Wednesday, August 21, 2013

Stocks slide lower after FOMC minutes

Dow dropped 105, decliners ahead of advancers 2-1 & NAZ lost 14.  The MLP index was up pennies in the 339s & the REIT index slipped fractionally to the 261s.  Junk bond funds retreated & Treasuries lost ground, taking the yield on the 10 year Treasury nearer to 3%.  Oil & gold did not move much.

AMJ (Alerian MLP Index tracking fund)

stock chart

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLV13.NYM...Crude Oil Oct 13....103.87 Down ...1.24  (1.2%

Live 24 hours gold chart [Kitco Inc.]

An eagle tops the U.S. Federal Reserve building's facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst/Files

Photo:   Yahoo

Only a few Federal Reserve (FED) policymakers thought it would soon be time to "slow somewhat" the pace of the bond-buying at a meeting last month, while others emphasized patience in deciding when to start to wind down the stimulus program.  Minutes of the central bank's Jul 30-31 meeting showed that almost all of the 12 members of the policy-making FOMC agreed a change to the stimulus was not yet appropriate.  Investors are anxiously predicting when the FED will start to slow its $85B monthly asset purchases.  Policymakers noted that the unemployment rate, 7.4% last month, had declined "considerably" since the latest round of bond buying was launched in Sep, though there was disagreement on the cumulative improvement given, for example, the high number of Americans who had given up the hunt for work.  In the end, the FED made no formal policy change at last month's meeting, saying in a statement on Jul 31 that the US economy continues to need support.  No great surprises here, as usual.

FOMC Minutes Show Broad Support for Bernanke Taper Timeline

More jobs & easier loan terms will boost demand for new mortgages in H2 as homebuyers shrug off higher interest rates, according to a Fannie Mae forecast issued today.  Lending for mortgages to purchase homes will increase 21% for the final 6 months of 2013 to $341B from $282B in H1, according to the forecast.  Total residential mortgage debt probably will increase 1.1% in 2013 to $10T, followed by another increase to $10.2T in 2014, Fannie Mae estimated.  A 1 percentage-point jump in average mortgage rates since May hasn’t curbed enthusiasm for home buying, even as declining demand for refinancing saps profit at the biggest banks.  Almost 4% of Americans in Jul said they plan to buy a home in the next 6 months, the highest in at least 4 years, according to the Conference Board.  The projection bodes well for bankers who depend most heavily on mortgages at a time when financial firms are scrounging for revenue.

Fannie Mae Sees Jobs, Easier Terms Sustaining Home Sales

Fiscal Q3 for Toll Brothers took a hit from higher tax expense, but the luxury homebuilder is upbeat about the rebound in the housing market.  "Sales volumes and pricing power both increased this quarter from a year ago, a pattern consistent with recent quarters," CEO Douglas Yearley said.  "We believe the recovery is real, and we are in the early stages of the rebound."  EPS fell to 26¢, matching expectations.  In the 2012, EPS was 36¢.  Last year included a tax benefit of nearly $19M while the company set aside $21.7M for taxes this year.  Revenue climbed 24%, to $689M from $554M.  Analysts predicted $699M.  TOL operates in 19 states, including California, Florida, Illinois & New York.  It builds luxury homes mostly on land it develops, including single-family homes, resort-style golf communities & urban high-rises.  Signed contracts in Q3 climbed 47% to $992M, & the average price of homes delivered rose 13% to $651K.  The average home price this year got a boost from 16 deliveries at a high-rise building on Manhattan's Upper East Side.  Yearly had said earlier this year that the rebounding market has tamped down fears by builders that they would spook buyers if they raised prices.  The stock inched up a penny.

Toll Brothers 3Q profit down, but upbeat on market Associated Press

Toll Brothers (TOL)

stock chart

There was selling into the close with the Dow losing more than 100 in the last hour, closing near its lows.  Even though the message form the FOMC was already baked into the market, 2nd reflections on the message brought on selling.  The rest of this week & next should be boring, with a negative bias, as volume continues light.  But the yield sectors remain weak in anticipation of higher interest rates.  The yield on the 10 year Treasury has risen 125 basis points in a little over 3 months.  While starting from a depressed level, that is still a big move.  Other groups are seeing their yields rise in a similar fashion.

Dow Jones Industrials

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