Monday, September 23, 2013

Lower markets on worries about easy money policies

Dow dropped 56, decliners over advancers 4-3 & NAZ fell 20 despite the rise by Apple (AAPL) - see below.  The MLP index was off 1 to 444 & the REIT index was fractionally higher to the 278s.  Junk bond funds were mixed & Treasuries gained.  Oil fell to a one-month low on easing concern that Syria’s conflict will disrupt supplies & as production rose in Nigeria & Libya.  Gold fell for a 2nd straight session after a Federal Reserve official said policy makers may start reducing stimulus as early as next month.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLX13.NYM...Crude Oil Nov 13...103.66 Down ......1.09  (1.0%)

GCU13.CMX...Gold Sep 13........1,319.70 Down ...12.80  (1.0%)

The euphoria with which investors in the US stock market greeted the Federal Reserve's (FED) decision to stick with its easy-money policy has begun to evaporate, as the message implied a less-than-stellar economy & that is sinking in.  An economy still in need of a safety net may be too weak to produce robust earnings growth, meaning that the S&P 500, with its most expensive P/E since 2010, becomes harder to justify.  The S&P 500 is up 20% YTD & hit new highs last week, boosting the index's forward P/E to 14.9X, its highest since early 2010.  At that time, though, company earnings were improving more rapidly than now as business activity rebounded from the depths of the recession & financial crisis in 2007-2009.  Profit growth for 2013 is expected at about 6%,  far below 31% in 2010.  That undermines the case for further gains in stock prices & has led some investors to consider reducing their earnings forecasts.  Despite the weaker forecast, stocks jumped, but on Thurs & Fri the markets largely gave back the gains, partly amid fears of a gov shutdown or debt default because of political gridlock in DC but also because of concerns that prices had got over-extended.  Growth has slowed substantially since the peaks of this earnings cycle.  For Q2, earnings increased 4.8%, the 15th straight qtr of S&P 500 profit growth.

Fed's Underlying Message a Bad Signal for U.S. Profit Growth

Apple's IPhone Global Debut Draws Shoppers

Photo:   Bloomberg

AAPL sales for its new iPhone set a record, with consumers snapping up 9M smartphones within the first few days of its launch, allowing the company to hike its revenue guidance.  It said that the iPhone 5s & 5c gangbuster sales were accompanied by more than 200M downloads of the iOS 7 platform.  As a result, AAPL said revenue for the fiscal Q4 would be "near the high end" of its previous guidance of $34-$37B.  Gross margins would also check in near the top of its prior guidance of 36-37%.  The numbers defied some of the market's low-ball estimates, & suggests that AAPL still has cachet with consumers as it fends off a stiff challenge from the competition.  Lines snaked around the iconic retail stores last week & some fans even camped out overnight, in order to be the first to get a hold of the new device.  "The demand for the new iPhones has been incredible, and while we've sold out of our initial supply of iPhone 5s, stores continue to receive new iPhone shipments regularly," Apple CEO Tim Cook said.  The stock jumped 19, but is still below recent highs in anticipation of the launch.

Apple Sells 9 Million IPhones in Debut Weekend

Apple (AAPL)

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President of the European Central Bank Mario Draghi addresses the Economic and Monetary Affairs Committee, at the European Parliament, Monday, Sept. 23, 2013. Economic affairs MEP's and Mario Draghi will debate monetary affairs, economic governance and banking union. (AP Photo/Yves Logghe)

Photo:   Yahoo

The ECB head says the bloc's economy appears to continue its "slow recovery" in Q3.  Mario Draghi told the European Parliament that recent data showed continuing growth in Q3 but warned the recovery still "needs to be firmly established."  The 17-nation eurozone emerged from recession in Q2, but the unemployment rate remains at a record high of around 12%.  Draghi also urged lawmakers to make it their "key priority" to complete the bloc's planned banking union.  He said the ECB will push ahead swiftly with the establishment of a joint banking oversight but insisted that policymakers should not fall back on the key goal of also establishing a joint mechanism to unwind or restructure banks by 2015.

ECB's Draghi says recovery continues, but slowly Associated Press

Stocks are back to sloshing around, not sure where to go.  Dow is still up 560 this month, hardly chump change.  But implications about the "real" meaning of not tapering bond purchase is making traders a little nervous  Then there is dysfunctional DC which is going nowhere in dealing with its massive fiscal problems.  Divided DC may even get more attention this week than the goings on at the UN which is pretty much orchestrated.  This could be a tough week for the stock market.

Dow Jones Industrials

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