Friday, April 13, 2012

Markets drop on slower Chinese growth & European debt woes

Dow dropped 135, decliners over advancers 3-1 & NAZ fell 44.  The Financial Index fell a very big 5+ to the 203s (down 12 from its 2012 highs just 3 weeks ago).  The MLP index rose a fraction to 387 while the REIT index slipped a fraction to 249.  Junk bond funds drifted lower but Treasuries gained.  Oil sold off & gold sank 25, as it has been hanging around the low 1600s for much 2012.

JPMorgan Chase Capital XVI (AMJ)

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CLK12.NYM...Crude Oil May 12...102.83 ...Down 0.81  (0.8%)

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Britain kept its AAA grade with a stable outlook at S&P as it disagreed with Moody’s & Fitch on the risks to Britain’s ability to pay its debts.  The gov will succeed in maintaining its focus on closing the budget deficit, S&P said, as it praised the country’s political institutions for their capacity to react “quickly” to economic challenges.  “The stable outlook reflects our current expectation that the U.K. government will implement the bulk of its fiscal consolidation program and that economic growth will not falter more than what we currently project,” S&P said.  The decision contrasts with Moody’s & Fitch, which warned in the past 2 months that the UK faces the risk of losing its top grade.  Chancellor of the Exchequer Osborne has drawn on such threats to insist that the gov “cannot waver” from its deficit-cutting commitment, which he reaffirmed in his Mar budget.  While the austerity plan will “likely drag on economic growth,” S&P said that “the U.K. economy’s capacity to absorb shocks has improved.”  S&P also forecast the UK deficit will reach 4% of GDP in the fiscal 2016, more than the 2.9% gov estimate, as economic growth will probably fall short of forecasts.  Gov debt will peak in 2014, the ratings company said.  Everybody is is watching all sovereign debt issues in Europe.

  • <p>               FILE - This Jan. 12, 2012 file photo shows the logo at a Wells Fargo Home Mortgage center in Pittsburgh. Wells Fargo, a San Francisco-based bank, reported a 13 percent rise in income in the first three months of the year on an increase in mortgage lending. (AP Photo/Gene J. Puskar, File)
Photo:   Yahoo

Wells Fargo profit jumped 13% in Q1, thanks to strong mortgage lending & a drop in delinquent loans.  Net income climbed to $4B from $3.6B a year earlier.  EPS was 75¢, beating the 73¢ estimate.  It also beat on revenue, bringing in $21.6B instead of the predicted $20.4B.  The country's 4th-largest, has fared better than many others throughout the global economic meltdown & has become both the biggest mortgage lender & servicer.  Nearly a third of mortgages made in the US now come from WFC.  That distinction has brought revenue gains but also legal problems as it set aside more money to pay investors who allege they were misled about mortgage-backed securities the bank sold before the financial crisis.  WFC also set aside more money for litigation expenses.  In mortgages, noninterest income soared 42% from the year before to $2.9B, far greater than the $2.1B that was predicted.  Expenses increased as more money was set aside for commissions & bonuses in mortgage lending & other business areas.  The headcount stands at 265K, down 5K from a year ago but up 700 from Q4.  There were encouraging signs about ability of borrowers to pay back their loans.  The percentage of loans that were charge-offs, meaning the bank doesn't expect to collect on them, dropped to 1.25% from 1.73% a year ago, the lowest since 2007 (before the financial crisis imploded). The bank also set aside less money for future potential losses.  The stock dropped $1.13.

Wells Fargo beats earnings expectationsAP

Wells Fargo & Company (WFC)

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  • <p>               Google workers ride bikes outside of Google headquarters in Mountain View, Calif., Thursday, April 12, 2012. Google Inc. said Thursday that it earned $2.89 billion, or $8.75 per share, in the first quarter. That’s up from $1.8 billion, or $5.51 per share, a year earlier. (AP Photo/Paul Sakuma)

Photo:   Yahoo

Google announced plans to issue a new class of stock to existing shareholders, effectively splitting shares 2 for 1. But this is an unusual approach, reflecting a desire by GOOG founders to preserve the company's long-term interests.  Current GOOG stock structure concentrates voting power with Larry Page & Sergey Brin, its 2 founders, & with Executive Chairman Eric Schmidt.  GOOG is afraid of diluting that power as it issues new shares to employees & companies it acquires thru stock purchases.  GOOG claims there's no immediate danger of that happening.  Each share of class A stock will receive one share of class C stock which is identical to Class A except it lacks voting power.  With about $50B in cash, GOOG can easily use cash for most acquisitions.  The earnings report was good, but the loss of voting rights hurts.  The stock fell $26 (4%).

On the Call: Google CEO Larry PageAP

Google Inc. (GOOG)

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The start of earnings season should be a time of joy, but it wasn't.  The first 2 big banks have reported with good but mixed reports that did not encourage investors to buy.  The big 3 continue to plague the markets: a so-so economic recovery in the US (hurt by high gas prices), a slowdown in China & European debts issues resurfacing (starting with Spain).  The Dow lost over 200 this week with selling into the close today.  Earnings season could be a tough time for stocks. 

Dow Industrials

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1 comment:

Kaija Tuuri said...

We all know the Europe having an economic crisis and that is really a bad news.