Wednesday, November 20, 2013

Markets edge higher after sluggish home sales

Dow went up 17, advancers over decliners 3-2 & NAZ gained 15. The MLP index recovered 2+ (from yesterday's drop) to the 449s & the REIT index was up 1+, taking it over 270.  Junk bond funds lost ground & Treasuries were slightly higher.  Oil dropped on expectations that US inventories gained for a 9th week as production surged.  Gold fell again.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLZ13.NYM....Crude Oil Dec 13...93.57 Up ...0.23 (0.3%)

GCX13.CMX...Gold Nov 13.....1,269.00 Down ...4.40  (0.4%)

Bernanke Sees Low Rates Long After Bond Buying Ends

Photo:   Bloomberg

Big Ben said that short-term interest rates may stay near zero "well after" the jobless rate falls below 6.5%, the latest effort by the Federal Reserve (FED) to assure markets that rates will remain low even as it contemplates pulling back on its $85B a month bond-buying program.  Since last year, the FED has been saying that it won't raise rates until after the unemployment rate, 7.3% in Oct, falls to 6.5% or lower, as long as inflation remains below 2.5%.  Bernanke said that "even after unemployment drops below 6.5%, the FED can be patient in seeking assurance that the labor market is sufficiently strong before considering any increase in its target for the federal funds rate."  Assurances of low rates are a central part of the efforts to boost the economy.  Officials hope that the pledge will hold down longer-term interest rates & encourage borrowing, investing & spending in the near term.  A research paper suggested the FED might even strengthen that assurance by lowering the 6.5% threshold.  Bernanke also said that the FED was likely to keep its benchmark short-term rate very low for quite some time after it ends the bond-buying program.  "The target for the federal funds rate is likely to remain near zero for a considerable time after the asset purchases end, perhaps well after the unemployment threshold is crossed and at least until the preponderance of the data supports the beginning of the removal of policy accommodation," he said.

Bernanke Signals Fed Target Rate to Stay Low After QE

Seattle Home For Sale

Photo:   Bloomberg

Purchases of previously-owned US homes fell in Oct to the lowest level in 4 months as limited supply & higher mortgage rates restrained momentum in the housing-market recovery.  Sales dropped 3.2% to a 5.12M annual rate, the fewest since Jun, according to the National Association of Realtors.  The forecast projected a 5.14M pace.  The federal shutdown last month may have delayed some closings.  Concern that fiscal gridlock in DC will damage the economy combined with the increase in borrowing costs amid expectations the FED will soon dial back monetary stimulus have slowed the rebound in housing.  The median price of an existing property increased 12.8% from the year before to $199K.  Purchases decreased in all 4 regions, led by a 7.1% slump in the West.  About 13% of real-estate agents polled said contract closing were delayed because the gov shutdown held back income verification by the IRS & processing by the FHA, NAR Chief Economist Lawrence Yun said.  “Clearly, the affordability conditions are worsening,” Yun added.  “Also, the lack of inventory” is hurting demand, particularly in the West, he said.  Sales are expected to remain subdued thru Q1-2014.  There were 2.13M homes for sale at the end of Oct, down from 2.17M the month prior.  Given the current turnover, it would take 5 months to sell those houses.  Inventory was up 0.9% compared with Oct 2012.  Purchases of single-family homes decreased 4.1% to an annual rate of 4.49M.

Sales of U.S. Existing Homes Fell in October to Four-Month Low

Shoppers Walk Through Lowe's Cos. Store in Renton

Photo:   Bloomberg

Lowe's posted Q3 profit that trailed estimates.  EPS was 47¢, just under the 48¢ estimate.  CEO Robert Niblock has trimmed slow-selling products from inventory & negotiated lower prices with vendors.  Revenue rose 7.3% to $13B, beating the $12.7B estimate.  Annual EPS is guided to be $2.15, up from a forecast in Aug of $2.10.  Analysts had predicted $2.19.  Sales will rise about 6%, up from a prior prediction of 5%.
LOW has benefited from a 1½ year climb in the housing market that has given homeowners confidence to renovate kitchens & bathrooms.  LOW operates 1831 home improvement & hardware stores in the US, Canada & Mexico.  The stock lost 2.30 (4%).

Lowe's (LOW)

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Markets are back to treading water, unable to extend recent gains.  16K is becoming a ceiling for the Dow after what has been nothing short of a stellar year.  Low interest rates from the FED have been welcomed by investors.  However, too much of that can be a bad thing.  Low interest rates 5 years ago led to the mortgage mess which is still being cleaned up.  Yield sensitive securities have bounced off their lows earlier in the year, but remain below their yearly highs.  All is not as well as the Dow at record levels suggests.

Dow Jones Industrials

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