Wednesday, May 18, 2011

Stock markets rise following higher commodity markets

Stocks began the day in the red, but buyers returned taking the markets higher all day. Dow finished up 80, advancers over decliners 3-1 & NAZ rose 31. The advance for the Financial Index was not that impressive considering how far it has fallen in the last 3 months.

S&P 500 FINANCIALS INDEX

Value	214.39
Change	1.05 (0.5%)

The Senate blocked a bill to repeal $2B annually in tax breaks for the 5 biggest oil companies on a procedural vote. This may be the reason the MLP index rose today after a disaster month. However with the mood in DC to find more tax revenues, this should not be viewed as final. But the index had one of its best daily gains ever, more than recovering yesterday's big drop. The REIT index was up 2½ to 245. Junk bond funds inched higher. Treasuries fell, pushing the 10-year yield up for the first time in 4 days, as minutes of the Federal Reserve’s meeting last month showed policy makers discussed a process for withdrawing record stimulus. Oil is back in demand & buyers are pushing on $100. Gold rose the most this month as grain & energy prices surged, boosting the appeal of the precious metal as a hedge against inflation.

ALERIAN MLP INDEX

Value	359.09
Change	7.90 (2.3%)

Treasury yields:

U.S. 3-month		0.04%
U.S. 2-year		0.56%
U.S. 10-year		3.17%

CLM11.NYM

...Crude Oil Jun 11

...99.62

...

2.71

(2.8%)

Photo: Yahoo.com

Weaker-than-expected sales weighed at Staples in Q1, prompting a cut in full-year earnings guidance. Earnings & revenue climbed, but fell short of expectations. CEO Ron Sargent indicated that the company will not be opening as many new stores as initially planned due to weak retail demand for office products, only about 20 US stores & 10 Canadian stores while closing 10 (for a net of 20 new stores in North America, half of the original projected). In addition, the chain "plans to be aggressive in reducing the size of existing stores" & has about 500 leases up for renewal over the next 3 years. For the qtr ended Apr 30, revenue rose 2% to $6.18B, pretty much matching expectations of $6.2B. Revenue in stores open at least a year dipped 1%, mostly on a decline in Canadian retail customer traffic. Revenue in the North American delivery segment increased 2%, partly on sales of break room supplies & paper. "We continue to invest in salespeople, training and lower prices to drive the facilities and break room category," Sargent said. Intl revenue climbed 4%, helped by strong performances from China & South America. EPS was 28¢ versus 26¢ last year but was below 32¢ forecasted. "Our first quarter results show that we're making good progress on our key growth initiatives and we're gaining share in North America, but at a cost to our bottom line," Sargent said. SPLS expects 2011 EPS of $1.35-1.45, below its prior forecast of $1.50-1.60 & analyst forecasts are for $1.53. But the company maintained its outlook for a low single-digit increase in full-year revenue. Today's drop of $3 is noticeable even in a 1 year chart.

Staples cuts outlook, 1Q results disappointAP

Staples, Inc. (SPLS)

Deere had EPS of $2.12 per share, for fiscal Q2 ended Apr 30, compared with $1.28 last year. Q2 EPS was $1.58, excluding a tax charge of 30¢ related to the enactment of US health-care legislation. Worldwide revenue increased 25% to $8.91B & up 26% to $15B for 6 months. "With our record second-quarter performance, John Deere is well on its way to a year of exceptional results," said Samuel R. Allen CEO. "Our success reflects strong demand for our innovative lines of equipment and the continued skillful execution of our business plans. Deere's actions to expand its global competitive position are attracting new customers worldwide and making a major contribution to our results." Sales of large farm machinery, particularly in the US, Canada & Brazil, are continuing to support the company's performance. In addition, DE plans to invest $80B in an agricultural equipment manufacturing plant in northeast China to help meet increased demand in the region. Good was not good enough, the stock fell 46¢ after a nice run in the last year.

Deere to Build China Factory With Initial Outlay of $80 Millionat Bloomberg

Deere announces plans to build new plant in ChinaAP

Deere & Company (DE)

Gas at the pump climbed again, reflecting falling prices for crude. However it's not that far off recent highs, more declines will be limited. Additionally, the summer driving season begins next week.

	Regular	Mid	Premium	Diesel	85	**E85 MPG/BTU adjusted price
Current Avg.	$3.926	$4.068	$4.194	$4.105	$3.306	$4.351
Yesterday Avg.	$3.944	$4.085	$4.212	$4.116	$3.311	$4.357
Week Ago Avg.	$3.962	$4.098	$4.226	$4.144	$3.337	$4.391
Month Ago Avg.	$3.833	$3.973	$4.100	$4.134	$3.220	$4.237
Year Ago Avg.	$2.859	$3.036	$3.145	$3.097	$2.273	$2.991

The Dow is 150 above its low yesterday but volume continues low (under 0.9B shares on the NYSE floor). MLPs had an usually strong rebound, especially for a low beta group. The economic news, especially earnings, has been mixed at best. There is a growing awareness that the US recovery could be sputtering. However overseas business, especially in Asia, will help multi nationals. I also sense a greater sense of nervousness about QE2 ending in a few weeks.