VerySmartInvesting: Markets waver after Federal Reserve meeting

Wednesday, November 3, 2010

Markets waver after Federal Reserve meeting

Stocks remained near break even all day despite 2 major news events. Dow ended up 26, advancers 3-2 ahead of decliners & NAZ gained 6. Bank stocks were higher, but the Financial Index remains stuck in its 6 month sideways rut.

S&P 500 FINANCIALS INDEX

Value	198.28
Change	1.97 (1.0%)

The MLP Index fell 0.72 in the 355s after setting another record yesterday while the REIT index fell ½ taking it under 223. Junk bond funds were slightly lower.

Alerian MLP Index --- YTD

Dow Jones REIT Index --- YTD

10-Year Treasury Yield Index --- YTD

Oil is doing well at its 6 month highs but gold sold off on the Fed's move & a stronger €.

CLZ10.NYM

...Crude Oil Dec 10

...84.94

.....

1.04

(1.2%)

GCX10.CMX

...Gold Nov 10

.....1,337.10

...

19.30

(1.4%)

$$ Gold Super Cycle $$

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The Federal Reserve (FED) launched an unorthodox new policy to buy $600B more in gov bonds by the middle of next year in an attempt to breathe new life into a struggling U.S. economy. This decision, which takes the FED into largely uncharted waters, is aimed at further lowering borrowing costs for consumers & businesses still suffering in the aftermath of the recession. The FED will buy $75B per month in longer-term bonds as part of the new program & will regularly review the program. Nearly 90% would focus on Treasuries with maturities ranging from 2-1/2 to 10 years. In its post-meeting statement, the policy-setting panel described the economy as "slow," & said employers remained reluctant to add to payrolls. It said measures of inflation were "somewhat low." "Although the committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow," the FED said. Prices for bonds fell sharply after the FED announced its decision. After a volatile day, the yield on the 10 year Treasury gained 2½ basis points to 2.62%.

Treasury 30-Year Bond Yields Rise as Federal Reserve Plans Debt Purchases

Treasury yields:

U.S. 3-month		0.12%
U.S. 2-year		0.34%
U.S. 10-year		2.62%

Photo: Bloomberg

Time Warner (TWX), Warner Bros, HBO, CNN, DC Comics, etc., reported Q3 net income declined, but adjusted earnings surpassed expectations thanks to growing subscription & ad revenue in network businesses. TWX again raised adjusted earnings outlook for 2010, saying it now expects percentage growth in the high 20% range (above the Aug guidance of expecting growth of "at least" 20%). Analysts are expecting EPS of $2.26, an increase of 24% from 2009. In Q3, TWX had EPS of 46¢, down 21% from 56¢ last year. Excluding one-time items, the company earned 62¢, above estimates of 53¢. Total revenue climbed 2% to $6.38B. In Q3, film revenue was flat at $2.8B but revenue at the networks segment, HBO & Turner Broadcasting, grew 9% to $3B, boosted by growing ad revenue &higher subscription rates. The stock fell 34¢.

Time Warner Profit Beats Estimates; Forecast Raised

To learn more about Time Warner,

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Time Warner --- 2 years

2 dramatic events today, but markets treated them with a lot of yawns partially because there were no great surprises. The pres spoke at lunchtime but only gave generalities about coming together to solve problems. The FED announcement was well advertised, now experts are trying to figure out what it really means. There is a lot of debate about whether the economy needs any stimulus or a lot. I'm not sure lower interest rates will help when banks are using a lot of surplus funds to invest in Treasuries, not loans. Investors tonight will slosh around implications of the FED move & get to see how Asian markets react. With the mini surge in the closing minutes, the Dow closed essentially matching its 2010 high. Tomorrow will tell us if the bulls are really serious about higher markets.

Dow Jones Industrials --- YTD