Tuesday, February 1, 2011

Markets gain on improved manufacturing data

Dow started the new month off on the right foot as it has done in recent months.  Dow added 91 bringing it just 17 below 12K, advancers ahead of decliners 4-1 & NAZ jumped 45. Bank stocks were strong taking the Financial Index within 2 of its interim high recorded 3 weeks ago.


Value 223.79 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change   3.09  (1.4%)

The Alerian MLP Index rose 1¼ to its record high reached last week.  But the REIT slipped 1 to 230, 3 below its yearly high.  Junk bond funds gained but there was substantial selling in Treasuries.  The yield on the 10 year Treasury bond rose a very big 7 basis points to 3.45%, remaining in its recent trading zone.

Treasury yields:

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

Alerian MLP Index   ---   2 weeks

Dow Jones REIT Index   ---   2 weeks

10-Year Treasury Yield Index   ---   2 weeks

Oil fluctuated as concern eased that supplies thru the Suez Canal may be disrupted by unrest in Egypt.  Officials said traffic is moving normally through the artery with more than 2.2M barrels of daily volume.  Safen have qualities of gold are not attracting buyers today.

CLH11.NYM...Crude Oil Mar 11...91.91 ...Down 0.28  (0.3%)

GCG11.CMX...Gold Feb 11...1,329.90 ...Down 3.90  (0.3%)

Gold Super Cycle Link! Click Here

ISM Index of Manufacturing in U.S. Rose to 60.8

Photo:  Bloomberg

Factory activity expanded in Jan at the fastest pace in nearly 7 years, as manufacturers reported a sharp jump in new orders.  The Institute for Supply Management (ISM), said that its index of manufacturing activity rose last month to 60.8. The sector has expanded for 18 straight months & the reading in Jan was the highest since May 2004. Any reading above 50 indicates expansion.  The manufacturing sector bottomed out at 33.3 in Dec 2008, the lowest point since 1980.  Consumers are spending more on autos, appliances & other goods, while businesses have invested in more industrial machinery & computers.  Factories healthy pace of expansion is likely to continue in the coming months. Manufacturing firms surveyed by ISM said their backlog of orders jumped in Jan, pushing an index measuring that activity to 58 from 47.  US factories are also benefiting from rising overseas sales. The index of export orders jumped to 62 in Jan, from 54.5 the previous month (matching a recent peak reached in May).  The employment index also rose, a sign that manufacturing companies are hiring more workers. The prices paid index, which measures whether manufacturing companies are paying more for raw materials, jumped sharply, a sign that inflation could pick up soon.

ISM Index of Manufacturing in U.S. Rose More Than Expected

However, all is not well in the economy.  Construction in the US fell unexpectedly fell in Dec to the lowest level in a decade, closing out another dismal year for the construction industry.  A 2.5% drop was the biggest since Jul & brought the value of all projects down to a $788B annual rate, the lowest since 2000, according to the Commerce Dept.  Mounting foreclosures & high unemployment indicate homebuilding may take time to rebound. Non-residential projects also will slow as budget-constrained state & local govs restrict funding for public works such as highways.  Construction spending decreased 10% in 2010, after dropping 15% the prior year. A total of $814B was spent last year, the least since 2000.  The unexpected drop in construction will cut into Q4 GDP growth rate of 3.2% when revisions are issued later in Feb.  Foreclosure filings increased in almost three-quarters of US cities last year as unemployment caused homeowners to default & mortgage distress spread to new regions.  The glut of distressed properties, which depresses prices, is among factors prompting builders to pull back. Housing starts in Dec fell to the slowest annual rate since Oct 2009.

 Construction Spending in U.S. Unexpectedly Fell to Decade Low

UPS Profit Tops Analysts’ Estimates

Photo:  Bloomberg

Q4 income at UPS (UPS) jumped 48% as shipments increased across the globe during the critical holiday season.  Business was particularly strong in China & Germany, 2 countries that rely heavily on exports.  UPS expects 2011 earnings to rise 16-22%, topping pre-recession levels of 2007.
UPS had EPS of $1.11 in Q4, above 75¢ last year & revenue rose 8% to $13.4B. Revenue for intl rose 9.2%, while revenue in the US improved 7%.  Exports out of China rose more than 30% & exports from Germany increased by double-digits.  For 2011, UPS expects earnings of $4.12-$4.35 (compared with forecasts of $4.19).  The stock gained $3.05 to the 74s. 

UPS Profit Tops Analysts' Estimates as Holiday Boosts Shipping

UPS   ---   1 year

GM just reported Jan sales rose 23%, another encouraging sign for the economic recovery.  All news is good news once again.  Markets expect problems in Egypt will remain contained & dreary housing data is accepted.  The new record high for the MLP index takes its yield down to 6%.  I remember a few years ago, I thought 8% was a fair yield for these securities.  With following winds, markets will accept these lower yields & a narrower spread over the 10 year Treasury bond of 255 basis points (the reward for accepting higher risk with MLPs).

Dow Jones Industrials  ---   2 weeks

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