VerySmartInvesting: Mixed markets on confusing signals over tax rates in 2011

Wednesday, December 8, 2010

Mixed markets on confusing signals over tax rates in 2011

Dow fell 3, decliners over advancers better than 3-2 & NAZ was up 6. Bank stocks found buyers today. This month the Financial Index is up 8 as bank stocks are finding more fans.

S&P 500 FINANCIALS INDEX

Value	204.82
Change	1.36 (0.7%)

The MLP index fell 2½ to the 355s. It's been sloshing around the mid 350s for weeks, but increased yields on competitive Treasuries are taking their toll. The premium of the yield on the MLP index over the 10 year Treasury has narrowed to 300 basis points. Likewise, the REIT index fell 2+ to the 218s. Junk bond funds generally were a little lower. Bonds fell around the world, while the dollar strengthened for a 3rd day, amid speculation the tax-cut accord will help spur economic growth & reduce demand for bonds. The chart below shows the yield on the 10 year Treasury bond has leaped 50 basis points in a little over 1 week.

Treasury yields:

U.S. 3-month		0.14%
U.S. 2-year		0.61%
U.S. 10-year		3.24%

Alerian MLP Index --- 2 weeks

Dow Jones REIT Index --- 2 weeks

10-Year Treasury Yield Index --- 2 weeks

Oil extended declines after the Energy Dept reported an unexpected increase in fuel stockpiles. Gold declined for a 2nd day after a rally to a record & a stronger dollar prompted selling in the metal.

CLF11.NYM

...Crude Oil Jan 11

...88.16

......

0.53

(0.6%)

GCZ10.CMX

...Gold Dec 10

.....1,373.30 ...

35.00

(2.5%)

Gold Super Cycle Link!

Click Here

Home Depot Lifts Full-Year Profit Forecast on Sales

Photo: Bloomberg

Home Depot (HD), Dow stock, gave an outlook for the next financial year that would miss expectations amid continued weakness in the US economy. HD forecast for the 12 months ending Jan 2012 is for EPS of $2.19-2.23 compared with forecasts of expect a $2.22 a share. At a meeting today with investors, the company will discuss efforts to boost its online business & other efforts to drive sales & margins. Carol Tome, Chief Financial Officer, said this AM that the company will launch a facility that allows shoppers to buy online & pick up in store in 2011. "The customer is changing... customers are shopping with their phones," Tome said. For 2011, the company sees sales rising 2-2½% & EPS from continuing operations rising 11-13% (after share repurchases). In addition, HD raised its outlook for the rest of this year citing strong sales in Nov. "November was a terrific selling month for us. The trends continue into December," Tome said. The home improvement retailer saw strength across its merchandise lines, not just in holiday season items, Tome said. For the current fiscal year, it sees EPS of $1.97, up from $1.94 a share & sales will rise 2.3%, versus a prior outlook of a 2.2% increase. The stock gained 25¢.

Home Depot Lifts Full-Year Profit Forecast on Higher Sales

Home Depot --- 2 years

Costco Wholesale Profit Increases on Gasoline, Grocery Sales

Photo: Bloomberg

Costco (COST) profit climbed 17% in its fiscal Q1 on increased revenue from membership fees & strong results overseas. COST has been one of the stronger retailers during the weak economy, as shoppers have increasingly turned to it for deals on everyday items. But recently, COST has seen shoppers buy more small extras such as housewares. COST reported EPS of 71¢ for the qtr ended Nov 21, up from 60¢ last year & beating forecasts of 69¢. Revenue rose 11% to $19.2B, beating forecasts of $18.8B. Sales at clubs open at least a year climbed 7%, with intl results up 14% & US results rising 5%. Removing the impact of gasoline sales & strengthening foreign currencies, sales at clubs open at least a year increased 5%, climbing 10% internationally & 4% in the US. 80% of its warehouses are in the US. The stock dropped 9¢.

Costco Wholesale Profit Increases on Gasoline, Grocery Sales

Costco --- 2 years

Markets just don't know what to do or where to go. The euro debt problems drag on, but attention is focused on an extension of tax rates in the US (along with an extension for unemployment benefits) & that is caught up in political debate. It's hard to believe that helpful legislation will come from pasting a lot of ideas together. Markets want to go higher as they sense the US economic recovery may be stronger than some were estimating, but this indecision is hurting. Bulls want to take the Dow to new 2010 highs, but are challenged. With the Dems & Reps digging in their heals on taxes, it will be hard for market averages to move ahead.

Dow Jones Industrials --- 2 weeks