VerySmartInvesting: Markets sell off on less than good enough earnings

Friday, January 28, 2011

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
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

...

1.38

(1.6%)

GCG11.CMX

...Gold Feb 11

......1,321.90

...

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 4Q profit jumps 72 pct as oil prices rise- AP

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