Monday, November 28, 2011

Markets surge on bailout proposals

Dow was up 250 before trading began on hopes of another European bailout.  Dow is up 303, advancers over decliners 10-1 & NAZ was up 86.  Market leaders financials are leading the charge upward with the Financial Index up 4½ to the 162s.

The MLP index shot up 6+ to 367 & the REIT index gained 5 to 213.  MLPs have been holding up during the market sell-off in Nov.  Junk bond funds were up 1-2% (that's a good day) reflecting they are just stocks with high yields while Treasuries were sold, taking the yield on the benchmark 10 year bond over 2%.  Oil rose to its highest in more than a week on signs of economic recovery in the US, while sanctions on Syria stoked concern Middle East crude supplies may be threatened.  Gold remains stuck under $1700.

AMZ  Alerian MLP Index

DJR    Dow Jones Equity REIT Index

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLF12.NYM....Crude Oil Jan 12...99.27 ...Up 2.50  (2.6%)

GCX11.CMX...Gold Nov 11....1,691.60 ...Up 6.10  (0.4%)

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Germany's Chancellor Angela Merkel

Photo:   Bloomberg

Germany insisted that it has no plans to float bonds together with the eurozone's five other AAA rated nations & use the proceeds to provide assistance to some of the single currency bloc's indebted members, such as Italy & Spain.  The denial came as the IMF also dismissed reports it was planning a €600B bailout fund for Italy.  Also Moody's warned that the "rapid escalation" of Europe's financial crisis is threatening the credit worthiness of all eurozone govs, even the most highly rated.  Only 6 of the eurozone's 17 countries have the top rating.  Despite the denials, the markets are in a forgiving mood.  With the future of the € hanging in the balance, there are hopes that the recent signs of deterioration in the debt crisis will finally get Europe's leaders to agree on a package of measures that can ease market concerns over whether the € currency can survive.  One proposal often touted as a long-term solution is the issuance of eurobonds, whereby the 17 euro nations pool together to raise money in the markets.  However, Germany has opposed the principle of eurobonds since it would expose its taxpayers to the bad debt of weaker countries (Germany already funds the bulk of the existing bailouts).  The idea of "elite bonds" may help assuage those concerns as Germany would only join up with other top-rated nations.  But a German spokesman denied a report that initial plans on issuing the joint bonds have already been drawn up as part of a wider package to be presented by Chancellor Merkel & French President Sarkozy at the next EU summit.  All talk & no action is getting a very warm reception today.

Thanksgiving Sales Beat Record in Chase for Early Deals

Photo:   Bloomberg

Earlier store openings & steep discounts helped retailers notch record sales on the Black Friday weekend.  Total spending over the 4-day weekend following Thanksgiving reached a record $52.4B, up 16% from $45B last year, according to the National Retail Federation.  A record 226M consumers shopped in stores & online between Thurs-Sun, up from 212M last year.  Individual shoppers spent more too, the average holiday shopper spent $398.62, up from $365.34 in 2010.  Earlier openings at big-box retailers, helped boost sales, particularly among men & young adults. Nearly one-quarter of Black Friday shoppers were at stores by midnight on Black Friday, up from only 9.5% in 2010.  A separate survey from ShopperTrak, said retail sales on Black Friday alone climbed 6.6% to an estimated $11.4B.  Online retailers also played a bigger role with a slew of deep discounts & promotions well before Cyber Monday.  Online sales were up 39.3% on Thanksgiving Day & 24.3% on Black Friday.  Cyber Monday could also notch a new record, according to ComScore.  Online sales for 2011 are projected to hit $1.2B, up from $1B last year.  This is a good sign for the holiday season, but the ability to maintain margins is not known & consumers can be fickle in the next 3 weeks.

Thanksgiving Sales Set Record as Shoppers Chase Bargains

  • <p>               This Oct. 18, 2011 photo, shows new home construction in a development in Canonsburg, Pa. Americans bought slightly more new homes in October, but the median sales price fell to its lowest level this year. The mixed report suggests the nation's housing market is a long way from recovering. (AP Photo/Gene J. Puskar)
Photo:   Yahoo

Americans bought slightly more new homes in Oct, a hopeful sign, but the median sales price fell to its lowest level of the year & the overall sales pace is trailing last year's (the worst in half a century).  The housing depression continues to be a drag on the economy & is a long way from recovering.  New-home sales increased 1.3% to an annual rate of 307K according to the Commerce Dept, less than half the 700K that needs to be sold to sustain a healthy housing market.  The Sep data was also revised down significantly to show a weaker pace than first estimated.  Last year's 323K new homes sold were the fewest since record keeping began in 1963 & this year isn't faring much better.  The importance of new home sales is that each home built creates an average of 3 jobs for a year & generates about $90K in tax revenue.  Many builders have stopped working on new projects because they can't obtain financing.  The number of new homes for sale in the US fell in Oct to a record low of 162K.  Builders are also struggling to compete against cheaper re-sales, even as they lower prices.  The median sales price of a new home fell 0.4% to $212K.  Stocks buyers today might take this report to heart.  

Fewer New Homes Sales in U.S. Than Forecast

Markets were heavily oversold, setting them up for a significant rebound.  The idea of another European bailout & strong holiday sales are encouraging, but fundamental problems have not gone away.  New home sales are a vivid reminder of that.  After today's rally the question is raised, "Does this rally have legs?"  The European news is based on high hopes, but countries in the Eurozone are deeply divided, especially with some needed to bail out the weaker ones.  Auto sales for Nov will be out shortly & the big jobs reports comes on Fri.  Expectations for the jobs report are not high.

Dow Jones Industrial Average

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