Wednesday, October 23, 2013

Markets fall on earnings forecasts

Dow declined 62, decliners ahead of advancers 4-3 & NAZ fell 31.  The MLP lost 3 to the 458s & the REIT was off pocket change in the 284s.  Junk bond funds were mixed to higher & Treasuries found some buying.  Oil & gold slid back.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

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U.S. 10-year


CLZ13.NYM....Crude Oil Dec 13...96.67 Down .....1.63  (1.7%)

GCV13.CMX...Gold Oct 13......1,331.90 Down ...10.60  (0.8%)

Big China Banks Triple Debt Write-Offs to Brace for Defaults

Photo:   Bloomberg

China’s biggest banks tripled the number of bad loans written off in H1, cleaning up their books ahead of what may be a fresh wave of defaults. Industrial & Comercial Bank of China, the world’s most profitable lender, & its 4 largest rivals expunged in the first 6 months 22B yuan ($3.65B) of debt that couldn’t be collected, up from 7.6B yuan a year earlier.  That didn’t pare H1 profits, which climbed to a record $76B, as provisions were set aside in earlier periods when the loans began souring.  Erasing the worst of the bad debts may allow the banks to mitigate a surge in nonperforming-loan ratios amid rising defaults.  China has eased rules for writing off debt to small businesses since 2010.  Worries about the slowdown have persisted even after expansion of China’s GDP rebounded to 7.8% in Q3.  Growth may slow to 7.6% this year, the weakest pace since 1999, according to the current estimate.

Top China Banks Triple Debt Write-Offs as Defaults Loom

U.S. Homes For Sale

Photo:   Bloomberg

House prices in the US rose 0.3% in Aug from Jul, the smallest gain in 11 months, as more homeowners listed their properties, according to the Federal Housing Finance Agency (FHFA).  The increase was less than the 0.8% estimate.  Prices climbed 8.5% from a year earlier, the FHFA said.  Competition for a limited supply of available homes has been fueling price gains across the US.  There were 2.21M existing homes for sale at the end of last month, up from 2.17M in Sep 2012, according to the National Association of Realtors. & it was the first time inventory increased on an annual basis since early 2011.  Price increases & a jump in borrowing costs from near-record lows have put real estate out of reach for some would-be buyers.  The average rate for a 30-year fixed mortgage was 4.28% week, up from 3.35% in early May, according to Freddie Mac.

U.S. Home Prices Rose 0.3% in August From July, FHFA Says

Caterpillar Inc.

Photo:  Bloomberg

Caterpillar, a Dow stock, cut its 2013 sales & profit forecast & said revenue will be little changed next year after a slump in orders from commodity producers.  EPS should fall to about $5.50 on sales of $55B this year the company said.  In Jul, it forecast EPS of about $6.50 on sales of $56-$58B.  Revenue in 2014 will be in a range of 5% lower to 5% higher than this year because of “very low” mining-machinery orders & uncertainties over global economic growth, it said.  Demand from the mining industry has been difficult to forecast this year after customers decided to focus on existing projects instead of new mines.  “It has been a painful year and has required wide ranging and substantial actions across the company,” CEO Doug Oberhelman said, “There are encouraging signs, but there is also a good deal of uncertainty worldwide as we look ahead to 2014.”  Q3 EPS was also lower than expected, dropping to $1.45  from $2.54 a year earlier & missed the $1.67 estimate.  Sales declined to $13.4B from $16.4B, below the $14.5B estimate.  Inventory continued to decline in Q3, mainly in mining equipment, & was about $500M lower than in Q2.  The stock tumbled 5.29 to the 83s.

Caterpillar Cuts Forecast After Sales Fall

Caterpillar (CAT)

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Stocks are a little lower, disturbed by lower earnings from CAT & its outlook.  But Dow & the S&P 500 remain within shouting distance of setting new records highs.  However, yield sensitive stocks are typically 10-15% below their highs reached in May.  There is more to worry about besides when the Federal Reserve decides to pare its bond buying program.  Old fashioned earnings are coming in as OK, at best.  More earnings from big companies are coming this week.

Dow Jones Industrials

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