Friday, October 26, 2012

Markets lose ground despite higher consumer confidence

Dow dropped 28, decliners over advancers 3-2 & NAZ sank 9 after Apple (AAPL) drifted lower following a bland earnings report.  The Financial Index fell 1+ to 212.  The MLP index sank 4 to the 405s & the REIT index was  off 2+ to 258, a 4 month low.  Junk bond funds edged lower & Treasuries were higher.  Oil was flat & gold inched higher.

AMJ (Alerian MLP Indexs tracking fund)

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CLZ12.NYM....Crude Oil Dec 12...86.04 ....Down 0.01  (0.0%)

GCV12.CMX...Gold Oct 12......1,716.10 ... Up 4.10 (0.2%)

U.S. Economy Grows at 2% Annual Rate

Photo:   Bloomberg

The US economy expanded more than forecast in Q3, paced by a pickup in consumer spending, a rebound in gov outlays & gains in residential construction.  GDP rose at a 2% annual rate after climbing 1.3% in Q2, Commerce Dept figures showed.  The forecast called for a 1.8% gain.  A housing rebound is helping mend Americans’ finances & confidence, indicating the pickup in demand for expensive items such as automobiles can be sustained.  The rate of growth would have been stronger if not for the drought that affected crops in the Midwest.  A drop in farm inventories subtracted 0.4 percentage point from Q3 GDP after cutting 0.2 point in the prior period.  Consumer purchases, the biggest part of the economy, grew at a 2% annual rate, up from a 1.5% gain in Q2 & compared with a 2.1% forecast.  Purchases added 1.4 percentage point to growth.  Retail sales in Sep & Aug had the best back-to- back showing since late 2010 as shoppers snapped up goods from cars to iPhones.   This qualifies as a good but not a great report.

Michigan Consumer Sentiment Index Increased to 82.6 in October

Photo:   Bloomberg

Consumer sentiment rose to its highest level in 5 years in Oct as Americans were more upbeat about prospects for the economy & their own finances.  The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment rose to 82.6 from 78.3 in Sep, the highest level since Sep 2007 for a final monthly reading.  Still, that was slightly below the preliminary reading of 83.1 & shy of expectations for 83.  There are also clouds on the horizon.  After the presidential election, policymakers will have to deal with a package of scheduled spending cuts & tax increases, & political wrangling could prompt a decline in consumer confidence as sharp as the recent increase, according to the survey.  "Unless the legislation is carefully managed by whoever wins, the debate could produce the same depressing effect on consumer confidence as last year's debt ceiling fiasco," survey director Richard Curtin said.  "While the surge in confidence will act to bolster consumer spending during the upcoming holiday season, it also means that this higher level of confidence is more vulnerable to reversal and has thus raised the stakes for post-election economic policies."  The barometer of current economic conditions gained to 88.1 from 85.7, while the gauge of consumer expectations rose to their highest level since Jul 2007 at 79 from 73.5.  Consumers anticipated smaller price increases, with the one-year inflation expectation easing to 3.1% from 3.3%, while the 5-10 year inflation outlook fell to 2.7% from 2.8%.

Michigan Consumer Sentiment Index Rose to 82.6 in October

Merck Profit Beats Analyst Estimates on Sales of Diabetes Drugs

Photo:   Bloomberg

Merck, a Dow stock, reported Q3 profit that beat estimates as sales of its diabetes treatments helped offset losses from generic competition.  EPS was 95¢, topping by 2¢ the average estimate.  But sales fell 4% to $11.5B, slightly below the estimate.  MRK made up for the drop in sales by cutting costs, including a lower-than-expected tax rate.  It has been eliminating thousands of jobs & trying to boost demand of existing products to overcome the revenue drop from Singulair, which began facing competition from cheaper copies in Aug.  MRK expects 2012 earnings excluding one-time items of $3.78-$3.82, narrowing its previous forecast of $3.75-$3.85.  Sales of the diabetes drug Januvia increased 15% to $975M & sales of Janumet, which combines Januvia with an older diabetes drug, grew 16% to $405M.  Those gains helped offset a 55% drop in sales of Singulair, which were $602M.  Sales also declined for the cholesterol drug Vytorin, which fell 10% to $423M.  Sales in emerging markets accounted for about 20% of pharmaceutical revenue, led by a 19% increase in China.  But drug sales were reduced 5% because of unfavorable foreign exchange rates.  The company plans to seek US regulatory approval by the end of 2013 for its insomnia drug suvorexant, its osteoporosis treatment odanacatib, & cholesterol drug tredaptive.  The stock slid 7¢.

Merck Third-Quarter Profit Beats Analyst Estimates on Diabetes Drug Sales

Merck (MRK)

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Dow has been slipping all week, down 270 so far.  Earnings just can't cut it so they fail to inspire buying.  Now more attention is paid to after the election when the fiscal cliff, budget cuts & tax hikes, must be dealt with.  Dow has been able to hang in above 13K, an important technical support level, but that may not last long.  The Europe debt mess is not going away & slow growth in China hurts all multi-nationals.

Dow Jones Industrials

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