Thursday, February 21, 2013

Lower markets on earnings worries

Dow fell 46, decliners ahead of advancers 2-1 & NAZ dropped a bigger 32.  The Financial Index was off 1+ to 236.  The MLP index plunged 5 to the 426s, quite a drop, & the REIT index lost 2+ to the 277s.  Junk bond funds were weak like stocks & Treasuries rose (money going from stocks to Treasuries).  Oil fell to the lowest level this year as a gov report showed that US crude stockpiles climbed to the highest level since Jul.  Gold slipped lower & the shorter term chart below looks dreary.

AMJ (Alerian MLP Index tracking fund)

stock chart

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLJ13.NYM...Crude Oil Apr 13...92.87 ...Down 2.35   (2.5%)

Live 24 hours gold chart [Kitco Inc.]

The € declined below $1.32 for the first time in 6 weeks as an industry report showed services & manufacturing in the region shrank at a faster pace in Feb than forecast.  It is down from a high of $1.37 at the start of the month.  The fall today was on speculation the ECB may have to keep borrowing costs lower for longer to help spur a recovery.  The Dollar Index fell from a 5-month high as manufacturing in the Philadelphia region unexpectedly contracted.   As I said yesterday, all is not well in Europe.

<p>               In this Wednesday, Nov. 22, 2012, photo, Eva Cevallos with her eleven-month daughter, Quinn, shop during the Thanksgiving Pre-Black Friday event at the Walmart Supercenter store in Rosemead, Calif. Wal-Mart Stores Inc. offered a weak business outlook Thursday, Feb. 21, 2013,  as new economic challenges for its low-income U.S. shoppers start to take a toll.  (AP Photo/Damian Dovarganes)

Photo:   Yahoo

Wal-Mart (WMT), a Dow stock & Dividend Aristocrat, reported results for fiscal Q4, beating earnings estimates but guiding slightly lower for the current period.  The numbers are actually worse than they appeared.  Same store sales in the US rose an anemic 1% & much of the 10¢ earnings beat was the result of a lower than expected tax rate.  Some described the results as horrible.  There are concerns that store traffic was low, margins were weak & inventory is too high relative to sales.  From the perspective of a merchant, if a company is investing so much time & energy into low prices, either the traffic needs to be high or the inventories have to running lean.  WMT is seeing what's called a pronounced pay check cycle, store traffic spikes twice monthly when most people get paid.  That speaks to a strapped consumer lacking confidence to spend unless he has cash in his pocket.  Living paycheck to paycheck isn't something typically seen in the 4th year of an economic recovery.  The stock pulled back $1.21 from its AM high, closing with a gain of only $1.05 on the day.

U.S. Jobless Claims Rise; CPI Little Changed

Photo:   Bloomberg

The index of US leading indicators rose for a 2nd month in Jan.  The Conference Board’s gauge of the outlook for the next 3-6 months increased 0.2% from a 0.5% rise in Dec.  The gain matched the increase forecasted.  Rising stock prices, stronger property values & sustained gains in hiring are boosting economic growth & holding up household balance sheets.  Still, higher payroll taxes are trimming paychecks while the likelihood of further US budget cutbacks may limit the recovery’s acceleration.  6 of the 10 indicators in the leading index contributed to the increase, led by stock prices & the interest-rate spread between the federal funds rate & 10-year Treasury notes.

Index of U.S. Leading Economic Indicators Rose in January

There was buying in the last hour & then selling into the close (probably driven by rumors).  Tech had a tougher day, dragging down NAZ 1%.  Nothing dramatic going on in the markets, but bulls have lost their courage in the last 2 days.  More signals from WMT about a weaker economy then has been assumed is disturbing.  There has been a lot of analysis about what that implies about the health of the economy.  While nobody knows, consumers are getting pinched by higher taxes, a rise in gas prices & delayed tax refund checks being sent out by he IRS.  Little attention has been paid to gas at the pump rising to $3.78 as of yesterday, up 15% this year.  Look for 13850 being a key line of resistance for the Dow.  It's 30 above that level.

Dow Jones Industrials

stock chart

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