Markets hesitate on last day of Q1

Dow lost 30, advancers ahead of decliners 3-2 & NAZ added 4.  Bank stocks slid again although the Financial Index gained 5 in Q1.  A stong qtr went out with a whisper.

S&P 500 FINANCIALS INDEX

Value	220.71
Change	-0.99   (-0.4%)

The Alerian MLP Index ended just 4 short of setting a new record high.  The REIT index rose 1½ to the 236s & junk bond funds hardly budged.  Treasuries also were flattish.  The yield on the 10 year Treasury bond has remained close to 3.4% for 4 months. Oil soared to the highest since 2008 on the conflict in Libya.  Gold touched 1430 but settled back in the PM, ending with another quarterly gain.

ALERIAN MLP INDEX

Value	379.90
Change	1.72   (0.5%)

Treasury yields:

U.S. 3-month		0.09%
U.S. 2-year		0.78%
U.S. 10-year		3.45%

CLK11.NYM

...Crude Oil May 11

..106.64 ...

... 2.37 (2.8%)

GCJ11.CMX

.....Gold Apr 11

.......1,435.00

... 11.20

(0.8%)

The former finance arm of General Motors (GM) is preparing an IPO as it seeks to repay billions in gov aid received during the financial crisis.  Ally Financial (formerly GMAC) said the IPO could raise up to $100M, but the actual offering will likely be larger.  Ally will not receive any proceeds from the IPO.  The Treasury owns 74% of the stock & will likely be selling some of it shares.  Ally makes loans to GM & Chrysler customers & finances dealer inventories.  In total, it received $17.2B in gov support & has returned $4.9B thru div payments & trust preferred securities sold earlier this month.  Ally said it financed 10% of new cars purchased last year & posted a profit of $1.1B, compared to a loss of $10.3B in 2009. Revenue rose to $7.9B from $6.5B.  Markets are clearly more wiling to tolerate risk.

• Ally, former GM finance arm, files for IPO- AP

Apple (AAPL) remains the darling of many investors.  It gained in Q1, but has had a choppy time of it in the last 2 months.  I'm waiting to hear if they are having supply issues from Japan as are other major electronics companies.

Apple Inc. (AAPL)

This has been the best qtr for stocks in 13 years. Dow gained 743, hardly chump change after gaining 5K off its lows.  MLPs had a similar story.  The MLP index added 15 & it started from record levels.  REITs & junk bond funds were up around 5%.  However while all this was happening, gold also managed a gain, even if it was only modest one.  It started from record levels & has an impressive long term track record that few stocks can match.  The US recovery seems to be progressing well although the QE2 program of the FED only has 3 months to run, after which rates are expected to rise.  The housing depression continues which is limiting any progress in the unemployment picture.  As long as all stories are good (or at least good enough), markets will rise.  Maybe even gold.

Dow Industrials (INDU)

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Markets fluctuate after favorable report on jobless claims

Dow fell 3, advancers ahead of decliners 5-4 & NAZ was down 3.  Bank stocks also slipped in what has been a tough month for the group.

S&P 500 FINANCIALS INDEX

Value	220.57
Change	-1.13   (-0.5%)

The Alerian MLP Indes rose 2 to just over 380 (3 shy of setting a new record) & the REIT index was up 1 to 236 (needing less than 6 to set a new interim high).  Junk bond funds were little changed at their lofty levels as were Treasuries.  Oil rose past $106 as fighters loyal to Qadaffi pushed back rebels from key areas in eastern Libya.  Gold rose, heading for the longest streak of quarterly gains in more than 3 decades, as fighting in Libya & concerns about European debt spurred demand for an alternative investment.

JPMorgan Chase Capital XVI (AMJ)

BONDS

U.S. 3-month		0.09%
U.S. 2-year		0.77%
U.S. 10-year		3.42%

CLK11.NYM

Crude Oil May 11

106.15

1.88 (1.8%)

GCJ11.CMX

Gold Apr 11

1,439.20

15.40 (1.1%)

Photo:  Bloomberg

Fewer Americans applied for unemployment benefits last week, a sign that layoffs are dropping & companies may be stepping up hiring.  The Labor Dept said that the number seeking benefits dipped 6K to 388K last week, the 2nd decline in 3 weeks.  The 4-week average, a less volatile measure, rose to 394K. But that figure has dropped 35K (8%) in the past 8 weeks.  The number collecting benefits also dropped, falling 51K to 3.7M (lowest figure since Oct 2008). But that doesn't include millions receiving aid under the emergency unemployment benefit programs put in place during the recession.  All told, 8.8M received unemployment benefits, slightly higher than the previous week.  Continued good news (without dramatic changes) on the jobs front.  Tomorrow is the big report for Mar.

Jobless Claims in U.S. Fell by 6,000 Last Week to 388,000


Mar business activity in the US expanded at a faster pace than forecast, signaling manufacturing remains a driver of growth in the US recover.  The Institute for Supply Management-Chicago said its business barometer fell to 70.6 this month from February’s 71.2 (that was the highest since Jul 1988) & exceeded the 69.9 median forecast. Figures greater than 50 signal expansion.

Business Activity in U.S. Expanded Faster Than Forecast in March


Wal-Mart (WMT), a Dow stock & Dividend Aristocrat, may buy more land to build stores in China which is predicted to be the world’s largest grocery market by 2014.  WMT is building its 7th Sam’s Club in the northeastern port city of Dalian, said Ed Chan, CEO of WMT’s China operations.  “When the location is suitable and site is available and meet our needs, we’ll go and work with the government directly to acquire” the land-use rights, Chan said.  The stock fell 39¢.

Walmart China Chief Executive Chan Says Seeking Land to Build More Stores

Wal-Mart Stores, Inc. (WMT)

Once again, not a lot happening as the month winds down. But Dow has another up month & will have an excellent qtr. MLPs are on fire again as the index is bumping against its records highs set at the start of the month.  Junk bond funds & REIT are also doing well after the dip at mid month.

Dow Industrials (INDU)

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Dow nears a multi year high

Since Mar 16, markets have risen on most days.  Today Dow gained 71 (bringing it within 40 of setting a multi year high), advancers over decliners almost 3-1 & NAZ went up 19.  Banks finally had a good day (in what has been a sluggish month).  But the Financial Index slipped from its highs with selling in the PM.

S&P 500 FINANCIALS INDEX

Value	221.69
Change	1.62   (0.7%)

The Alerian MLP Index rose 3 to 378+, 6 short of a new record.  The graph below for AMJ (which tracks AMZ) shows Q1 has been another good qtr after 2 stellar years.  The Dow Jones REIT Index rose 3 to 235, 6 short of setting a multi year high.  Junk bond funds were flattish at lofty levels with yields around 8%.  Treasuries rose, taking the yield on the 10 year Treasuries down to 3.44%, near where it's been for several months.  Oil fell pocket change in the 104s while gold rose but has been near 1420 in the last week.  .

JPMorgan Chase Capital XVI (AMJ)

Price at the pump rose to $3.59 yesterday.  Rising prices are a hidden tax on the economy which will hurt all retail business.

	Regular	Mid	Premium	Diesel	85	**E85 MPG/BTU adjusted price
Current Avg.	$3.587	$3.726	$3.857	$3.960	$3.037	$3.997
Yesterday Avg.	$3.584	$3.728	$3.857	$3.960	$3.033	$3.991
Week Ago Avg.	$3.547	$3.688	$3.820	$3.934	$3.006	$3.956
Month Ago Avg.	$3.354	$3.460	$3.595	$3.699	$2.824	$3.717
Year Ago Avg.	$2.800	$2.973	$3.080	$2.941	$2.339	$3.079

Source:  AAA


I came from a meeting with a junk fund manager & learned a lot about the market.  The outlook is very favorable for junk bonds although the days of double digits yields are long gone.  A key factor for junk bonds is the default rate which is presently around 1% (i.e. essentially at record lows) & low rates are expected to continue.  During the recent recession, default rates were not high as problem loans were largely related to high yield mortgages.  Higher interest rates on Treasuries are coming, but they may not have a large impact on junk bond funds yields (affected by other factors).  Many funds yield around 8%, low by traditional standards.  But past periods of low yields have lasted for many years, this period could also last for some time (especially with low default rates).

Dow has a similar story to MLPs.  The chart below shows Dow is up almost 800 in Q1 after a spectacular rise from its lows 2 years earlier. With so much turmoil in the world, it's unclear how long this rally will last.

Dow Industrials (INDU)

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Markets rise on job growth

Dow shot up 74, advancers ahead of decliners 3-1 & NAZ added 12, all on the favorable jobs report.  After lagging the stock market in Mar, bank stocks are having a good day.

S&P 500 FINANCIALS INDEX

Value	222.17
Change	2.10  (1.0%)

The MLP index was up 2+ to the 377s (7 short of a new record) & the REIT index add 1+ to the 233s.  Junk bond funds were higher (near multi year highs) & Treasuries were a little higher.  But yields are still near 2 week highs. Oil declined after an industry report showed that US inventories increased the most in 5 months.  Gold gained for the first time in 5 days as fighting in Libya & concern about European debt spurred demand for an alternative investment.

JPMorgan Chase Capital XVI (AMJ)

BONDS

U.S. 3-month		0.10%
U.S. 2-year		0.80%
U.S. 10-year		3.47%

CLK11.NYM

...Crude Oil May 11

...104.15

.... 0.64

(0.6%)

GCJ11.CMX

....Gold Apr 11

.........1,425.50

... 9.30

(0.7%)

Photo:   Yahoo

Private employers added 201K jobs in Mar, while the figure for Feb was revised down slightly (largely in line with expectations) according to ADP Employer Services.  The Feb figure was revised down to 208K from 217K.  The ADP figures come ahead of the more comprehensive jobs report on Fri, which includes both public & private sector employment.  That report is expected to show the economy created about 190K jobs in Mar, while private payrolls are forecast to rise by 200K.  However, the ADP report is not always accurate in predicting the outcome.  Over the previous 6 reports, ADP’s initial figures were closest to the Labor Dept’s first estimate in Feb (when it understated the gain in jobs by 5K) & least accurate in Dec (when it overestimated the employment gain by 184K). 

ADP Estimates U.S. Companies Added 201,000 Jobs in March


Family Dollar Stores (FDO), a Dividend Aristocrat, said fiscal Q2 net income rose 10%, helped by a better flow of customers & a modest improvement in the value of the average transaction. FDO also narrowed its full-year earnings forecast & expects higher earnings than expected.  EPS was 98¢ for the period ended Feb 26, up from 81¢ a year earlier & beat expectations of 96¢.  Revenue increased 8% to $2.26B, with the strongest results in the consumable & seasonal categories.  Revenue at stores open at least a year rose 5.1%.  Full year EPS is guided at $3.13-3.23, above the previous range of $3.08-3.23 per share, & revenue is expected to increase 8-10% Analysts expect EPS of $3.12.  FDO plans to open 300 new stores in FY2011, a 50% increase over the number of new store openings in FY2010 & plans to renovate 600-800 stores. The stock gained 40¢ to 52.80.

Family Dollar 2Q net income up on better traffic AP

Family Dollar Stores, Inc. (FDO)

Japanese stocks rose, sending the Nikkei 225 to its highest close since Mar 11, as companies resumed production halted after the earthquake & tsunami.  Asian stocks rallied.  Markets want to close out Q1 on a strong note.  Dow is just 40 below the Feb 18 high & the MLP index will not need a lot of buying to reach another record high.  We're back to all news is good or at least "good enough."  Earnings for Q1 are around the corner.

Dow Industrials (INDU)

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Strong markets on high earnings expectations

Stocks advanced, boosted by strength in retail & tech stocks, but volume remained light as investors awaited a clearer picture of corp earnings & the labor market.  Dow rose 81, advancers ahead of decliners 2-1 & NAZ went up 26.  Bank stocks barely particiated & they're supposed to be the market leaders.  All month, bank stocks have been hit with a lot of selling.

S&P 500 FINANCIALS INDEX

Value	220.07
Change	0.68   (0.3%)

The MLP index fell 1+ to 375 while the REIT index rose 1 to 232.  Junk bond funds slipped pocket change & the yield on the 10 year Treasury bond rose to almost 3.5%.  This is a significant rise yield after dipping below 3.2% at mid month.  Oil rose as concerns about political upheaval in North Africa & the Mideast trumped economic data suggesting that consumers are worried about the cost of fuel & food.  Gold futures fell (sloshing around 1420), capping the longest slump in 11 weeks, on bets that US interest rates will increase as the economy recovers, eroding demand for the metal as an alternative investment.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month		0.10%
U.S. 2-year		0.82%
U.S. 10-year		3.48%

CLK11.NYM

...Crude Oil May 11

...104.75

... 0.77  (0.7%)

2 regional bank presidents from the Federal Reserve (FED) voiced support for the completion of the $600B Treasury securities-purchase program through Jun, saying it’s too soon to remove stimulus from the economy.  Eric Rosengren, Boston FED President, said yesterday that high unemployment & low core inflation mean record monetary support is still necessary. Charles Evans, Chicago FED President, said he believes data suggesting a more sustainable recovery won’t prompt an alteration in the bond-purchase program. “It could be that $600 billion is just about the right number,” Evans said in a speech in South Carolina. “I won’t be surprised if that in fact is the decision. I still think it is a high hurdle to stop short of $600 billion. So far I haven’t seen it.”  Their remarks highlight the difference of views that has emerged since the Mar 15 meeting, when policy makers kept in place the plan to buy bonds while concluding the recovery is on “a firmer footing” & the labor market is “improving gradually.”  James Bullard, St. Louis FED President, said today that a decision on when to tighten monetary policy may need to be made before the outlook for the global economy clears up later this year.  FED officials purchased $1.7T of mortgage debt & Treasuries through Mar 2010 to pull the US out of the recession.  I used to think these speeches were coordinated ahead of time.  So much for that thought!

Fed Presidents Say Economy Still Needs Support From Bond Purchase Program


The average price at the pump yesterday was $3.56 & current oil prices suggest it will keep going up.

Source:   AAA


Apple (AAPL), darling of the street with the 2nd largest market cap in the world, has had a tougher time in the last 2 months.  The stock began the year at 322 but has been range-bound between 330-360 for most of Q1.  It's still well above the 200 moving average, but one quick sell-off could take it below.

Apple Inc. (AAPL)

Q1 is closing out with a whisper.  Trading is light with not a lot being decided.  Even gold & Treasuries, traditional safe havens, are not getting buying support. Dow is 750 above its recent lows (shown below), up 700 YTD & 100 shy of setting a new multi year high.  Not sure it deserves all that attention.  Earnings season starts in a couple of weeks which will show if the bulls were justified in this rally.

Dow Industrials (INDU)

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