Wednesday, May 4, 2011

Markets sink on uninspiring economic data

Dow dropped 83, decliners over advancers better than 3-1 & NAZ fell 13. Bank stocks had another bad day bringing the Financial Index further below 220.

S&P 500 FINANCIALS INDEX

Value	218.45
Change	-2.07 (-0.9%)

Buying came in to limit damage done for MLPS after the index had been down to 365 at midday. But it was still another very bad day in a horrible week (last Fri, it was breathing on 392). The REIT index was down only 1½ to the 245s (5 below its yearly high last Fri). Junk bond funds were generally lower, but remained near multi year highs. Treasuries rose, bringing lower yields. Oil dropped after a report showed that supplies of petroleum products are growing as demand weakens in the US. Gold had another bad day, following the lead of silver which has been selling off badly because of higher margin requirements,

ALERIAN MLP INDEX

Value	370.09
Change	-7.48 (-2.0%)

Treasury yields:

U.S. 3-month		0.02%
U.S. 2-year		0.59%
U.S. 10-year		3.22%

CLM11.NYM

...Crude Oil Jun 11...

109.30

...

1.75

(1.6%)

Live 24 hours silver chart [ Kitco Inc. ]

Service Industries in the US expanded last month at the slowest pace in 8 months as companies cut back in response to higher energy costs. The Institute for Supply Managements (ISM) index of non-manufacturing companies declined to 52.8, from 57.3 in Mar. Estimates ranged from 54.5 to 59. By way of comparison, the index averaged 56.1 in the 5 years prior to Dec 2007, when the last recession began. The ISM measure of new orders at service providers decreased to 52.7 (the lowest since Dec 2009) from 64.1 in Mar, the biggest drop since record-keeping began in 1997. A gauge of business activity, which reflects sentiment among purchasers, also declined & the group’s employment gauge dropped to 51.9 from 53.7 a month earlier. High gas prices are being felt in the US economy.

Services Expand at Slowest Pace in Eight Months

Walgreen, operator of the largest drugstore chain in the US, reported mediocre same store sales in Apr. Sales at stores open at least a year rose 3.4% last month, below expectations of 3.6% by analysts. Pharmacy revenue rose 1.8%, below an estimate of 2.4%. Results were hurt by 1.9 percentage points because of a calendar shift & the move of the allergy drug Allegra from prescription to over-the-counter. Those stores filled 2.3% more prescriptions than a year earlier. Revenue from sales of nonpharmacy items (i.e. food & cosmetics) increased 6.5%, benefiting from this year's late Easter. Overall, total revenue rose 5.5% to $5.99B from $5.68B, including a contribution of 0.7% from Duane Reade stores. The stock slipped 34¢ after having a nice move up from the mid 20s last year.

Walgreen key April revenue metric rises AP

Walgreen Co. (WAG)

Gas at the pump went over $3.98 yesterday. The record is $4.11 in 2008 & it looks like it will take that out shortly. The first waves of reports about companies feeling effects of high priced gas are being reported already. Not good!!

Source: AAA

Stocks continue to plod along, the theme of trading this week. The major exception is the MLP industry & that has been to the downside. It's interesting that when the yield on the index reached a record low in Jul 2007, it was followed by a slump of 60 & was not able to return to new high territory for another 3 years. Life is different today, no indication of a looming financial meltdown. But an interesting parallel, nonetheless. This time selling could be motivated by worries about altering the preferred status of distributions. The overall market will probably lumber along with a downward bias while waiting for the jobs report on Fri.