Wednesday, October 16, 2013

Market surge as the Senate nears a budget and debt deal

Dow shot up 205, advancers over decliners almost 4-1 & NAZ gained 45.  The MLP index was up 1+ to the 443s & the REIT index gained 5+ to the 279s.  Junk bond funds were mixed & Treasuries climbed higher with the goings on in DC.  Oil rose after leaders of the Senate reached a deal to increase the debt ceiling & end the gov shutdown.  Gold had a small increase (negative bets on those guys in DC).

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

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CLX13.NYM....Crude Oil Nov 13....102.39 Up ...1.18 (1.2%)

Live 24 hours gold chart [Kitco Inc.]

The bipartisan leaders of the Senate reached an agreement to end the fiscal impasse, according to 3 Dem aides.  The agreement would end the 16-day shutdown & extend borrowing authority, which lapses tomorrow.  House Reps today signaled that they will allow it to pass.  The biggest remaining question is how quickly the agreement could become law.  The first votes could be held as soon as today.  The framework negotiated by Harry Reid & Mitch McConnell would fund the gov thru Jan 15, 2014, & suspend the debt limit until Feb 7, setting up another round of confrontations.  On the Senate floor, Reid said he would say more when McConnell comes to the floor after meeting with members of his party.  One Rep said that he thinks House Reps’ inability to come up with their own plan to raise the debt limit meant that John Boehner would have to accept whatever Senate leaders come up with. 

The Federal Reserve (FED) said economic growth slowed in a few key regions of the US from Sep thru early Oct, as businesses grew worried about a budget impasse that led to a partial gov shutdown.  Overall growth continued at a modest to moderate pace, according to the FED survey released today.  8 of the 12 banking districts reported the same growth rate reported in Aug thru early Sep.  But 4 districts — Philadelphia, Richmond, Chicago & Kansas City — reported that growth had slowed.  Businesses around the country remained optimistic about the future & consumer spending continued to increase, helped by strong auto sales.  But many businesses noted increased uncertainty because of the partial federal shutdown, which began on Oct 1, & a looming deadline to raise federal borrowing limit.  Boston, in particular, reported that the tourism industry was worried about the impact of a prolonged shutdown.  Several Districts reported that businesses were cautious about hiring.  The FED survey (beige book) will be used by policymakers in their next meeting on Oct 29-30.  Economists believe the FED maintain its bond purchases to offset the impact of the shutdown.

Fed Saw ‘Modest to Moderate’ Growth Amid Budget Impasse

Pepsico Inc. in Mexico

Photo:   Bloomberg

Pepsico, a Dividend Aristocrat, wants to split up, posted Q3 profit that topped estimates as sales of snacks gained in the US & LAtin America.  EPS rose to $1.23 from $1.21 a year earlier.  EPS excluding some items was $1.24, ahead of the $1.17 estimate.  Sales rose 1.5% to $16.9B, about the same as the $17B estimate.  Revenue from Frito-Lay & other snacks in the Americas rose 7%, excluding the effects of acquisitions, divestitures & foreign-currency fluctuations.  Revenue on that basis in the company’s Americas beverages unit slid 1.5%.  Sales for the business fell 4%.  CFO Hugh Johnston said that the US gov partial shutdown hasn’t affected consumers’ spending habits & that the company expects lawmakers to resolve the impasse.  “There are certain pockets around the country where federal workers have been furloughed, and that does create the potential for some disruption, but we haven’t seen that yet,” Johnston said.  The company reiterated it will increase EPS, excluding the effects of currency fluctuations, at least 7%.  That would produce EPS of about $4.39, up from $4.10 in 2012.  The company expects currency fluctuations to reduce its full-year earnings per share by 2 percentage points.  The stock jumped 1.67.

PepsiCo Profit Exceeds Analysts’ Estimates as Peltz’s Trian Seeks a Split

Pepsico (PEP)

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Stocks kept flying on thoughts that a last minute deal in DC will be good enough to avoid a catastrophe.  Of course, this only postpones what will be the next fight in a few months when the next round of deadline negotiations will be needed.  Then there is the minor fact that this is not a done deal with all the chaos in DC.  The politicos only worry about appealing to US voters without a concern that the American image looks terrible around the world.  Who knows what that can lead to?

Dow Jones Industrials

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