Tuesday, September 20, 2011

Market advance ahead of FOMC meeting

Dow shot up 121, advancers over decliners 3-1 & NAZ jumped 23 (helped by Apple surging another 9 to a fresh record).  Bank stocks are leading the way, even though markets are still waiting for the FOMC announcement.

S&P 500 Financials Sector Index

Value 171.26 One-Year Chart for S&P 500 Financials Sector Index GICS Level 1 (S5FINL:IND)
Change    2.03   (1.2%)

The MLP index rose another 4+ to 460, its best showing in more than a month, & the REIT index was up 1¾ to the 223s.  Junk bond funds edged higher & Treasuries continue in demand as a safe haven.  Oil pared gains after the IMF lowered its forecast for US growth this year & next.  Gold rose as European debt concerns & prospects for more steps by the Federal Reserve to bolster the US economy spurred demand for the precious metal.


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U.S. 3-month


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U.S. 10-year


CLV11.NYM....Crude Oil Oct 11...86.14 ...Up 0.77  (0.9%)

GCU11.CMX...Gold Sep 11.....1,787.10 ...Up 8.40  (0.5%)

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The world economy has entered a "dangerous new phase," according to the IMF. As a result, it has sharply downgraded its economic outlook for the US & Europe through the end of next year. The IMF expects the US economy to grow just 1.5% this year & 1.8% in 2012. That's down from 2.5% in 2011 & 2.7% next year predicted in Jun.  To achieve even that low level of growth, the US economy would need to expand at a much faster rate in H2 than its 0.7% annual pace in H1.  Many expect growth of 1.5-2% in H2, not enough to lower the unemployment rate.  "The global economy has entered a dangerous new phase," said Olivier Blanchard, the IMF's chief economist. "The recovery has weakened considerably. Strong policies are needed to improve the outlook and reduce the risks."  The IMF also lowered its outlook for the 17 euro countries, predicting 1.6% growth this year & 1.1% next year, down from its Jun projections of 2% & 1.7%, respectively.  The gloomier forecast for Europe is based on worries that euro nations won't be able to contain their debt crisis & keep it from destabilizing the region.  "Markets have clearly become more skeptical about the ability of many countries to stabilize their public debt," Blanchard said. "Fear of the unknown is high."  Overall, the IMF predicts stronger growth in China, India, Brazil & other developing countries should offset weaker output in the US & Europe.  Not a happy prediction especially when the US has just begun trying to figure out how to reduce massive gov deficits!

Photo:    Yahoo

Builders broke ground on fewer homes in Aug as the housing market remains depressed. The Commerce Dept said that builders began work on 571K homes last month (annualized), a 5% decline from Jul & a 3-month low.  That's less than half the 1.2M rate consistent with healthy housing markets.  Single-family homes, representing roughly two-thirds of home construction, fell 1.4% while apartment building plunged 12.4%. Hurricane Irene slowed construction in the Northeast.  Building permits, a gauge of future construction, rose 3.2% but remain at depressed levels. Home construction is down nearly 6% over the past year.  But permits are up 8% suggesting builders aren't working on new homes, but may be preparing to start dormant projects when the economy improves.  Construction fell to its lowest levels in 50 years in 2009, when builders began work on just 554K homes.  Last year was not much better & this year is shaping up to be just as bad.  While home construction represents a small portion of the housing market, it has an outsize impact on the economy.  Each home built creates an average of 3 jobs for a year & about $90K in taxes.

U.S. Housing Starts Fall to Three-Month Low

Italy Debt Rating Lowered by S&P on Weaker Growth Outlook

Photo:   Bloomberg

S&P reduced the credit rating of Italy, the country’s first downgrade in 5 years.  Greece’s worsening fiscal crisis fans concern that contagion will engulf countries such as Spain & Italy.  The rating was cut to A from A+, with a negative outlook, saying weak economic growth, a “fragile” gov & rising borrowing costs would make it difficult to reduce Europe's 2nd-biggest debt. The yield on Italy’s 10- year bond rose 9 basis points to 5.674%, 387 basis points more than similar German debt. The cost of insuring Italy against default surged to a record.  The sovereign debt crisis drones on.

Markets are having a good day, before Ben has spoken.  Sounds like they are not ready for any disappointment.  Economic news & forecasts are drab.  Lower growth in the US will bleed over to DC & affect how politicos decide to shape the economy with reduced gov spending & higher taxes.  MLPs have been unusually strong helped by their yield status which looks good when compared with the Treasury 10 year bond yielding less than 2%.  Let's see what Ben has to say before the markets get too carried away..

Dow Industrials (INDU)

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