Thursday, October 17, 2013

S&P 500 sets new record after US raises debt ceiling

Dow slipped only 2, advancers over decliners 4-1 & NAZ went up 23.  The MLP index jumped 4+ to 448 & the REIT index added 4+ to 284.  Junk bond funds were higher & Treasuries had a very good day.  Oil fell, taking it near the important $100 support level.  Gold jumped the most in 4 weeks as the dollar slumped & speculation mounted that the Federal Reserve will hold off scaling back monetary stimulus, boosting demand for the metal as an alternative investment.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

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U.S. 10-year


CLX13.NYM...Crude Oil Nov 13....100.62 Down ...1.67  (1.6%)

Live 24 hours gold chart [Kitco Inc.]

Federal Reserve (FED) Bank of Chicago President Charles Evans, an advocate of FED stimulus, said the central bank should not begin reducing the pace of asset purchases as the data used to gauge the economy’s health stopped during the gov shutdown.  “Only the data can tell us how much progress we’ve made and they aren’t saying much right now,” Evans said today.  “The data available in September were inconclusive, and since then, incoming information has been silenced with the federal government shutdown.”   The 16-day shutdown furloughed hundreds of thousands of workers & shaved 0.6% from Q4 economic growth, taking $24B out of the economy, according to an estimate from S&P.  “It is not yet time to remove accommodation,” Evans said.  “The data are still not definitive enough to say that now is time to adjust the QE3 flow purchase rate.”  In response to audience questions, Evans said the FED would likely need “a couple of meetings to assess” the economy & await data that present a picture of how the economy weathered the shutdown.  Evans also said he was not prepared to advocate increasing the rate of purchases.  “The decision to actually increase the flow rate would be a very challenging one to make at the moment, given we’ve been doing this program for so long,” he said.

SFed’s Evans Sees QE Tapering Postponed After Data Shutdown

The US gov’s borrowing-limit agreement includes “credit-positive elements” for its Aaa rating, as it showed officials will act to ensure payments to creditors & created a process that may lead to debt reduction, according to Moody’s.  “Although the existence of the debt limit is a negative for the country’s debt management and for financial markets, the government and politicians will act to protect the ability of the government to meet its obligations,”  Steven Hess, Moody’s senior VP & lead sovereign analyst for the US, wrote today.  The ratio of public debt to GDP is forecast to fall to 74.6% in 2015 after peaking next year at 76.2%, according to a CBO forecast in May.  “Our evaluation of the creditworthiness of the U.S. government is based on long-term considerations and the debt trajectory,” Moody’s said.  “For the next few years, the debt trajectory is relatively favorable.”  “There is a possibility, although we do not give it a high probability, that reforms to entitlement programs, such as Social Security and Medicare, could be included in these negotiations,” Moody’s said.  “Such programs are a very substantial portion of federal-government spending. As a result, measures to address these programs could have a positive effect on the long-term debt trajectory. At this stage, we do not think this is a likely outcome.”

Debt Agreement Is ‘Credit Positive’ for U.S., Moody’s Says

EBay dropped after it issued sales & profit forecasts that fell short of estimates ahead of the key holiday shopping season.  “The thing that’s causing us the most angst is what we believe is a dramatically decelerating U.S. e-commerce growth rate from the second quarter,”  CFO Bob Swan said after results reported yesterday.  “In a relatively short period of time, we’ve seen a pretty rapid deceleration in the market.”  The outlook raises red flags about what is typically its biggest qtr, when consumers gravitate online to shop for the holidays.  Online retail spending growth has slowed, climbing 13% in Jul & Aug from a year prior, compared with 16% in Q2, according to ComScore.  Q4 sales will be $4.5-$4.6B, the company said yesterday.  Analysts were projecting revenue of $4.64B.  EBAY forecast profit excluding some items of 79-81¢ for the period, below the prediction of 83¢.  The deceleration in sales may stall a turnaround of the internet marketplace led by CEO John Donahoe, who has shifted the company from auctions to payments & fixed-price goods.  “We are not expecting any improvement in the fourth quarter from what we experienced over the last eight to 10 weeks,” Swan said of the US e-commerce market.  “We have a cautious outlook for the holiday season.”  The company reiterated that it’s predicting 2013 revenue & profit to be at the lower end of full-year guidance as it increases spending on its enterprise business & a PayPal free-shipping promotion.  For Q3, revenue rose 14% to $3.89B from $3.4B a year earlier.  Net income increased 15% to $689M & revenue in the marketplaces business climbed 12% to $2.03B.  The stock fell 2.14.

EBay Drops as Holiday Forecast Falls Short: San Francisco Mover

eBay (EBAY)

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Stocks rallied during the day, enabling the S&P 500 to reach a new record.  Dow was held back by IBM (IBM) & UnitedHealth (UNH) after their earnings disappointed.  Aside from them, Dow would have had a good day.  Now that the default risk has gone away, at least for a few months, the markets could have given that news a warmer reception.  But it is widely recognized that kicking the can down the road is not going to make fundamental problems go away.  Dow is still having a good week, up 140 & is only 300 away from breaking last month's record.

Dow Jones Industrials

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