Tuesday, January 4, 2011

Stocks pause while commodities sell off

Dow gained 20, decliners over advancers almost 2-1 & NAZ fell 10.  The minutes from the Federal Reserve meeting didn't inspire the markets on a day when red hot commodities saw profit taking.. Bank stocks settled back but the Financial Index is still just 1 below its 8 month high..


Value 219.19 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change   -0.52  (-0.2%)

The MLP index fell 2 to then 363s & the REIT index was down 4½ to the 223s.  Junk bond funds were even & the yield on the 10 year Treasury bond inched up a fraction of a basis point to 3.35%. 

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

Commodities were red hot last year, but were hit with major profit taking today.  This is disturbing since this sector is forecasted to have an even better year in 2011 as China leads growing global demand.  With forecasts of another very cold month in the northern hemisphere, oil backed off sharply from its recent highs above 92 & gold had a very ugly day.  When investing in commodities, this kind of action has to be expected.

CLG11.NYM...Crude Oil Feb 11...89.28 ....Down 2.27  (2.5%)

GCF11.CMX...Gold Jan 11......1,379.50 ...Down 43.10  (3.0%)

*** Gold Super Cycle ***  

Federal Reserve (FED) officials stuck with the pace of the $600B bond-buying program last month because the economy wasn't improving fast enough to make a noticeable dent in unemployment.  Spending by consumers & businesses had improved heading into the final month of 2010, & Congress was on the verge of enacting a tax-cut package that would bolster the economy that made them more confident the economic recovery would gain momentum, according to minutes of the latest FED meeting.  But risks still loomed, particularly a weak housing market & spending cuts & layoffs from state & local governments. The FED voted 10-1 to stick with its plan to buy the bonds through Jun to try to lower interest rates, spur spending & lift stock prices.  With the economy gaining strength, the risks of deflation have "receded somewhat over recent months."  High unemployment & factories still operating well below capacity, "slack" in the economy should keep a lid on inflation, Fed officials said.  The minutes showed that policymakers have varying views of where the economy is going. A few said they expected better economic growth in 2011 than first thought. Others noted the risks: a large supply of unsold homes, banking & financial strains in Europe & pressure on state & local governments to balance their budgets. Those differences in opinion would make it difficult for Ben Bernanke and his colleagues to agree to change to the program, if needed.  As usual, little new information was provided.

Fed Minutes: Economy Needs Bond-Buying Program- AP

Auto sales in the US sputtered back to life in 2010 & car companies expect them to keep climbing this year as the economy recovers & buyers grow more confident.  But with sales of around 11½M new cars & trucks, 2010 was still the 2nd-worst year in almost 3 decades (after 2009). And the companies are starting to wonder if they will ever reach the heights they saw in the early 2000s, when credit was cheap, incentives were rampant & sales topped 17M.  But 2010 was a good year. Ford (F) sales rose 15% & it grabbed market share for the 2nd year in a row. General Motors (GM) sales rose 6.3% while Chrysler climbed 17% (from very low levels).  Other winners included Hyundai, which notched record sales. Toyota (TM) continued to struggle with flat sales, a casualty of the company's tarnished safety record.  GM expects sales in the 13M range for 2011, which would be back up to the level the US saw in 2008. Eventually, sales are expected to creep back up to 15-16M.  GM sold 2.2M vehicles in 2010, almost 131K more than the prior year, even though it got rid of 4 brands to focus on Chevrolet, Buick, Cadillac & GMC. Ford sales rose thanks to strong demand for its pickups.  Ford sold 1.9M cars & trucks, stealing customers from GM & Toyota. Ford said 2010 was the 2nd year in a row it gained market share, its first back-to-back increase since 1993.  Chrysler sold 1.1M vehicles in 2010, much of the increase early in the year came from sales to rental-car companies.  New vehicles fueled growth later. In addition,  Hyundai sales rose 24% to 538K (a record for the company), Nissan sales jumped 18% to nearly 909K & Honda sold over 1.2M vehicles for a 7.6% increase.  Car business looks a lot better than a year earlier, a major plus or the economy.

The major news today was in commodities, not stocks.  All kinds of reasons were given for the sell-off, but it calls into question the idea of this being a another year with gains for all.  Improving economies are a major plus, but financial problems linger.  Some of the biggest state & local budgets (California, NY, Illinois, etc.) are in bad shape which will require more cutbacks.  This will not be a year of recovery for housing & high unemployment rates will be around for a few more years while the Treasury will have to auction off more debt to pay for the deficit spending. The jobs report on Fri could show 160K new jobs in Dec with the unemployment rate coming down a tad to 9.7%.

Dow Jones Industrials   ---   2 months

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