Wednesday, May 9, 2012

Markets tumble on growing Euro debt fears

Dow dropped 71 (but off the lows), decliners over advancers 4-1 & NAZ lost 14.  Bank stocks are leading the selling, taking the Financial Index down 2½ to 200 (its Feb lows).  The MLP index fell 3 to 382 (down 7 YTD) & the REIT index 2 to 258.  Junk bond funds edged lower & Treasuries remained in demand.  Oil fell for a 6th day, the longest stretch of declines in almost 2 years, after US crude supplies climbed & Greece struggled to form a gov, bolstering concern that Europe’s debt crisis will spread.  Gold should benefit from its safe haven qualities, but saw more selling taking it near its 10 month lows.

JPMorgan Chase Capital XVI (AMJ)

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CLM12.NYMCrude Oil Jun 1295.85 Down 1.16 (1.2%)

GCK12.CMXGold May 121,592.50 Down 11.50 (0.7%)

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Moody’s will be cutting the credit ratings of more than 100 banks, a move that risks pushing up their funding costs & forcing them to curb lending in a threat to economic growth.  France’s biggest lender, Germany’s largest & Morgan Stanley (MS) are among firms that face having their short- & long-term debt downgraded to their lowest-ever levels by Moody’s.  The cuts, which would follow downgrades by S&P, & Fitch last year, could erode profits, trigger margin calls & leave some firms unable to borrow from money- market funds that have strict rules on who they can lend to.  Without access to funding from private sources, banks have had to sell assets & reduce lending.  Even after the ECB provided an unprecedented €1T ($1.3T) of 3-year loans to bolster the region’s banks, loans to non-financial companies in the euro area fell 0.17% in Apr, according to ECB data.  Europe’s economy probably slipped into recession in Q1 as the debt crisis forced govs to step up spending cuts.  This is a setback for banks after progress they have made improving balance sheets.

Moody’s Bank Downgrades Risk Choking European Recovery

US wholesalers increased their stockpiles more slowly in Mar after seeing less growth in sales.  The Commerce Dept said wholesale stockpiles increased 0.3% in Mar, just one-third of the 0.9% rise in Feb & below the forecast of a 0.6% gain.  Mar sales were up 0.5%, about half the 1.1% sales gain in Feb.  Weaker stockpile growth means businesses aren't stepping up orders for goods.  That typically means less growth in factory production & slower economic growth.  While restocking has been growing more slowly this year, the steady gains have pushed wholesale stockpiles to $480B, up 25.3% from the low-point in Sept 2009.

U.S. March Wholesale Inventories Rise 0.3%, Sales Climb 0.5%

Macy's reported a 38% increase in Q1 profit as it continues to reap benefits from its move to tailor its fashions to local markets.  The earnings beat expectations, but its shares fell as it failed to make a conforming boost in its earnings guidance for the year.  EPS was 43¢, up from 30¢ last year.  Revenue rose 4.3% to $6.1B from $5.9B a year ago.  Analysts expected EPS of 40¢ on revenue of $6.14B.  "The momentum in our business at Macy's and Bloomingdale's continued to build in the first quarter, with sales and earnings exceeding our expectations going into the year,"  CEO Lundgren said.  "The quarterly data clearly demonstrates the strength of our results as we continue to implement our strategies."  Macy's has been able to navigate thru the recession & a slow recovery by embracing its own initiatives.  The chain has benefited from the strategy to tailor merchandise to local markets as consumer spending slowed down in 2007.  A better trained sales force also helped.  Revenue at stores open at least a year climbed 4.4%, though it had a weak finish to the period.  The measure was up 1.2% for Apr.  Macy's only slightly increased its annual guidance for revenue at stores open at least a year.  It now expects that figure to be up 3.7%, compared with its earlier guidance of 3.5%.  Macy's reaffirmed its EPS guidance for 2012 of $3.25-$3.30 & analysts expect $3.39.  The stock sank 1.58 (4%) in a weak market.

Macy’s Falls After 2012 Profit Forecast Trails Estimates

Macy's Inc (M)

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Stocks are having another bad day as concerns about the Euro debt mess grow.  Greece has no gov & there are no signs that the chaotic situation will end soon.  France is gearing up to reduce austerity measures needed to get its financial house in order.    Spain is another looming bailout situation.  In simple terms, Europe has huge debt problems & the spreading recession is making matter worse.  There are more indications that the US economic recovery is having to deal with headwinds.  Meanwhile Facebook is putting on a roadshow to sell its stock in a couple of weeks.  There is a lot of interest but I have a feeling the IPO will disappoint its fans, especially if the stock market continues to stumble.  Dow is down almost 600 from its peak at the start of May.

Dow Industrials

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