Wednesday, October 22, 2014

Markets tumble as oil falls to 80

Dow dropped 153, decliners over advancers 2-1 & NAZ dropped 36.  The MLP index lost 5+ to the 504s & the REIT index was fractionally lower to 310.  Junk bond funds were mixed & Treasuries pulled back.  Oil sank to a 2-year low after an inventory report & gold futures fell the most in 2 weeks as the dollar’s rally & muted US inflation cut demand for the precious metal as a store of value.

AMJ (Alerian MLP Index tracking fund)

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CLZ14.NYM....Crude Oil Dec 14....80.34 Down ...2.15  (2.6%)

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IBM, a Dow stock, sees boosting profit margins as more important than sales growth, CEO Ginni Rometty said, holding firm to her strategy after a disappointing qtr sent shares tumbling.  Investors aren’t getting much expansion on either front. Earlier this week, the technology company reported a 10th consecutive qtr of sales declines, & its operating gross profit margin dropped 0.9 percentage point from a year earlier to 49.2%.  Operating EPS will slide 2-4% this year, the company said.  “It’s a dangerous thing to talk about your target being just a size without the relevance of what you do,” Rometty said in prepared remarks.  “What’s most on my mind is that I keep remixing in high growth.”  The pressure is mounting for her to speed up IBM's transition to cloud computing, where customers access software & data remotely rather than on site.  The challenge is to move into that growing business quickly enough to make up for the decline in demand for older hardware & technology consulting services.  IBM shares have dropped 11% since the earnings report, the biggest 3 day decline since 2008.  Rometty said she hadn’t expected it to be “such a busy week.”  The stock dropped another 1.44.  If you would like to learn more about IBM, click on this link:

IBM CEO Says Boosting Margins More Important Than Sales Growth

International Business Machines (IBM)

Apple CEO Tim Cook met with Chinese Vice Premier Ma Kai to discuss protecting user data, state media reported, 2 days after a report that hackers targeted its iCloud services.  Meeting in Beijing, the 2 discussed more cooperation in information & communication without giving details.  AAPL’s iCloud service in China was attacked by hackers who positioned themselves between users & computer servers, compromising user names & passwords, according to, which monitors internet censorship in the country.  The company last month said it would add new security features to iCloud after celebrity accounts were hacked & photographs of them were posted on the internet.  The "man-in-the-middle" attack on iCloud in China this week was conducted by Chinese authorities, Greatfire wrote without providing evidence linking the gov to the attack.  Not all users in China are affected because the attack is only staged against one of multiple internet protocol addresses used by iCloud, it said.  AAPL is “aware of intermittent organized network attacks using insecure certificates to obtain user information, and we take this very seriously,” a spokeswoman for the company said.  The stock went up 52¢.  If you would like to learn more about AAPL, click on this link:
Apple’s Cook Discusses User-Data With Chinese Vice Premier

Apple (AAPL)

McDonald’s McCafe
Photo:   Bloomberg

McDonald's. a Dow stock & Dividend Aristcorat, which yesterday posted its 4th straight qtr of falling US same-store sales, may look to sell more organic food to stem the loss of customers to chains known for better-quality fare.  “You’ll see us in some categories looking to different products, possibly organics,” CEO Dow Thompson said.  “We actually are doing it in certain markets.”  The world’s largest restaurant chain already uses organic semi-skimmed milk in McCafe coffees, porridge & Happy Meals in some restaurants in the UK, said a company spokeswoman.  Organic milk also is sold in Germany, while organic fruit juice is available in Germany & France, she said.  “We have the ability to cater our menu to local and regional tastes and preferences,” she added.  MCD has been struggling to boost sales amid increased competition for low-priced meals.  In the US, the chain has recently tried selling $2 jalapeno burgers & chorizo burritos in some locations to lure diners.  The items haven’t really attracted Americans, who are increasingly flocking to fast-casual chains where they can customize meals & find some organic fare.  Sales at the US stores open at least 13 months fell 3.3% in Q3, the company said, trailing the estimate for a 2.9% decline.  The stock slid back pennies.  If you would like to learn more about MCD, click on this link:

McDonald’s May Sell More Organic Foods to Boost Sales

McDonald's (MCD)

Stocks gave up some of the ground gained in the last few days as oil fell to $80 again.  There may be plenty of problems out there but I think the weak performance of oil sets a very gloomy background for investors.  In Jun, WTI was around 105 & the decline to 80 is unnerving for all markets.  Big energy companies have money & are able to ride out this storm.  But MLPs aren't quite as big & they are having their wildest month ever.  Dow is in the red YTD again & down almost 600 in Oct!

Dow Jones Industrials

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Markets crawl higher after 4 days of gains

Dow added 5, advancers over decliners 3-2 & NAZ went up 6.  The MLP index rose 2 to the 212s & the REIT index was up fractionally to near 311.  Junk  bond funds went up & Treasuries pulled back again.  Oil edged higher & gold retreated.

AMJ (Alerian MLP Index tracking fund)

CLZ14.NYM....Crude Oil Dec 14...82.97 Up ...0.48 (0.6%)

GCV14.CMX...Gold Oct 14......1,243.90 Down ...7.10  (0.6%)

The cost of living in the US barely rose in Sep, leaving inflation below the Federal Reserve goal as fuel prices plunge this month.  The consumer-price index climbed 0.1% after decreasing 0.2%, according to the Labor Dept.  The forecast called for no change.  Excluding volatile food & fuel, the core measure also advanced 0.1% after being little-changed in Aug.  A slowdown in global economic growth & declining energy & commodity costs will restrain overall price pressures this month, indicating contained inflation will give the FOMC room to keep interest rates low well into 2015.  Lower fuel bills are also helping boost consumer confidence & purchasing power, which will underpin the US expansion.  Overall consumer prices increased 1.7% in the 12 months ended in Sep, the same as in the year ended Aug.  Core CPI climbed 1.7% from Sep 2013, also matching the prior month’s increase.  Energy costs decreased 0.7% from a month earlier, & will probably drop even more this month.  Households are getting relief as their fuel bills plunge.  The drop in fuel costs will free up billions over the next year that the consumers can spend on other purchases.  But even the muted increase in the cost of living is enough to depress paychecks.

Consumer Prices in U.S. Rise 0.1% as Inflation Remains Muted

US Bancorp Q3 profit that matched estimates as the company made more loans to businesses.  EPS was 78¢, up from 76¢ a year earlier.  The estimate was 78¢.  CEO Richard Davis is benefiting from improved commercial lending amid signs the US economy is strengthening.  The bank has countered an industrywide slump in mortgages by relying on fees from businesses including credit cards & auto financing.  “Our disciplined approach returned positive operating leverage and the diversification of our business profile allowed us to maintain our momentum as the economy slowly rebounds,” Davis said.  Total loans increased 6.3% to $243B as commercial lending climbed 13.6%.  Net revenue rose 2% to $4.99B, trailing estimates of $5.01B.  Mortgage banking revenue fell 21% from a year earlier.  Noninterest expense rose 1.9% to $2.6B from a year earlier as the bank spent more on professional services & technology, while provision for credit losses increased 4.4% to $311M.  Net interest margin, a measure of profitability, fell to 3.16% from 3.27% in Q2.  Return on equity, a measure of how well a company reinvested profit to generate additional earnings, fell to 14.5% from 15.8% a year earlier, the lowest since Q2-2011.  The stock was off pennies.  If you would like to learn more about USB, click on this link:

U.S. Bancorp Profit Matches Analyst Estimates as Commercial Loans Increase

U.S. Bancorp (USB)

Target Eyes Holiday Turnaround
Photo:   Bloomberg

Target, a Dividend Aristocrat, is betting that free shipping, more advertising & 35K new items will fuel a much-needed turnaround for its holiday fortunes.  These changes are all part of a refocus on consumer service & offering shoppers better value since CEO Brian Cornell took over in Aug.  TGT, which now offers free shipping for customers who use its branded payment cards, is extending that to all purchases thru Dec 20.  “It’s a company that has really returned to what has made it great,” Cornell said.  “We want to bring ease and convenience to our guests.”  Cornell took the reins of the 2nd-largest US discount chain at a critical moment.  The data breach last year compromised 40M credit-card accounts at a time when the retailer already faced slowing US sales & a botched expansion into Canada.  Sales fell 5.3% in last year’s Q4.  There are increasing signs that this will be another lackluster Christmas for US retailers.  Early results from back-to-school shopping, which is considered an indicator of how holiday sales will go, mostly disappointed as chains trimmed revenue forecasts.  While Cornell says customers have moved on from the breach, the chain has yet to win over investors.  Cornell is getting the company to concentrate on its best categories, including apparel, home goods & toys.  Noticeably absent from this list was food that was given more floor space previously.  “We have lots of different categories, but not all those categories can be critically important,” Cornell added.  “We’ve made it really clear that there’s certain categories we want to be known for.”  The company also is spending more on advertising for the holidays, said Jeff Jones, the chain’s chief marketing officer.  A major reason for that bump is a 50% increase in digital advertising, including paid search & online video, he said.  The stock rose 19¢.  If you would like to learn more about TGT, click on this link:

Target Eyes Holiday Turnaround on Free Shipping, Faux Fur

Target (TGT)

There is not a lot going on in the markets with no significant news drivers.  Dow is up more than 500 in 4 days after massive selling.  Time for a breather.  The FOMC meeting next week is expected to announce an end to the Q3 bond buying program.  Dow remains up a smidgen YTD.   

Dow Jones Industrials

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