Thursday, January 29, 2015

Markets rise on earnings hopes

Dow shot up 225 closing near the highs, advancers over decliners 2-1 & NAZ gained 45.  The MLP index rose 1 to 440 & the REIT index added a fraction to 354 (close to its new record high).  Junk bond funds inched higher & Treasuries declined.  Oil is stil stuck in the 44s while gold sold off (see chart below).

AMJ (Alerian MLP Index tracking fund)

CLH15.NYM....Crude Oil Mar 15....44.35Down ...0.10  (0.2%)

Live 24 hours gold chart [Kitco Inc.]

Germany’s inflation rate turned negative in Jan for the first time in more than 5 years, aggravating a slump in consumer prices in the euro area.  Prices in Europe’s largest economy fell 0.5% from a year earlier, the Federal Statistics Office said, the lowest rate since Sep 2009.  The forecast predicted a drop of 0.2%.  The ECB committed last week to spend at least €1.1T ($1.2T) on gov bonds to avert deflation in the euro area.  Prices in the 19-nation bloc probably dropped this month at the 2nd-fastest rate since the introduction of the single currency.  The outlook for lower inflation is boosting bonds as it preserves the purchasing power of their fixed payments.  Underscoring that point, Germany’s 30-year yield fell below 1% for the first time on record.  The euro-area inflation rate was probably minus 0.5% in Jan. 

German Inflation Rate Is Negative for First Time Since 2009

Bill Gross, former manager of the world’s largest bond fund, said the Federal Reserve (FED) will raise interest rates this year to end distortions that 6 years of near-zero borrowing costs have brought to financial markets.  Any increase by the FED will be slow to avoid startling markets that have gotten used to cheap money, & caution will prevail for a long time, Gross wrote in an investment outlook.  He likened financial markets to the board game Monopoly, in which a bank, much like the FED, supplies money to players who invest it in properties.  Gross said the FED realizes that for the game to function, players need incentives to invest.  “Capitalism depends on hope –- rational hope that an investor gets his or her money back with an attractive return,” he wrote.  “Without it, capitalism morphs and breaks down at the margin. The global economy in January of 2015 is at just that point with its zero percent interest rates.”  He has previously said that falling oil prices & a strong dollar constrain the FED from raising rates until late this year, “if at all.”  Gross said the FED may move by “25 basis points in July or August.”  He added in his outlook that the FED “will move up the Monopoly board’s interest rates in late 2015.”  The FED “will be very slow. The curve suggests in February 2019, they will finally reach 2 percent in terms of the Fed funds rate,” Gross said.  “And I think that’s about right, but it will take up three or four years to get there.” 

Speculation had been building for some time that Don Thompson CEO of McDonald's, a Dow stock & Dividend Aristocrat, might be in trouble because of its relative underperformance.  The Golden Arches, with 36K restaurants globally, has tremendous market share & reach, as well as paying a rich div, but the stock trailed many peers the last couple of years & patrons were voting to spend their dollars elsewhere.  Thompson is retiring as CEO & will be replaced by Steve Easterbrook, senior exec VP & chief brand officer.  The change will be effective Mar 1.  "Steve is a strong and experienced executive who successfully led our U.K. and European business units, and the board is confident that he can effectively lead the company to improved financial and operational performance," said Andrew McKenna, non-executive chairman.  Thompson's comments were that "there is a time and season for everything. I am truly confident as I pass the reins over to Steve, that he will continue to move our business and brand forward."  The CEO change is the latest of several in the past few months at MCD.  Although Thompson's departure was described as a retirement, it does follow a disappointing year, in which revenue fell for only the 2nd time in 20 years.  Additionally, 2014 was the 2nd-consecutive year that saw customer transactions decline.  The full-year earnings report was only issued last Fri.  MCD has been adrift for months, promising to change its menu, to make better use of technology & to be more open with customers in an effort to not lose diners to competitors.  While it remains an incredibly large business, it was less & less clear what it truly could do to serve up new growth.  The shares, & revenue, were stellar from 2003-2012, but it's been much tougher on the company since.  One of the latest setbacks occurred last summer, when its Asia operations were hurt by a supplier investigation in China.  The stock jumped up 4.49.  If you would like to learn more about MCD, click on this link:

McDonald's (MCD)

The oversold stock market had a rebound.  It was due after Jan was turning out to be having one of its worst months in history.  There are no shortage of problems.  A new gov in Greece is trying to figure out to deal with tons of debt.  The word default is being kicked around along with talk about leaving the EU.  Russia's debt is now rated as junk.  The MidEast is a confusing mess, that's where a lot of oil comes from.  The oil market is a disaster bringing confusion to a lot of businesses.  And the US recovery, while looking better in recent months, is still uneven as shown by today's housing data.  Stocks are nearing the end of the month which means money managers will buy or sell anything to make their results look better.  Sudden  moves in either direction are always suspect.  Market breadth was a bit thin today considering the advance by the averages.

Dow Jones Industrials

Markets slide lower on housing data

Dow dropped 33, decliners over advancers 2-1 & NAZ fell 25.  The MLP index sank 9+ to 430 (down more than 125 from its record peak reached last year) & the REIT index did little at 353.  Junk bond funds fluctuated & Treasuries lost some of the recent gains.  Oil inched higher in the 44s (that's called bargain hunting) & gold is drifting lower in the 1200s.

AMJ (Alerian MLP Index tracking fund)

CLH15.NYM...Crude Oil Mar 15...44.80 Up ....0.35 (0.8%)

GCG15.CMX...Gold Feb 15.....1,269.60 Down ...16.30  (1.3%)

3 Stocks You Should Own Right Now - Click Here!

The fewest Americans in almost 15 years filed applications for unemployment benefits during a holiday-shortened week that typically makes the data more volatile.  Jobless claims plunged 43K to 265K, the lowest since 2000, according to the Labor Dept.  The forecast called for 300K.  Layoffs probably will remain muted & companies will keep adding to payrolls as rising consumer confidence & spending help the economy withstand waning overseas demand.  The 4-week average, a less-volatile measure than the weekly figure, dropped to 298K from 306K in the prior week.  The number continuing to receive jobless benefits declined 71K to 2.39M & the unemployment rate among people eligible for benefits held at 1.8%.

Jobless Claims in U.S. Plunge to 15-Year Low in Holiday Week

Previously Owned Home
Photo:   Bloomberg

Contracts to purchase previously owned homes in the US unexpectedly fell in Dec by the most in a year, a sign the industry’s recovery remains uneven.  The index of pending sales dropped 3.7% after a 0.6% gain the prior month that was smaller than initially estimated, figures from the National Association of Realtors.  The forecast called a 0.5% increase.  Fewer available properties, higher prices & still-tight credit are hurdles for some customers as first-time buyers remain reluctant to enter the market.  At the same time, employment gains & near record-low mortgage rates will help to underpin demand, one reason builders expect the industry’s rebound will be sustained.  “Total inventory fell in December for the first time in 16 months, resulting in fewer choices for buyers and a modest uptick in price growth,” Lawrence Yun, the NAR’s chief economist, said.  “More jobs, increasing consumer confidence, less expensive mortgage insurance and new low down-payment programs coming into the marketplace will likely lead to more demand from first-time buyers.”  All 4 regions saw a decrease, led by a 7.5% drop in the Northeast.  Compared with a year earlier, the index increased 8.5% on an unadjusted basis after a 1.5% gain in the prior 12-month period.  They were projected to climb 10.5%.  The pending sales gauge was 100.7 on a seasonally adjusted basis, the lowest since Apr.  A reading of 100 corresponds to the average level of contract activity in 2001, or “historically healthy” home-buying traffic.  Pending sales are considered a leading indicator because they track contract signings.  A Commerce Dept report showed new-home sales jumped last month to the highest level since Jun 2008.

Pending Sales of Existing Homes in U.S. Drop by Most in a Year

The US homeownership rate fell to the lowest in more than 2 decades in Q4 as many first-time buyers stayed on the sidelines.  The share of Americans who own their homes was 64%, down from 64.4% in Q3, according to the Census Bureau.  The rate was at the lowest since 1994.  Rising prices & a tight supply of lower-end listings have put homes out of reach for some entry-level buyers, who also face strict mortgage standards. The share of homebuyers making their first purchase dropped in 2014 to the lowest level in almost 3 decades, the National Association of Realtors reported last week.  The homeownership rate has fallen from a peak of 69.2% in 2004.  From 1965 to 1999, the average was 64.5%.

U.S. Homeownership Rate Falls to a 20-Year Low

Housing data & earnings fail to bring out buyers.  Even Janet could not inspire them yesterday.  Low oil prices, conflicts in the MidEast & Ukraine, & looming interest rate hikes are weighing on the market.  Jan performance for stocks will be a repeat of last Jan.  Bulls are hoping that the remaining 11 months will also be a repeat of last year when stocks rallied. 

Dow Jones Industrials