prices because the acquiring company typically pays a premium for the one it's buying.
Falling interest rates also set off a rally in the bond market. Concerns about swings in stock prices prompted investors to switch money out of stocks and into bond funds. If investors decide that the bond rally may be nearing an end, that flow of funds may be reversed, providing a support for stocks.
"Equities are the best house in a bad neighborhood," says Cantor's Kessler. "Bonds are, not priced to euphoria, but they are definitely rich compared to equities right now."
Not all investors are as sanguine about the prospects for 2013.
The rally in stocks in 2012 had less to do with company earnings and the economy and more to do with monetary stimulus from the Federal Reserve and other central banks around the world, says David Wright, a managing director and co-founder at Sierra Investment Management in Santa Monica, Calif.
Federal Reserve Chairman Ben Bernanke announced Sept. 13 that the central bank would add another round to its bond-purchase program, known as "quantitative easing" on Wall Street, which is intended to lower borrowing costs and boost growth. Speculation that more stimulus was coming had pushed the S&P 500 index to 1,466, its highest close of the year, a day earlier. The Dow peaked for the year at 13,610, Oct. 5.
"The Fed has done everything it can do and is probably pretty close to having used its last bullet," said Wright. "It's been a good year for stocks, but we think that's an artifact of monetary stimulus."
This year's peaks in the Dow and the S&P 500 won't be surpassed in 2013 and stocks may even slump in the first quarter, as investors lower their earnings expectations, Wright says. The money manager also says that any budget plan, regardless of the details, will be negative for stocks as it will involve higher taxes and lower government spending.
Wells Fargo Securities market analyst Gina Martin Adams also says companies will struggle in the first half of the year as the economy flirts with recession. Export growth is slowing and policymakers are struggling to come up with a plan to reduce the budget deficit.
The bank recommends that investors add to their holdings of financial and utilities stocks because low rates should help support steady earnings growth in the early part of the 2013. Financial stocks advanced 25 percent in 2012, making them the best performing industry group in the S&P 500. Utility stocks fell 3.4 percent, the worst performing of 10 industry groups in the index. The bank says investors should reduce their exposure to so-called consumer discretionary stocks, such as hotels and restaurant companies, because consumer spending will likely take a hit next year as taxes rise.
With a backdrop of historically low interest rates and an economy that still needs to address its fiscal imbalances, investors should remain realistic about the returns they are going to get from the stock market, says Darell Krassnoff, managing director at Bel Air Investment Advisors.

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TEXT-S&P summary: Bharti Airtel Ltd.

We assess Bharti's financial risk profile as "significant" because of the
company's high debt. For the six months ended Sept. 30, 2012, Bharti's
debt-to-capital ratio remained high at about 61.6%, and its ratios of
annualized funds from operations (FFO) to total debt and debt to EBITDA were
at 23% and 3.5x, respectively. The company's financial ratios were marginally
weaker than in the previous year. This was because of: (1) consolidation of
US$450 million of debt at Qualcomm India, the India broadband wireless
business of Qualcomm Inc. (not rated), which is 49% owned by Bharti; (2) a
depreciation of the Indian rupee (INR); and (3) weaker-than-expected operating
performance. However, increasing cash flows from revenue growth and an equity
offering at Bharti's majority-owned subsidiary Bharti Infratel Ltd. have
mostly offset the effects of the above factors.
We expect Bharti's financial ratios to be susceptible to regulatory
developments in India, especially related to changes in the costs for past and
future spectrum, and the company's response to such changes. The impact of
such changes on Bharti's cash flows is hard to determine because cash flows
are linked to prices derived from the spectrum auction and regulation.
However, our projected positive free operating cash flow could more than
offset such impact, especially with the lowering of the auction price in key
regions. This, combined with growing revenue, could help offset the limited
headroom in Bharti's financial ratios at the current rating level. We expect
Bharti's FFO-to-debt ratio to stay about 25% and its debt-to-EBITDA ratio at
close to 3x in the fiscal year ending March 31, 2014.
Bharti's "fair" business risk profile reflects the company's good market
position as well as above average regulatory and country and macroeconomic
risks in its key markets, particularly India. While regulatory uncertainty in
India has somewhat reduced with recent regulatory changes, policy is still
evolving. The uncertainty is regarding a one-time spectrum charge for spectrum
above 4.4 megahertz (MHz) from July 2008, spectrum re-farming in the 900MHz
frequency band, and license renewal over the next two to three years. Also, we
believe that the company's established position in India makes it less
vulnerable to regulatory uncertainty than some newer entrants.
Bharti's operating performance has been weaker than our expectations in the
past six months. But we believe the company's India business will gradually
improve over the next two to three years as competition moderates and pricing
pressure declines. This is on account of: (1) high penetration; (2) evolving
regulation, which has reduced the number of players; and (3) telecom operators
focus on improving profitability, especially with high spectrum costs, rather
than garnering market share. Bharti's EBITDA margins fell to 31% in the six
months ended Sept. 30, 2012, from 35% in fiscal 2012. The weaker performance
is despite revenue growing by 14%--led by the Africa business--during the same
period. Ongoing intense competition in India and slower-than-expected
improvement in the Africa business were key contributors to the decline in
EBITDA margins.
Bharti has a good market position as India's largest wireless operator. As of
June 30, 2012, the company has a subscriber market share of about 20%,
population coverage of more than 86%, and revenue market share of about 30%.
We expect Bharti to benefit from its strong market position in most African
markets. The company has 193.2 million subscribers in South Asia and 58.7
million in Africa as of Sept. 30, 2012. Bharti also benefits from good
diversity, with operations across South Asia and Africa in diverse business
lines.
Bharti Group owns more than 35% of Bharti, while Singapore Telecommunications
Ltd. (SingTel; A+/Stable/A-1; axAAA/axA-1+) owns 32.25%.
Liquidity
We assess Bharti's liquidity as "adequate," as defined in our criteria. We
expect the company's sources of liquidity to exceed its uses by more than 1.2x
over the next 12 months. Our liquidity assessment is based on the following
factors and assumptions:
-- Liquidity sources include cash and short-term investments of INR35
billion and unused credit facilities of about INR55 billion as of Sept. 30,
2012.
-- Sources also include our projected FFO of about INR190 billion over
the next 12 months and proceeds from Bharti Infratel's equity issuance of
about INR30 billion.
-- Uses of liquidity include debt of about INR146 billion maturing in the
next 12 months (including short-term debt that we expect the company to roll
over).
-- Maintenance and other capital expenditure of about INR80 billion and
projected dividend of about INR4.5 billion, even in case of stress.
-- We anticipate that net liquidity sources will remain positive even if
EBITDA declines by 20%.
Bharti has adequate headroom in its covenants.
We believe Bharti has good financial flexibility because of its strategic
relationship with SingTel, its investments in tower companies, and access to
financial markets and bank lines.
Bharti's foreign currency risk exposure is high, in our view. As of March 31,
2012, two-thirds of the company's debt is in foreign currency.
Correspondingly, only one-third of Bharti's revenue is in foreign currency.
This exposes the company to currency depreciation risk. However, most of
Bharti's debt matures in the second half of the loan period. Such a maturity
profile, along with the company's access to foreign currency funds from
capital markets and bank lines, somewhat offsets the risks of refinancing
foreign currency debt maturities. Bharti is also exposed to interest rate
risk, although it currently benefits from a low interest rate environment.
Outlook
The stable outlook reflects our expectation that Bharti will maintain its good
market position in India and improve its operating performance in Africa. We
anticipate that the company's ratio of debt to EBITDA will be below 3.5x in
the next 12 months.
We could lower the rating if: (1) Bharti's business risk profile deteriorates
due to regulatory changes, competitive pressures, or an increase in country
risk, particularly in Africa; or (2) the company's financial risk profile
weakens. A material increase in debt because of an acquisition or spectrum
auction, any other regulatory change, or a depreciation of the rupee could
weaken Bharti's financial risk profile. A ratio of debt to EBITDA of 3.5x or
more on a sustainable basis could indicate such weakening.
We could raise the rating if Bharti significantly improves its operating
performance, particularly in Africa, or undertakes strategic measures, such as
raising equity, that significantly improve its financial performance. A ratio
of debt to EBITDA of less than 2.5x on a sustainable basis could indicate such
improvement.

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Decline of listed firms on London's junior market slows

A decline in the number of companies listed on London's junior stock market eased this year and around half the companies that did leave were bought up or transferred to bigger exchanges, a Deloitte report shows.
It said the number of companies listed on the London Stock Exchange's Alternative Investment Market (AIM) had fallen every year since 2007, but the fall in 2012 was just 4 percent, compared with 16 percent in 2009, its fastest year of contraction.
"During the time of the financial crisis ... the principal reasons why companies were leaving the list were negative," said Richard Thornhill, capital markets partner at Deloitte.
"Either they no longer perceived that the market offered them value ... or the economic climate forced them to de-list. The situation in 2012 has been very different, with the driving force behind companies leaving the list being transactions which have consistently realised value for shareholders."
Of the 113 companies who had left the market by the end of November, 41 were acquired, 17 were subject to reverse take-overs and three transferred to London's main market.
Those companies which were bought received an average premium of 53 percent to their closing share price on the day before the acquisition.
By the end of November, 65 companies had joined AIM, and the share prices of the 44 which raised money on admission had risen an average 26 percent since listing.
"There are good reasons to be confident about the market in 2013," said Thornhill.

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