Wednesday, August 21, 2013

Markets slide lower ahead of Federal Reserve minutes

Dow fell 41, decliners ahead of advancers 2-1 & NAZ slipped pocket change.  The MLP index was up a fraction to 440 & the REIT index lost 1 to 261.  Junk bond funds were weak as were Treasuries.  Oil did little but gold is heading for its biggest drop in a week before the Federal Reserve releases minutes from its previous meeting that may signal when US policy makers plan to slow stimulus.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

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U.S. 10-year


CLV13.NYM....Crude Oil Oct 13...104.62 Down ...0.49  (0.5%)

GCQ13.CMX...Gold Aug 13.......1,363.50 Down ...9.60  (0.7%)

A Tudor-style home is being renovated for resale in the Silver Lake neighborhood of Los Angeles, California August 5, 2013. REUTERS/Jason Redmond

Photo:  Yahoo

Home resales in the US rose in Jul to their highest level in over 3 years, suggesting a sharp increase in borrowing costs is having only a limited impact on the housing market recovery.  The National Association of Realtors said that existing home sales jumped 6.5% to an annual rate of 5.39M units.  Analysts had anticipated a smaller increase.  Higher property values that allow more Americans to list their homes, job gains & still-historically low mortgage rates are underpinning demand.  At the same time, bigger increases in borrowing costs threaten to slow the pace of improvement in housing, which has been mainstay of economic growth.  “The increases in rates panicked some buyers,” Lawrence Yun, NAR chief economist, said.  Higher borrowing costs “generally provide a sense of urgency to close” on home purchases.  Yun said that bigger increases in rates will “reduce the pool of eligible homebuyers” & the average 30-year mortgage may reach 5% by year-end.  Existing-home purchases are recovering from a 13-year low of 4.1M reached in 2008.  Annual sales peaked at 71M 3 years earlier.  4.66M previously-owned houses were sold in 2012.  The Realtors group projects 5.05M home sales this year, & Yun said that figure may soon be revised higher.

Sales of U.S. Existing Homes Rise to Highest Since 2009

Shopping carts from a Target store are lined up in Encinitas, California May 22, 2013. REUTERS/Mike Blake

Photo:   Yahoo

Target, a Dividend Aristocrat, warned that its annual profit was likely to be near the low end of its forecast as it anticipated continued cautious consumer spending, the latest retailer to signal shoppers were holding back.  Q2 profit came in just ahead of expectations while sales missed estimates.  Its Canadian business is costing more than anticipated & will weigh on full-year profit.  TGT & other discount retailers expect shoppers to remain cautious "in the face of ongoing household budget pressures," CEO Gregg Steinhafel said.  In May, TGT, noting that shoppers were sticking to shopping lists, trimmed its fiscal-year adjusted EPS forecast to $4.70-$4.90 from $4.85-$5.05.  It now expects adjusted EPS to be near the low end of the May forecast.  Q2 EPS was 95¢, down from $1.06 a year earlier.  Including the effects from opening Canadian stores but excluding other items, EPS was 97¢, one penny more than expected.  Sales rose 4% to $17.1B, missing the target of $17.2B.  Sales at stores open at least a year, or same-store sales, rose 1.2%, below analysts' the of a 2.1% increase & its own forecast of a 2-3% gain.  The stock fell 1.35.

Target (TGT)

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Lowe's posted Q2 profit that topped estimates & raised its forecast for the year as the housing recovery fuels spending on remodeling.  EPS increased to 88¢ from 64¢ a year earlier.  Analysts projected 79¢.  CEO Robert Niblock added employees during ths busiest store hours to help shoppers, reduced the number of slow-selling items & negotiated lower prices with vendors.  Sales at stores open at least a year climbed 9.6%, spurred by more transactions & higher spending.  Rising home prices are boosting demand for appliances & other big-ticket items that consumers were reluctant to buy in the housing downturn, Niblock said.  He added that higher interest rates may temper the pace of home renovation spending in H2.  EPS in the year ending Jan 31 will be about $2.10, up from a previous estimate of $2.05 & matches analysts’ projection.  Revenue rose 10% to $15.7B, above the $15.1B estimate.  Revenue this year will rise 5%, more than a previous forecast for a 4% gain, LOW said.  Same-store sales will increase 4.5%, compared with an earlier projection of a 3.5%.  The stock shot up 2.97.

Lowe’s Profit Exceeds Analysts’ Estimates on Housing Rebound

Lowe's (LOW)

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Stocks are wavering as traders are very nervous about the intentions by the Federal Reserve about tapering its bond buying program.  There is not much to be done now except wait for the minutes of the last meeting to be released.

Dow Jones Industrials 

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