Friday, July 13, 2012

Markets rise on bank earnings reports

Dow gained 203 (closing near the highs), advancers over decliners 5-1 & NAZ was up 42.  The Financial Index shot up 5+ to 198 as investors liked the first bank earnings reports for Q2.  The MLP index rose 3 to the 391s (last seen in early May) & the REIT index was up 3 to 367, a new yearly high.  Junk bond funds were higher & Treasuries were modestly lower.  Oil & gold each had an excellent day.

AMJ (Alerian MLP Index tracking fund)

stock chart

Click below for the latest market update:

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLQ12.NYM...Crude Oil Aug 12...87.24 ...Up 1.16  (1.4%)

Live 24 hours gold chart [Kitco Inc.]

PIMCO Bill Gross

Photo:   Bloomberg

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management, forecasts real growth in the US will be about 1.5% a year for at least the next 10 years.  Slower labor-force expansion, overextended credit & potential geopolitical or environmental shocks will limit growth as the economy struggles to duplicate previous productivity gains, Gross said.  “Slower growth means lower returns on capital,” Gross said. “If real GDP grows at 1.5 percent, then a diversified portfolio of stocks and bonds would probably grow at 1.5 percent, as well.”  This prediction contrasts with those of many economists, who estimate median real GDP will expand more than 2% a year thru 2014, the last year for which forecast data is available.  Gross kept holdings of Treasuries in his $263B flagship Total Return Fund steady in Jun at 35%, the highest since Feb, after saying that US securities are still the safest bet. The Federal Reserve sees 1.9-2.4% growth in 2012, down from the Apr forecast of 2.4-2.9%.  The IMF cut its projections on last week for US growth to 2% this year & about 2.25% in 2013 amid a “tepid” recovery & the European debt crisis.

  • <p>               In this May 6, 2012, photo, a Wells Fargo sign is displayed at a branch in New York. Wells Fargo is reporting higher earnings for the second quarter thanks to a pickup in lending and a decline in the amount of bad loans, according to reports Friday, July 13, 2012. (AP Photo/CX Matiash)
Photo:   Yahoo

Wells Fargo reported higher earnings, higher revenue & a record number of mortgage applications.  CFO Tim Sloan said, "It's not that we don't make mistakes." & added "But we don't take on a risk and then decide that the way we get comfortable with it is by hedging it. We just don't do it in the first place."  When Moody's downgraded the ratings of most of the major banks last month, WFC escaped intact.  In recent weeks, as analysts cut estimates for most other big banks, they raised them slightly for WFC.  In a call, WFC highlighted how the bank had expanded lending & curbed the proportion of bad loans.  EPS was 82¢, in line with estimates.  Revenue rose 4% to $21.3B, also in line with expectations.  Mortgage originations more than doubled, to $131B from $64B.  About 16% came from the gov Home Affordable Refinance Program, or HARP.  Inside Mortgage Finance estimates that WFC controls 34% of mortgage lending in the US with the runner-up, JPMorgan (JPM), controlling 11%.  The stock rose 95¢ on a good day for bank stocks.

Wells Fargo Adds $669 Million to Reserve for Repurchasing Faulty Mortgages

Wells Fargo (WFC)

stock chart

China’s Economy Grew 7.6% in Second Quarter Vs 7.7% Estimate

Photo:   Bloomberg

Growth in China slowed for a 6th qtr to the weakest pace since the global financial crisis, putting pressure on Premier Wen Jiabao to boost stimulus to secure a H2 economic rebound.  GDP expanded 7.6% last qtr from a year earlier according to the National Bureau of Statistics.  The pace, a 3 year low, compares with an 8.1% gain in the previous period & a 7.7% forecast.  Industrial production increased at a slower pace in Jun while retail sales growth decelerated.  This data painted a mixed picture from a pickup in fixed-asset investment that could signal the economy is stabilizing to the warning sign that electricity output failed to increase in Jun from a year earlier.  China’s export growth in the H1 cooled to 9.2%, down from 24% in last year's H1, as Europe’s austerity measures & gov debt burdens capped shipments.  Also dragging on demand is a crackdown on housing-market speculation.  Rising US markets today were hoping the gov will stimulate the economy, which will be felt around the world.

China Growth Slowdown Increases Pressure on Wen to Step Up Easing: Economy

Hopes for more growth from China & a favorable reception on the first bank earnings reports brought out buyers in force.  An absence of negative news, especially from Europe, was also encouraging.  Bill Gross is investing heavily in Treasuries which has been fairly successful this year (with yields at record lows).  That's a bet against the stock market.  Dow managed to eke out a gain of 5 this week, not bad considering it was all done today, & it's only down 100 in Jul.  Next week will bring reports from more banks & big industrials.

Dow Jones Industrials

stock chart

Get your favorite symbols' Trend Analysis TODAY!  

No comments: