Wednesday, October 19, 2011

Markets decline on glum data from the Federal Reserve

Dow tried to rally but slipped into the red following gloomy news in the PM.  Dow fell 72, decliners over advancers 5-2 & NAZ sank 53 largely related to a cheerless earnings report form Apple (AAPL).  As usual, bank stocks were market leaders.  The decline for the Financial Index leaves it near its Oct highs (although far below its yearly highs & 65% below its record highs 4 years ago).

S&P 500 Financials Sector Index

Value169.43One-Year Chart for S&P 500 Financials Sector Index GICS Level 1 (S5FINL:IND)
Change   -2.95   (-1.7%)

MLPs were pretty much even after losing early gains & REITs fell, taking the index down 3 to 212.  Junk bond funds were about 1% lower (after trading lower since the big sell-off in Aug) & Treasuries did little.  Oil dropped from a one-month high after a split emerged between France & Germany on proposals to increase the European bailout fund & the Federal Reserve described the pace of US economic growth as “modest.”  Gold fell for the 3rd straight day, losing all of the ground gained in this month's rally.

Alerian MLP Index

Value360.94One-Year Chart for Alerian MLP Index (AMZ:IND)
Change   0.69     (0.2%)

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CLX11.NYM...Crude Oil Nov 11...86.21 ...Down 2.13  (2.4%)

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Fed Reports Modest Growth as Firms Voice Doubt on Recovery

Photo:   Bloomberg

The economic outlook grew dimmer in Sep, leading businesses to be wary of spending & of building up inventories ahead of the holiday sales season according to the Federal Reserve (FED).  Overall economic activity continued to expand in Sep, although many districts described the pace of growth as 'modest' or 'slight' & contacts generally noted weaker or less certain outlooks for business conditions," according to findings compiled by the regional Fed Bank of Chicago.  It found that consumer spending was up slightly in most districts, led by auto sales & tourism. There was also some increase in business spending, notably for construction & mining equipment & for new-car inventories.  Although a few districts saw some pickup in construction, "overall conditions for both residential & commercial real estate remained weak," the survey said.  Loan demand was generally weaker except for mortgage refinancing.  Businesses were more cautious in the face of a more uncertain economic outlook that the survey said was weighing on future spending plans.  This is a continuation of uncertainty & doubts about the economic recovery.,

Fed Reports Modest Growth as Firms Voice Doubts

  • <p>               A protester walks through a tear gas cloud, during clashes outside the Greek Parliament, Wednesday Oct. 19, 2011. A two-day general strike that unions vow will be the largest in years grounded flights, disrupted public transport and shut down everything from shops to schools in Greece on Wednesday, as at least 50,000 protesters converged in central Athens. All sectors, from dentists, state hospital doctors and lawyers to shop owners, tax office workers, pharmacists, teachers and dock workers walked off the job ahead of a Parliamentary vote Thursday on new austerity measures. (AP Photo)
Photo:   Yahoo

Greek lawmakers have granted initial approval to a new austerity bill, but spending cuts & tax hikes have sparked fury on the streets of Athens, with a 154-141 vote.  A 2nd vote on the bill's articles will be held tomorrow in the Parliament.  Only after that vote will the bill have passed.  Before the vote, riots broke out in central Athens during a demonstration by about 100K people on the first of a 2-day general strike to protest the bill.  The measures include new tax hikes, further pension & salary cuts, the suspension on reduced pay of 30K public servants & the suspension of collective labor contracts.  This is far from a done deal, despite the enthusiasm shown in the stock market.


Photo:   Bloomberg

Abbott Labs, a Dividend Aristocrat, long known for selling a mix of drugs, medical implants & baby formula, will spin off its branded drug business to become 2 separate companies with more distinct identities.  The split-up marks an abrupt shift for the 123-year old company, which sells a broad range of products from stents to arthritis drugs to contact lens solution.  While many pharma companies weathered losses as the patents on their blockbuster drugs expired, ABT has continued to post double-digit sales growth, chiefly because of its anti-inflammatory drug Humira.  CEO Miles White suggested the split is about crafting 2 companies with clearer messages for investors.  "What happened here is the pharma piece got so big, and is so different, that these two investments make sense separately, and both are of a critical mass and size that they have great sustainability going forward as independent companies," White said.  The stock gained 81¢ in a declining market.  Other big pharmas, starting with JNJ (JNJ), & Dow stock & another Dividend Aristocrat, will watch this situation.

Abbott to Separate Into Two Companies

Abbott Laboratories (A

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The FED report about business conditions along with a split between France & Germany on ways to boost the European bailout fund were too much for the stock market.  Greece remains a volatile situation, barely recognized in today's markets, & that's not the only European country with sovereign debt issues.  Bulls tried to take the Dow thru the 10.6K ceiling, but were turned back again as the VIX, volatility index, shot up 3+ to 35.  The chart shows Dow failed 4 times to reach new interim highs, not a good sign.  Meanwhile, it's mired in a sideways trading range between 10.6K & 11.6K.

Dow Industrials (INDU)

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