Thursday, December 2, 2010

Dow records its 2nd consecutive triple digit gain

Just like yesterday, markets started strong & never looked back.  Dow gained 106 (needing another 83 for a new 2010 high), advancers ahead of decliners 5-2 (again lower than it should be considering how far the averages have come in 2 days) & NAZ gained 30.  Bank stocks led the way taking the Financial Index up 5+, qualifying for an excellent day.


Value203.37One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change   5.18  (2.6%)

The Alerian MLP Index managed a gain of almost 1 to the 357s thanks to late day buying while the REIT index rose 3+ to 220 (not far from its 232 yearly high reached a month ago).  Junk bond funds were mixed, still within about 5% of their yearly highs.  Treasuries were weak, that's what happens when stocks rise.  The yield on the 10 year Treausry bond rose 4 basis points to 3.00% (up 60 basis points in just 2 months).

Treasury yields:

U.S. 3-month
U.S. 2-year
U.S. 10-year

Alerian MLP Index   ---   2 months

Dow Jones REIT Index   ---   2 months

10-Year Treasury Yield Index   ---   2 months

Oil benefited from strong stock markets in the last 2 days.  It's solidly in the $85-90 zone, the higher end of its longer term trading range.  The bulls are talking about $100 again.  Sounds good, but not so good for economic growth.  Gold was resting again, not sure what to make of the confusion over European sovereign debts & the spike up this week in Treasury yields.

CLF11.NYM...Crude Oil Jan 11...88.01 ...,Up 1.26  (1.5%)

GCZ10.CMX...Gold Dec 10....1,385.30 ....Down 2.00  (0.1%)

$$ Gold Super Cycle  

Gold's main ETF, GLD, has an extremely impressive chart over the last 5 years, far better than the vast majority of stocks.  Its future continues to be bright as more wealth migrates to eastern Asia where they generally have a high regard for the precious metal.

GLD  (ETF)   ---   5 years

Freddie Mac reported that the average rate for a 30-year fixed loan rose to 4.46% from 4.40% last week. 3 weeks ago, the rate hit 4.17%, the lowest level on records dating back to 1971.  The 15-year loan also rose, to 3.81% from 3.77%. It hit its lowest point since the survey began in 1991 a month ago, when rates fell to 3.57%.  With advancing markets, investors seeking higher returns are shifting money from bonds into riskier investments such as stocks.  As demand for Treasurys decreases, investors demand higher yields from the gov & mortgage rates track those yields. The low rates have had a limited impact on the struggling housing market. The number of people signing contracts to buy homes increased for the 3rd straight month in Oct, the National Association of Realtors said. But contract signings remained low after hitting a decade low in Jun.

Photo:  Yahoo

Toll Brothers (TOL) posted a surprise fiscal Q4 profit, helped by a large tax benefit. But revenue slipped & signed contracts declined 27% amid a weak housing market.  TOL, the largest builder of luxury homes, reported EPS of 30¢ (above expectations of only 8¢), for the qtr ended Oct 31, much better than a loss of 68¢ last year. But TOL had a $60M tax benefit in the qtr (accounting for all the earnings & some) versus a tax expense of $4.7M last year.  Revenue dropped 17% to $402.6M from $486.6M, but still beat estimates of $393.8M.  TOL signed contracts valued at $315.3M during the qtr, down 27% from a year earlier. Its cancellation rate was 8.8%, compared with 6.2% in its Q3.  CEO Douglas C. Yearley Jr. said that the fiscal year was another challenging one for the company and the industry "as the persistent drag of high unemployment, reduced home equity, weak consumer confidence and frustration with the nation's economic and political climate outweighed the appeal of historic low interest rates and tremendous home affordability."  Yearley noted that "many of our clients remain on the sidelines waiting for clearer signs that the economy is on the road to recovery."  Toll's customers are typically buyers who already own a home & are generally looking to trade up to a property with more high-end amenities. Some are in the market for a 2nd home or want to live in a community geared to seniors.  For the full year, TOL narrowed its EPS loss to 2¢ from $4.68 last year. Revenue fell 15% to $1.49B.  Housing business remains glum.  The stock gained 41¢ but has gone nowhere in 6 years.

Toll Brothers Reports Quarterly Profit on Tax Break

Toll Brothers   ---   2 years

Markets have become red hot.  Dow rose more than 350 in 2 days with only moderately good news behind the gains.  The bulls are happy, but I'm skeptical.  Tomorrow starts with the big Nov jobs report.  We'll see if it proves to be a case of buy on the rumors & sell on the news.  Meanwhile the hottest sector in the markets, MLPs, have been going sideways for a month.  For the last 2 years, they had been outperforming the markets significantly.

Dow Jones Industrials   ---   2 months

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