Friday, February 27, 2015

Markets tread water on mixed economic data

Dow fell 14, advancers over decliners almost 3-2 & NAZ lost 1.  The MLP index inched up pennies to 444 & the REIT index rose 1 to the 334s.  Junk bond funds were mixed & Treasuries advanced.  Oil climbed back to the 49s & gold also saw buying.

AMJ (Alerian MLP Index tracking fund)

CLJ15.NYM....Crude Oil Apr 15...49.23 Up ...1.06 (2.2%)

GCH15.CMX...Gold Mar 15....1,215.20 Up ...5.60 (0.5%)

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The economy in the US expanded at a slower pace in Q4 than previously reported, restrained by a smaller gain in stockpiles & widening trade gap, even as consumers continued to provide support.  GDP rose at a 2.2% annualized rate, down from an initial estimate of 2.6%,  according to the Commerce Dept. The forecast called for a 2% pace.  While overall growth was revised down, consumer spending climbed by the most in 4 years, underscoring the fundamental strength of the expansion.  An improving job market & cheaper fuel costs will probably keep supporting households this year, which will help the US overcome a slowdown in exports as the dollar climbs & foreign economies struggle.  For all of 2014, the economy grew 2.4% from the year before, following a 2.2% advance in 2013.  Consumer spending rose 2.5%, the most since 2006.  Household consumption grew at a 4.2% annualized rate in Q4, the most since Q4-2010.  It was previously estimated at 4.3%.  Purchases added 2.8 percentage points to growth.  A smaller gain in spending on goods than previously calculated was almost fully offset by a bigger advance in purchases of services, which grew at a 4.1% pace, the most since 2000.  Inventories contributed less to growth than earlier reported.  Stockpiles grew at a $88B annualized rate, down from a prior estimate of $113B.  Following the $82B increase in Q3, the smaller gain added 0.1 percentage point to growth, compared with a previously reported 0.8 point.  The trade gap weighed on growth more than previously estimated.  The difference between exports & imports shaved 1.15 percentage point from growth, compared with a 1.02 percentage point reduction previously estimated.

U.S. GDP Grew Less Than Previously Estimated

More Americans signed contracts to purchase previously owned homes in Jan, rounding out a week of housing data that depicted an uneven recovery.  The index of pending sales climbed 1.7% after a 1.5% drop the prior month that was smaller than initially estimated, according to the National Association of Realtors (NAR).  The forecast called for a 2% rise.  Employment gains & near record-low mortgage rates will help to underpin demand.  A lack of properties for sale, higher prices & still-tight credit are hurdles for some customers as first-time buyers remain reluctant to enter the market.  “All indications point to modest sales gains as we head into the spring buying season,” the NAR said.  “However, the pace will greatly depend on how much upward pressure the impact of low inventory will have on home prices.”  The group revised Dec data from a previously reported 3.7% decrease.  3 of 4 regions saw an increase, led by 3.2% in the South.  Compared with a year earlier, the index increased 6.5% on an unadjusted basis & was projected to climb 8.7%.  The pending sales gauge was 104.2 on a seasonally adjusted basis, the highest since Aug 2013.  A reading of 100 corresponds to the average level of contract activity in 2001, or “historically healthy” home-buying traffic.

Pending Sales of Existing U.S. Homes Rise to Highest Since 2013

US consumer sentiment fell from an 11-year high in Feb according to the University of Michigan.  It's final Feb reading on the overall index on consumer sentiment was 95.4, higher than the initial reading of 93.6 & the market forecast for a reading of 94.  However, the final sentiment index was lower than the final reading of 98.1 in Jan.

Consumer Sentiment Rises in Late February

Stocks aren't doing much today with uninspiring news. Oil recovered some of the losses from yesterday & is back to where it was in the first week of Jan.  The Feb rally brought  the Dow into the black YTD, up 370.  PM trading should be quiet.

Dow Jones Industrials

Thursday, February 26, 2015

Markets fluctuate as oil sells off

Dow lost 10, decliners over advancers 4-3 & NAZ gained 20. The MLP index plunged a massive 9+ to the 443s & the REIT index fell 3 to the 333s.  Junk bond funds did little & Treasuries were lower.  Oil dropped more than 2 to the 48s & gold edged higher.

AMJ (Alerian MLP Index tracking fund)

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CLJ15.NYM....Crude Oil Apr 15....48.17 Down ...2.82  (5.5%)

Live 24 hours gold chart [Kitco Inc.]

Chair Janet Yellen & her Federal Reserve colleagues are just about finished making promises about short-term interest rates.  They want investors to focus instead on indicators related to their mandate to keep inflation stable & employment high.  This is how she put it in her written testimony before the House & Senate this week.  In an exchange with Senator Charles Schumer, Yellen said she didn't want to set down "any single criterion" on what it means to be "reasonably confident" that inflation is going to rise back up toward the Fed's 2% target.  Most economists predict that the broad mosaic of price data will come together sometime this year, so Fed officials can raise the short-term policy rate without the haunting risk of committing an error by raising rates prematurely which forces them to retreat back to zero.  The debate is about "when."  Even though the unemployment rate stood at 5.7% in Jan compared with 6.6% a year earlier, Yellen said "too many Americans remain unemployed or underemployed" and "wage growth is still sluggish."   There were about 6.8M working in part-time employment who wanted full-time jobs.  In 2007, the average was 4.4M.  While these part-time worker numbers are falling closer to pre-recession levels, they have to drop further to help Yellen meet her mandate for full employment & stable prices.

Here's What Will Make Yellen Raise Rates

IBM, which gets more than half its sales from overseas, said the impact of foreign-currency exchange rates will be greater this year than the technology-giant had previously anticipated.  The company expects currency swings to drag on revenue growth by more than 7 percentage points in Q1.  For the full year, the impact will be more than 6 percentage points, up from a prior forecast of 5-6 points.  A surge in the dollar is weighing on earnings at prominent American companies.  As the US economy weathers a slowdown in global growth, its currency’s climb has made domestic goods & services more expensive overseas.  “The currencies have nearly all moved in an unfavorable direction for our business profile,” CFO Martin Schroeter said last month.  “Our hedges are designed to provide stability around the receipt of cash, but there is no year-to-year benefit in the income statement when a currency’s direction is sustained over a longer period.”  IBM is hosting its investor meeting today where CEO Ginni Rometty is outlining the company’s reinvention strategy for this year.  The stock fell 1.94.  If you would like to learn more about IBM, click on this link:

IBM Says Strong Dollar to Crimp 2015 Revenue More Than Expecte

International Business Machines (IBM)

Sears Holdings reported a narrower quarterly loss as it continued to slash costs & said it would launch a planned property trust by Jun, raising at least $2B.  The company, which owns the Sears & Kmart, said net loss per share attributable to shareholders was $1.50 against a loss of $3.37 a year earlier.  Sales at comparable stores dropped 4.4%, with Sears showing a 7% decline & Kmart stores a 2% drop.  Declines in electronics, auto & apparel contributed to the fall.  CEO Eddie Lampert has been closing stores, cutting inventory & selling assets to cut costs & revive its business.  Revenue fell 23.5% to $8.1B in the holiday shopping period.  Of the decline in revenue of about $2.5B, $1.1B was related to Sears lowering its stake in Sears Canada, $530M to the spin off of Lands End & $497M due to fewer stores.  Sears closed 234 underperforming Kmart & Sears full-line stores in 2014, leaving it with just over 1700 stores in the US.  In Nov, the company unveiled plans to sell about 2-300 stores to a real estate investment trust (REIT) in a move that would spin off prized assets to shareholders & could accelerate a breakup of the retailer.  SHLD said it expects proceeds of more than of $2B from those sales & expects to complete the process in H1-2015.  The stock fell 1.82.  If you would like to learn more about SHLD, click on this link:

Sears Narrows Loss, REIT to Raise $2B

Sears Holdings (SHLD)

Falling oil prices dragged down energy stocks & MLPS were hit very hard.  Even in the recent market with larger swings for MLPs, a decline of more than 2% in one day is huge.  This brings the MLP index near its lows for the last 3 months.  Growing conflicts in the Mideast, which have the potential to restrict production, are not being felt in the oil market.  After setting new records, the Dow has recovered the Jan loss & is up about 400 YTD.

Dow Jones Industrials