Monday, October 28, 2013

Markets edge lower while awaiting the FOMC meeting

Dow fell 1, decliners ahead of advancers 3-2 & NAZ lost 3.  The MLP index dropped 5+ to the 457s & the REIT index was off 2+ to the 285s.  Junk bond funds were mixed & Treasuries were flattish.  Oil found buyers the PM & gold inched for the 3rd straight session of gains after factory production in the US rose less than forecast, reviving prospects for an extension of economic stimulus by the Federal Reserve.

AMJ (Alerian MLP Index tracking fund)

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CLZ13.NYM...Crude Oil Dec 13...98.52 Up ...0.67 (0.7%)

Live 24 hours gold chart [Kitco Inc.]

Pending Sales of U.S. Existing Homes Drop by Most in Three Years

Photo:   Bloomberg

Fewer Americans than forecast signed contracts to buy previously owned homes in Sep, the 4th straight month of declines, as rising mortgage rates slowed momentum in the housing market.  The index of pending home sales slumped 5.6%, exceeding all estimates & the biggest drop in more than 3 years, after a 1.6% decrease in Aug, the National Association of Realtors reported today.  The index fell to the lowest level this year.  Mortgage rates last month reached 2-year highs & some homeowners are reluctant to put properties up for sale as they wait for prices to climb, leading to tight inventories.  Those forces are pushing some would-be buyers to the sidelines & slowing the pace of recovery in real estate, giving Federal Reserve reason to delay reducing stimulus when they meet this week.

Pending Sales of Existing Homes Slump by Most in Three Years

Merck & Co.'s Gardasil

Photo:   Bloomberg

Merck, a Dow stock, narrowed its full-year forecast as the company continues an overhaul of its sales & research operations.  MRK said EPS for 2013 will be $3.48-$3.52.  The previous outlook was for $3.45-$3.55.  CEO Ken Frazier said he is still looking at whether Whitehouse Station the animal health & consumer businesses, as well as its drug projects, might be divested or partnered outside the company.  “A company is a living, breathing thing, and over time one has to evaluate the opportunities going forward,” Frazier said.  “The question becomes, are we the right owner of those businesses?”  MRK this month announced it would layoff 8.5K workers & overhaul R&D.  The layoffs add to 7.5K, job cuts already announced, amounting to a 20% reduction in the workforce.  The changes are about focus, not slashing expenses, Frazier said.  “Merck is and will remain committed to investing in R&D internally, and importantly, externally,” he said.  “It’s about precision, it’s about focus, it’s not about reduction.”  Q3 revenue fell 4% to $11B, missing the $11.1B estimate, as Januvia sales dropped 5% & foreign currency exchange weighed on results.  EPS dropped to 38¢ from 56¢ a year earlier.  EPS, excluding one-time items, was 92¢, beating by a nickel the estimate.  The stock sank 1.19.

Merck Narrows Full-Year Outlook After Sales of Diabetes Drug Januvia Stall

Merck (MRK)

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General Motors plans to step up promotions of the Chevrolet brand in China & bolster the line-up of GM’s sport utility vehicles to defend its lead in the world’s largest auto market.  “We got still a lot of mother brand-building to do for Chevrolet and we will resource that appropriately and get that job done,” China Chairman Tim Lee said last week.  “If there were one thing that I wish we had done different, I wish we had a better offer” of smaller SUV models.  Boosting Chevrolet sales in GM’s largest market is crucial to CEO Dan Akerson’s goal of establishing the brand as the automaker’s global volume marque.  Chevy sales growth in China this year has lagged behind the industry’s 14%, while SUV deliveries have surged 45%, according to data from the company & China Association of Automobile Manufacturers.  The company is also working on building up its luxury Cadillac brand’s sales in China by producing the ATS locally next year.  GM said last month that it will start sales of imported models of the ATS this quarter.  At the Shanghai auto show in Apr, the carmaker unveiled plans to spend $11B through 2016 on expanding in China.  GM estimates the 4 new assembly plants will, when completed, boost annual capacity to 5M vehicles, double the number it sold in the US last year.  The stock went up 21¢.

GM Planning Chevrolet Brand Push in China to Defend Sales Lead Against VW

General Motors (GM)

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Traders were twiddling their thumbs.  This is always a nervous time for time.  Even when the outcome of the FOMC meeting is seeming known, they never can be sure until Big Ben speaks & makes it official.  Assuming the FOMC announcement is another non-event, it is just a reminder how dependent the stock market is on low interest rates, a sad commentary on the spectacular rally this year.  The weakness in MLPs & REITs is interesting.  Both sectors borrow a lot & a continuation of low interest rates is a gift for their businesses.

Dow Jones Industrials

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