Monday, January 31, 2011

Markets rise despite unease over Egypt

Stocks weren't sure what to do in early trading, but bulls carried the day.  Dow finished up 68 (closing at its highs), advancers ahead of decliners 2-1 & NAZ gained 13.  Good earnings reports for the big oils & strength in bank stocks were big factors in today's rise

S&P 500 FINANCIALS INDEX

Value220.70One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change  2.14  (1.0%)



The MLP index rose almost 3 to the 372s & the REIT jumped 3¼ to the 232s on merger news of AMB Properties (AMB) & ProLogis (2 large REITs).  Junk bond funds were higher while Treasuries were little changed.

Treasury yields:


U.S. 3-month
0.15
U.S. 2-year
0.56
U.S. 10-year
3.38

Alerian MLP Index   ---   YTD



Dow Jones REIT Index   ---   YTD



10-Year Treasury Yield Index   ---   YTD




Oil was higher on worries about production interruptions from the Mideast.  Oddly, with growing uncertainty, gold dropped but that should not last long.

CLH11.NYM...Crude Oil Mar 11...91.96 .....Up 2.62  (3.0%)

GCG11.CMX...Gold Feb 11......1,329.80 ...Down 10.90 (0.8%)

** Gold Super Cycle **  



As 2011 began, banks were the most optimistic in years that they will not have to write off as many bad business & consumer loans this year  according to a survey issued by the Federal Reserve (FED).  Some US & foreign-controlled banks continued easing terms for commercial & industrial loans but they kept standards & terms for others like consumer loans & mortgages largely unchanged.  The survey covered 57 domestic banks & 22 US branches & agencies of foreign banks that do the great majority of lending in US markets.  "In the January survey, expectations were significantly more upbeat than in past years," the FED said. "Moderate to large net fractions of banks reported that they expected improvements in delinquency and charge-off rates during 2011 in every major loan category."  80% of survey respondents anticipated improvements in the quality of commercial & industrial loans to large & middle-market firms this year & 70% expected improvements in the quality of loans to small firms, making banks more willing to give better loan terms & standards.  This is consistent with an improving outlook for the US economy which has been taking the stock markets higher in recent months.


Egypt worries faded during the day, although they could become a massive problem for the markets.  The chart below shows Dow rose over 300 in Jan, although the gains were trimmed back last week.  The MLP index also gained, needing another 2 for new record.  Next month could be an important one for the markets. 

Dow Jones Industrials   ---   YTD





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Energy stocks lead markets higher

Stocks are sputtering, but managing to work there way higher after the big fall on Fri.  Dow rose 25, advancers ahead of decliners 5-2 & NAZ was up 5.  Bank stocks are doing well.

S&P 500 FINANCIALS INDEX

Value 220.31 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change   1.75  (0.8%)



The Alerian MLP Index rose 2½ to 272, probably helped by bullish sentiment for energy.  374 will bring a new record & reduce the yield on the index to 6%, taking it well into overbought territory.  The REIT index is also hot, up 2+ to 231, just 2 below the interim high reached last week.  Junk bond funds were fractionally higher while Treasuries were about even. The yield on the 10 year Treasury bond was flat at 3.35%, litttle changed in the last 3 months.

Treasury yields:


U.S. 3-month
0.14
U.S. 2-year
0.55
U.S. 10-year
3.34

Alerian MLP Index   ---   2 weeks



Dow Jones REIT Index   ---   2 weeks



10-Year Treasury Yield Index   ---   2 weeks



Oil was flat but with the Mideast center stage anything is possible.  Gold was struggling as technical selling & the need for cash overcame safe haven buying.

CLH11.NYM...Crude Oil Mar 11...89.50 .....Up 0.16  (0.2%)

GCG11.CMX...Gold Feb 11......1,330.70 ...Down 10.00  (0.8%)

Gold Super Cycle Link! Click Here



Consumer Spending in U.S. Climbs

Photo:  Bloomberg

Americans spent at the fastest pace in 3 years in 2010, boosted by a strong finish in Dec.  Consumer spending rose 0.7% in Dec, the 6th straight monthly increase according to the Commerce Dept. Households saw their incomes rise 0.4%, the same as Nov.  For all of 2010, consumers boosted spending 3.5%, the best performance since a 5.2% rise in 2007 (prior to the the recession).  Consumer spending rose at a 4.4% rate in Q3, the most since 2006 & helping retailers to the best holiday shopping season in that time.  The cut in Social Security taxes are expected to lift Jan spending & income.  In 2010, incomes rose 3% after falling 1.7% in 2009 (the 2nd-lowest annual pace in 8 years).  The rise in incomes & faster increase in spending meant that the savings rate dipped slightly in Dec to 5.3% of after-tax incomes.  The savings rate edged down slightly to 5.8%, from 5.9% in 2009. Still the 2010 figure is well above the low of 1.4% hit in 2005 at the height of the housing boom when rising home prices encouraged Americans to spend more.  A slowly improving job market & a payroll tax cut are expected to boost spending further in 2011.  However, the big question is whether the gains in consumer spending will be enough to offset weakness in the housing market & further cutbacks in gov spending.  Fairly encouraging data which is not inspiring buyers today.

Consumer Spending in U.S. Rose More Than Estimated


Exxon Profit Rises as Energy Prices, Demand Climb

Photo:  Bloomberg

Exxon Mobil (XOM), a Dow stock & Dividend Aristocrat, earned $9.25B in Q4, its most profitable qtr since the record Q3 in 2008.  Net income grew 53% as it produced more oil to take advantage of higher prices.  EPS was $1.85, above expectations of $1.62 & $1.27 in the prior year.  Revenue increased 17% to $105B.  XOM cranked up production by 19%. Its exploration & production operations posted income of $1.3B in the US & $6.2B overseas. Downstream operations, which include refineries & retail stations, reported earnings of $1.2B after losing money a year ago. The chemicals business reported profits of $1.1B.  For the full year, XOM had EPS of $6.22, well above $3.98 in 2009. Annual revenue increased 32% to $383B.  The stock was up 1 to almost $80.  Its chart shows the stock price has been riding along with rising oil prices.

Exxon Mobil Profit Rises as Energy Prices Climb With Demand


Exxon Mobil   ---   1 year




Intel (INTC), a Dow stock, said it found a design flaw in a recently released computer chip & will discontinue its production.  It stopped shipment of the chip, codenamed "Cougar Point" & has developed a fix. This will reduce revenue by about $300M in Q1. Even though the flaw will mean lost revenue, the chip maker is raising its overall revenue outlook.  Recent acquisitions are pushing overall revenue higher & INTC expects total revenue of $11.7B, plus or minus $0.4B. Its prior outlook was for $11.5B, plus or minus $0.4B.  Revenue is expected to grow in the mid- to high teens in all of 2011 which compares with a previously expected a growth rate of about 10%.  The stock slipped 34¢ after trading sideways for some time (despite div increases).

Intel Reduces First-Quarter Forecast Due to Cougar Point Chip-Design Error

Intel   ---   1 year




Earnings news from the big oils are no great surprise.  The goings on in Egypt are the focus of attention for traders & there is not way to predict how that will turn out.  Gov officials are only making bland statements because nobody wants to back a loser in this volatile situation.  Oil is a key part of this story, the Suez canal is a choke point for shipping a lot of oil.  Dow began the month/year at 10,577, Jan should be an up month.

Dow Jones Industrials   ---   2 weeks






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Friday, January 28, 2011

Stock markets tumble on Midest unrest and Amazon

Dow retreated 166, decliners over advancers 4-1 & NAZ dropped an enormous 68 (related to Amazon disappointing the markets).  Banks, as market leaders, felt the selling pressure.  4 is a big daily loss for the Financial Index. 

S&P 500 FINANCIALS INDEX

Value 218.56 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change   -4.10  (-1.8%)


The MLP index fell 2¼ to the 369s & the REIT index dropped a very big 4+ to the 228s (backing off an important interim high). Junk bond funds were pretty much even but Treasuries found buyers on the uncertainties in Egypt.  The yield on the 10 year Treasury bond dropped 6 basis points.  Buying interest came from its safe haven qualities.

Treasury yields:


U.S. 3-month
0.14%
U.S. 2-year
0.55%
U.S. 10-year
3.33%

Alerian MLP Index   ---   YTD



Dow Jones REIT Index   ---   YTD



10-Year Treasury Yield Index   ---   YTD




Oil surged the most since in 14 months as unrest in Egypt raised concern that protests would spread to major oil-producing parts of the Middle East. Crude gained 4.2% after a day of clashes between police & protesters demanding an end to Egyptian President Hosni Mubarak’s 30-year regime. Bloomberg TV had a phone line with an Egyptian stuck in his hotel room in Cairo, the situation is tense. Of course, intl tensions brought out buyers for gold, the ultimate safe haven asset.

CLH11.NYM...Crude Oil Mar 11...89.23 .....Up 3.59  (4.2%)

GCG11.CMX...Gold Feb 11......1,336.70 ....Up 18.30  (1.4%)

$$ Gold Super Cycle $$  




Photo:  Yahoo.com

Amazon (AMZN) was hurt by intense competition from Wal-Mart (WMT), a Dow stock, & other discounters that kept a lid on many prices.  The world's biggest online retailer's shares sank $13.31 to the $171s after it said its holiday-season revenue uncharacteristically fell short of expectations & it offered a disappointing profit outlook for Q1.  Under pressure from WMT, AMZN has lowered its prices & scrambled to match the surprise offer in Q4 of free shipping on tens of thousands of items.  CEO Jeff Bezos noted 2 important milestones: The company cracked $10B in quarterly revenue for the first time, & it sold more electronic books for its hot-selling Kindle reader than it did paperback books. AMZN EPS of 91¢ beat expectations of 88¢ & came in ahead of last year's 85¢.  But analysts were expecting an even bigger jump in revenue than the 36% Amazon reported.  AMZN forecast $13B while the company took in $12.95B.  AMZN Q1 guidance of $9.1-9.9B in revenue was in line with projections of $9.32B. But the company warned that operating profit could decline as much as 34% from Q1 2010.  Its huge decline today undermines the credibility of tech related stocks to keep delivering higher earnings.

Amazon shares slip on revenue miss, profit outlookAP

Amazon   ---   2 years




I wrote 2 articles this week for SeekingAlpha (on the 2 largest MLPS & Citi) that received an excellent reception:


http://seekingalpha.com/article/249141-kinder-morgan-and-enterprise-products-start-the-new-year-right

http://seekingalpha.com/article/248461-citigroup-where-there-is-risk-there-is-potential-for-rewards


Dow was coming off a 29 month high.  Expectation were for it to easily climb over 12K.  But that failed.  Unrest in Egypt (which affects the entire Mideast) & a dismal report from AMZ were some of the major causes of the selling.  Dow had been trying for a 9th consecutive week of gains, an usually long run.  By any definition, markets are vastly overbought.  However, the bulls will take comfort that Dow is up 250 in Jan.  It's interesting that Dow ran into an important resistance (12K) after the FOMC meeting when the low rates were reaffirmed.  This connection needs to be examined.

Dow Jones Industrials   ---   YTD





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Markets sell off on less than good enough earnings

After starting higher & going over 12K again, sellers took over.  Dow is down 69, decliners ahead of advancers almost 4-1 & NAZ dropped a very big 37 (damaged badly by Amazon, AMZN, down 15 as its forecasts fell short of estimates).  Bank stocks also sold off after gains at the opening.

S&P 500 FINANCIALS INDEX

Value 221.74 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change   -0.92  (-0.4%)


The Alerian MLP Index dropped 2 to 370, remaining near a new record at 374.  REITs settled back after yesterday's excitement about a buyout.  The index fell 2 to to 230, still near its 2½ year high.  Junk bond funds were a tad lower.  Treauries were little change, the yield on the 10 year Treasury bond fell just 1 basis point to 3.37%.

Treasury yields:


U.S. 3-month
0.14%
U.S. 2-year
0.59%
U.S. 10-year
3.37%

Alerian MLP Index   ---   2 weeks



Dow Jones REIT Index   ---   2 weeks



10-Year Treasury Yield Index   ---   2 week




Oil rose from an 8 week low as the US economy accelerated in Q4, driven by the biggest gain in consumer spending in more than 4 years.  Bargain hunters were buying gold after its steep decline from recent record highs.

CLH11.NYM...Crude Oil Mar 11...87.02 ...Up 1.38  (1.6%)

GCG11.CMX...Gold Feb 11......1,321.90 ...Up 3.50  (0.3%)

Gold Super Cycle Link! Click Here



U.S. Economy Accelerates on Gains in Consumer Spending

Photo:   Bloomberg


The economy gained strength at the end of last year as Americans spent at the fastest pace in 4 years & businesses sold more overseas.  This growth is boosting hopes for a stronger 2011, but it remains too weak to ease high unemployment.  The Commerce Dept reported that growth rose to an annual rate of 3.2% in Q4, above the 2.6% growth rate in Q3 & the best quarterly showing since the start of last year.  The economy has now consistently picked up speed since hitting a rough patch in the spring.  For all of 2010, the economy grew 2.9%, the most since 2005 & followed the worst decline in more than 60 years.  But that isn't be strong enough growth to drive down unemployment, which was 9.4% in Dec.  Increased consumer spending was a key reason for stronger growth. Americans boosted spending at a 4.4%, the most since 2006. They spent more on furnishings, appliances, cars & clothes.  Consumer spending is expected to rise 3.2% or more for all of 2011 (almost double last year's anemic rate).  Stronger sales of exports helped fuel growth at the end of last year, but the higher sales were eclipsed by a slowdown in inventory rebuilding.  Exports grew at a 10% pace, up from a 5.8% pace in Q3.  Business spending on equipment & software also helped growth in Q4.  Gov spending, however, stopped being a source of growth for the economy at the end of last year, dipping 0.6% in Q4 (the first drop since the start of 2010). The pullback reflected cuts in spending by the federal gov on defense & at the by state & local levels, which are struggling with budget problems.  For all of this year, the economy is expected to grow 3.2%.  Good news but much has already been factored into the markets. 

U.S. Economy Quickens on Gains in Spending, Exports



Consumer confidence fell less than expected in Jan. The Thomson Reuters/University of Mihcigan final index of consumer sentiment decreased to 74.2 from 74.5 in Dec, up from a preliminary figure of 72.7 issued earlier this month.  Forecasts ranged from 71.8-76. While the sentiment index averaged 89 in the 5 years leading up to the recession that began in Dec 2007, it hasn’t reached that level since the recovery started in Jun 2009.  The survey’s measure of current conditions, which reflects Americans’ perceptions of their financial situation & whether it’s a good time to buy big-ticket items like cars, fell to 81.8 from 85.3 in Dec.  Expectations for 6 months from now climbed to 69.3 (the highest since Jun) from 67.5 last month. Consumers expect an inflation rate of 3.4% over the next 12 months, compared with a rate of 3% projected in Dec. Over the next 5 years, the forecast for inflation rose to 2.9%, the highest since Jul, from last month’s forecast of 2.8%.  The data is moderately encouraging, but it has probably also been baked into the markets.

U.S. Economy Quickens on Gains in Spending, Exports


Chevron (CVX), a Dow stock, reported Q4 net income jumped 72% as rising fuel demand lifted oil prices & produced a sharp turnaround in its refinery business.  EPS in Q4 was $2.64 (ahead of expectations of  $2.35), sharply above $1.53 last year. Revenue climbed 11% to $54B.  Refineries earned $742M in Q4, compared with a loss of $673M a year ago.  CVX said refining margins increased in Q4, following a 2% rise in world petroleum demand. In the US, consumption in the Q4 reached levels unseen since 2008.  For the full year, CVX earned $9.48 per share, compared with $5.24 per share, in 2009.  The stock dropped $1 to the 93s, but is at a 2½ year high.

Chevron   ---   1 year





Investors who pushed the Dow above 12K for the first time since 2008 this week may be getting ahead of themselves. It surpassed that level the past 2 days & is poised for a 9th straight weekly advance, the longest streak since 1995!  More US stocks are trading above their 200-day average price than any time since Apr, when the Dow began a 14% slump.  All good things have to come to an end. Maybe this is the time for the stock markets.

Dow Jones Industrials   ---   2 week






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