Markets rise on home sales data

Stocks began the day higher & picked up steam during the day.  Dow finished up 113, advancers over decliners 2-1 (could have been better) & NAZ added 20.  The Financial Index went up 2 to 207, its first big day in 2 weeks.  The MLP index rose 1+ to the 394s & the REIT index was up a fraction to the 259s, a new yearly high.  Junk bond funds were mixed but Treasuries edged higher.  Gold was up a fraction, helped by sentiment from the rising stock markets & gold gained $16 but continues in sideways trading.

JPMorgan Chase Capital XVI (AMJ)

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Treasury yields:

U.S. 3-month	0.086%
U.S. 2-year	0.258%
U.S. 10-year	1.959%

CLM12.NYM

...Crude Oil Jun 12

...104.66

... 0.54

(0.5%)

Photo:   Bloomberg

Manufacturing contributed less to US economic growth last year than in 2010, indicating a pickup in the expansion depends more on bigger gains in the services industry.  Factory production accounted for 0.5 percentage point of the 1.7% increase in GDP in 2011, according to the Commerce Dept.  A year earlier, manufacturing added 1.2 percentage points to economic growth of 3%.  Makers of durable goods, such as automobiles, were still one of the biggest contributors to the expansion last year, adding 0.49 percentage point after 0.96 percentage point in 2010.  Durable-goods manufacturing increased 7.9% in 2011 after a 17% jump the previous year.  15 of 22 industry groups added to growth, including professional, scientific & information services.  GDP rose at a 2.5% annual rate in Q1 after advancing at a 3% rate in Q4, according to the latest forecast.  Factories may give way to service industries as a pillar of the expansion as a slowdown in global growth curbs exports.  Service industries outperformed factories during Q1, according to data from the Institute for Supply Management.  Its manufacturing index averaged 53.3 in Q1-Q3, compared with 56.7 for the non-manufacturing gauge.  Readings above 50 signal expansion.  Economic data can be boring, but is also helpful in understanding what's driving the economy.

Manufacturing Contributed Less to U.S. Growth Last Year

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Photo:    Yahoo

Exxon Mobil, a Dow stock & Dividend Aristocrat, struggled just about everywhere in Q1.  It produced less oil & natural gas.  Profits dropped at its chemical plants & US refineries.  And its total net income fell 11%, the first decline in quarterly earnings since late 2009.  The  largest energy company in the world had EPS of $2, short of expectations & below $2.14 last year.  Revenue rose 8.8% to $124B, but that also fell short of forecasts.  Oil production slipped 7.7% & natural gas production fell 3.4%.  The declines resulted from aging fields & contracts with foreign govs that limited the amount of oil & gas the company could sell.  There are concerns about its natural gas fields in the US, where prices have dropped to 10-year lows.  The company has kept its natural gas rigs pumping while other big producers have shut down many of theirs.  XOM sold natural gas for $2.74 per 1000 cubic feet in the US, down 31% from a year earlier.  Elsewhere, profits fell for its chemicals & US refinery operations.  But yesterday it boosted the div to a record $2.28. Today the stock pulled back 78¢.

Exxon First-Quarter Profit Drops as Output, Gas Decline

Exxon Mobil Corporation (XOM)

Photo:   Bloomberg

PepsiCo, a Dividend Aristocrat, Q1 net income fell slightly from a year ago, as it raised prices to make up for rising commodity costs.  EPS was 71¢, similar to 71¢ last year (the smaller number of average outstanding shares lifted the latest per-share results).  Not including one-time items, the company had EPS of 69¢, which topped  expectations for 66¢.  PEP is struggling to balance higher commodity costs without scaring off budget-conscious consumers with too many price increases but the company says it was able to raise prices in Q1 on the strength of its brands.  Changes to pricing & packaging of its snacks & drinks boosted revenue 5%, helping to offset a $300M increase in costs for ingredients.  With the new pricing measures in place, CEO Nooyi said PEP can focus on plans to rejuvenate its business in the year ahead, including increased advertising dollars for the flagship brands & the implementation of a cost-cutting program.  There were restructuring charges of $33M in Q1 & the company anticipates additional charges of about $392M for the rest of the year.  Revenue increased to $12.4B, from $11.9B last year (the forecast was for $12.35B).  The increase was driven primarily by gains in emerging markets, while revenue from the beverage unit in the Americas dipped by 2%.  The stock fell 30¢.

PepsiCo First-Quarter Profit Tops Estimates as Latin American Sales Gain

Pepsico, Inc. (PEP)

Dow is up almost 300 in 3 days, hard to believe.  While earnings news has good, it was not all that good.  Gas at the pump has backed off to $3.83, about 10¢ below its recent high, but still at troublesome levels.  We don't hear a lot about Europe, but that debt mess has not gone away.  The markets are feeling good although the breadth was mediocre today.  Dow is just 60 below its yearly highs (really multi yearly highs) & the S&P 500 is only a couple of pennies below the magic 1400 level.  Markets are overbought short term which could produce profit taking tomorrow.

Dow Industrials

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