Wednesday, August 17, 2011

Early gains reversed out in the afternoon

Dow held onto a gain of 4 after early AM gains were given up, decliners ahead of advancers 3-2 & NAZ fell 11 on a weak tech sector.  Bank stocks were also little changed on the day.

S&P 500 Financials Sector Index

Value174.95One-Year Chart for S&P 500 Financials Sector Index GICS Level 1 (S5FINL:IND)
Change   1.05    (0.6%)

The MLP & REIT indices were essentially even.  Junk bond funds gained as high yields attracted investors even though the spread over investment grade bonds has widen (see below).  Treasuries rose, taking the yield on the 10 year Treasury bond closer to 2.1% rate of the auction last week.  Oil advanced as the dollar fell against the € & other currencies, increasing the investment appeal of commodities.  The charts below show gold wants to test its 1800 record highs reached last week.

Alerian MLP Index

One-Year Chart for Alerian MLP Index (AMZ:IND)
     -0.13      (-0.0%)

Click below for the latest market update:

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLU11.NYM...Crude Oil Sep 11...87.53 ...Up 0.88  (1.0%)

Live 24 hours gold chart [Kitco Inc.]

Obama to Give Speech on Jobs in September

Photo:   Bloomberg

President Obama said that it will likely be another year or more before the housing market picks up & home prices & sales start rising.  He also said Washington can't make that happen on its own, consumers, banks & the private sector will need to help.  In response to a question on his bus tour, he agreed that the lengthy, last-minute negotiation over lifting the debt ceiling was a "self-inflicted wound" that shouldn't have happened. "It was inexcusable." "But moving forward, a lot of this has to do with confidence, as you said," Obama said.  He said companies are more profitable than ever, but are hoarding cash & not investing it & many banks have overcome their financial woes but are not lending as freely as before.  "But I'll be honest with you, when you've got many trillions of dollars' worth of housing stock out there, the federal government is not going to be able to do this all by itself, government is not going to be able to do this all by itself," he said. "It's going to require consumers and banks and the private sector working alongside government to make sure that we can actually get the housing moving back again.  It will probably take this year and next year for us to see a slow appreciation again in the housing market," Obama added.  At least he recognizes the magnitude of the housing problem.

High-yield debt is diverging from investment grade the most since Dec 2009 on signs the economy is slowing & Europe's debt crisis is worsening.  The gap between yields reached 502 basis points yesterday after being as wide as 530 basis points last week, the most since Dec 2009.  The difference has soared from this year’s low of 301 basis points.  Investors are wagering that the riskiest companies may struggle to obtain capital as unemployment in the US persists above 9% & as France & Germany seek to contain the euro debt crisis by backing a plan for national balanced-budget amendments  Junk bonds lost 3.77% this month, the biggest monthly decline since Nov 2008.  Funds that invest in junk bonds, reported outflows of $3.4B.  Speculative-grade companies sold the lowest monthly volume of bonds since Dec 2008, having issued only about $1B this month.  The extra yield investors demand to hold junk bonds rather than gov debt reached a high this year of 739 basis points last week before declining to 711 yesterday. This is another sign of an economic recovery that is in serious trouble.

Junk Bond Sales Cause Biggest High-Grade Divergence Since 2009

Hewlett-Packard, a Dow stock, fell 1.22 after an analyst downgraded the stock, warning of lower revenue growth projections for the company's PC, printer & services businesses.  The stock was downgraded to "Market Perform" from "Outperform."  While HPQ shares appear cheap, the current qtr will mark the 3rd straight qtr that estimates will need to be lowered.  This takes us back to Dell's (DELL) weak outlook, especially for consumer products.

Hewlett-Packard shares fall on analyst downgrade AP

Hewlett-Packard Company (HPQ)

stock chart

Abercrombie & Fitch Q2 net income rose 64%, boosted by higher demand for preppy fashions in the US & Europe, beating expectations.  EPS was 35¢, up from 22¢ last year & ahead of 29¢ expected.  Revenue rose 23% to $916.8M.  US sales rose 12% to $685M & intl sales rose 74% to $232M.  Revenue in stores open at least one year rose 9%, including a 5% increase at Abercrombie & Fitch, a 7 % increase at Abercrombie kids stores & a 12% increase at surf-themed Hollister stores.  But like all retailers, ANC is facing higher prices of commodities such as cotton during the key back-to-school season which weighed on the stock price.  "Costing pressures will be greater in the second half of the year, and macroeconomic uncertainty has increased," said CEO Mike Jeffries. "However, our strong top-line momentum and overall performance for the past several quarters give us confidence that we are well positioned to navigate through this environment."  The stock fell a very big 6.15 (9%).

Abercrombie & Fitch 2Q net income jumps AP

Abercrombie & Fitch Company (ANF)

stock chart

Today was a restful day after the wild swings last week.  The most dramatic news was the pres discussing the housing depression.  Indications of a weak consumer sector are coming from many sectors.  The 2 largest computer companies are signalling that the consumer market is soft, although part of the sluggishess is attributable to the tablet business eating their lunch.  Dow is toppy short term & has to decide whether to keep rising or head south again.

Dow Industrials (INDU)

stock chart

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