Markets drift lower awaiting unempolyment report

Dow fell 49, advancers just ahead of decliners & NAZ slid pennies.  The Financial Index slipped a fraction in the 233s.  The MLP index rose 4+ to over 430, another new record, & the REIT index dropped 2 to the 276s.  Junk bond funds were lower & Treasuries went up.  Oil slid 52¢ from its almost 9 month high & gold fell $16 to $1664, the biggest decline in 4 weeks.

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Photo:   Bloomberg

UPS forecast profit for this year trailed estimates as a weak global economy weighs on shipping.  EPS will be $4.80-$5.06 which compares with a projection by analysts of $5.13.  Growth is constrained by a sluggish worldwide economy & disputes over the US debt ceiling that erode shipping demand & confidence, CEO Scott Davis said.  Analysts use the company as an economic gauge because it handles goods as varied as auto parts & pharmaceuticals.  EPS for Q4 was $1.32 a share, below a $1.38 average estimate.  EPS was curbed by 6¢ for costs from superstorm Sandy & expenses from the pursuit of  TNT Express (TNTE).  UPS fell $1.94.

UPS 2013 Earnings Forecast Trails Analysts’ Estimates on Sluggish Economy

UPS (UPS)






Photo:   Bloomberg

Michael Dell set up a family office in 1998 that diversified his wealth beyond stock in the computer maker he had started 14 years earlier.  Now, as he seeks to take his company Dell private, the same investment firm may provide pivotal financing for what would be the largest buyout since 2007.  It wouldn’t be the first time that Dell has relied on MSD Capital to increase his holdings in the computer company.  Between 2006 & 2011, he bought $625M of Dell stock with cash provided by MSD Capital.  Dell’s fortune is key to pulling off the LBO & he’s expected to contribute about half of the estimated $8-$9B in equity needed for the deal, with private-equity firm Silver Lake Management & Microsoft (MSFT), a Dow stock, each contributing $1-$2B.  The stock lost a dime.

Michael Dell Keeps Leveraged Buyout Funding in the Family With MSD Capital

Dell (DELL)




Stocks meandered all day.  Earnings are coming out mixed & traders are anxious to learn the jobless numbers for Jan.  New jobs data has been cheerless in recent months.  Enough jobs were created to reduce the unemployment rate below 8%, but some of that decline is attributable to people giving up looking for work.  Tomorrow's figure will be helpful to understand how much the increase in Social Security taxes is affecting consumers & businesses they buy from.  For the month, Dow rose 750, hardly chump change.  The Alerian MLP Index gained 51 since Dec 28, a record gain in such a short time.  But all markets are way overbought.

Dow Jones Indutsrials

Markets settle back on jobless data

Dow was off 32, decliners ahead of advancers 5-4 & NAZ slipped fractionally.  The Financial Index was off 1 to the 233s. The MLP index rebounded 2+ to the 429s, a new record & brings the Jan gain to 50, while the REIT index fell 1+ to 277.  Junk bond funds were mixed & treasuries found buyers, taking the yield on the 10 year Treasury below 2%.  Oil pulled back & gold dropped 20 to 1659.

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The number of Americans seeking unemployment aid rose sharply last week but remained at a level consistent with moderate hiring.  Weekly applications leaped 38K to 368K, according to the Labor Dept.  The increase comes after applications plummeted in the previous 2 weeks to 5-year lows.  Applications fell by a combined 45K in the 2nd & 3rd weeks of Jan.  The volatility reflects the difficulty adjusting the data to account for layoffs after the holiday shopping season.  Job cuts typically spike in the 2nd week in Jan as retailers dismiss temporary employees hired for the winter holidays.  Layoffs then fall in the 2nd half of the month.  The number  continuing to claim benefits also rose.  More than 5.9M received benefits, 250K more than in the previous week.

Jobless Claims in U.S. Rose 38,000 Last Week to 368,000

Stocks are not doing much ahead of the jobs report tomorrow.  Earnings reports have been coming in mixed.  Dow is having a tremendous month & needs time for a breather.

Dow Jones Industrials

Markets fall as Federal Reserve continues its bond buying program

Dow dropped 44, decliners over advancers 2-1 & NAZ fell 11.  Financial Index slid 1 to the 234s.  The MLP index lost 2 to the 426s & the REIT index sold off 3 to the 278s.  Junk bond funds slipped lower  & Treasuries also saw selling.  Oil rose to the highest level in more than four months as the Federal Reserve maintained an asset-buying program to boost the economy.  Gold capped the biggest gain in almost 3 weeks after a report showed the US economy unexpectedly shrank in Q4, boosting demand for the metal as a haven.

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Treasury yield:

U.S. 3-month	0.063%
U.S. 2-year	0.272%
U.S. 10-year	2.007%

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The Federal Reserve (FED) will maintain its asset buying of $85B a month & stick to its commitment to hold interest rates near zero until unemployment falls to at least 6.5% from the current 7.8%.  The FED decision, following a 2-day meeting, had been widely expected, especially after a surprising decline in GDP growth for Q4.  Markets showed relatively little reaction to the GDP report, in part because it reinforced expectations that the FED will continue to provide stimulus as long as the economy is weak.  The minutes of the last FED meeting in Dec showed that some members thought QE should end this year, a comment that helped send interest rates higher this month.  The FED said the slowdown in growth was largely because of weather-related disruptions & other temporary factors.  It noted that employment continues to expand at a moderate pace, consumer spending & business investment increased & the housing sector showed further improvement.  The central bank also said strains in global financial markets have eased somewhat, but cautioned that risks remain.

Fed Maintains $85 Billion Pace of Purchases as Growth Pauses


General Motors will add a wing to its engine & transmission development headquarters in Pontiac, Mich, with hopes of getting new technology into cars & trucks much faster.  It announced that it would spend $200M to add 138K square feet of new labs, allowing it to consolidate work from 4 other facilities.  The move won't create any new jobs, but it will bring 400 more positions to headquarters, raising its total employment to 3900 from 3500.  Work on the new wing is expected to start in the spring & be finished during H2 of 2014 as part of GM's plan to invest $1.5B in its North American facilities this year.  The company said that the new wing will help speed development of new engines & transmissions because the company is behind competitors on powertrain technology.  The company has 6-speed automatic transmissions while competitors have up to 10 speeds.  More speeds generally make cars & trucks more efficient & perform better.  The stock fell 51¢.

GM to Invest $200 Million to Expand Michigan Complex

General Motors (GM)




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Economic confidence in the euro area rose more than forecast in Jan, adding to signs that the 17-nation currency bloc may be emerging from a recession.  An index of executive & consumer sentiment rose to 89.2 from a revised 87.8 in Dec, according to the European Commission, the highest since Jun.  The forecast called for an increase to 88.2.  ECB President Mario Draghi said last week economic activity is “stabilizing at a very low level” & Germany's Bundesbank expects Europe's largest economy to rebound in Q1 from a contraction at the end of 2012.  The euro-area economy shrank 0.1% in Q3 after a 0.2% contraction in Q2.  GDP probably fell another 0.4% in Q4 & will probably stagnate in Q1 2013.  Spain's recession deepened more than forecast in Q4 as the gov struggled to rein in the euro region’s 2nd-largest budget deficit weighed on domestic demand.  GDP fell 0.7% in Q4.  A gauge of sentiment among European manufacturers improved to minus 13.9 from minus 14.2 in Dec, today’s report showed.  An indicator of services confidence rose to minus 8.8 from minus 9.8, while consumer sentiment climbed to minus 23.9.

Confidence in Euro Area Rises More Than Forecast in Sign Recession May End


The shrinking economy had little impact on stocks.  While the news was unexpected, traders took it reasonably well.  Markets are very overbought & this decline has to be viewed as mild.  Dow still has a whopper size gain of 800 in Jan.  Markets may not do a lot tomorrow as they wait for the Jan jobs report on Fri.  Bulls remain in charge although there are a number of dark clouds overhead.

Dow Jones Industrials

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