Tuesday, November 19, 2013

Markets waffle on mixed economic signals

Dow rose 23 (flirting with 16K), advancers & decliners were equal & NAZ gained 7.  The MLP index fell 2+ to below 451 & the REIT index was off fractionally, going below 271.  Junk bond funds slid lower & Treasuries also declined.  Oil fell to a 5 month low as the Organization for Economic Cooperation & Development cut its global growth forecasts for this year & next, signaling lower fuel demand.  Gold did little as it learns to live below 1300.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

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CLZ13.NYM...Crude Oil Dec 13............92.61 Down ...0.42  (0.5%)

ZGZ13.CBT....Gold 100 oz. Dec 13...1,270.70 Down ...1.60  (0.1%)

Skyscrapers Stand in the Financial District in Frankfurt

Photo:   Bloomberg

German investor confidence rose to the highest level in more than 4 years, signaling that the economic recovery in Europe's largest economy remains on track even after a Q3 slowdown.  The ZEW Center for European Economic Research said its index of investor & analyst expectations, which aims to predict economic developments 6 months in advance, climbed for a 4th month to 54.6 in Nov.  That’s the strongest reading since Oct 2009 & up from 52.8 in the prior month.  The prediction was for an increase to 54.  The Bundesbank said yesterday that the German economy remains on a “solid growth path,” even after the expansion slowed to 0.3% in Q3 & business confidence unexpectedly dropped in Oct.  Factory orders rose more than predicted in Sep & unemployment remained near a 2 decade low in Oct.  A gauge of the current situation dropped to 28.7 in Nov from 29.7 in the prior month & a measure of expectations for the euro area advanced to 60.2 from 59.1 (the highest level since Mar 2006).  “Economic expectations for Germany have been hovering at a high level for months,” ZEW President Clemens Fuest said.  “The slightly improved economic outlook for the euro zone might have contributed to this development.”  Growth in Q3 was driven by domestic demand, the nation’s statistics office said last week.  Investment in equipment & construction increased & private & gov consumption rose slightly while net trade damped output as exports stalled.

German Investor Confidence Rises for a Fourth Month

Home Depot Inc. Logo on Employee's Apron

Photo:   Bloomberg

A recovery in the US housing market helped Home Depot, a Dow stock, top profit & sales estimates for Q3 & it raised the fiscal-year outlook for the 3rd time this year.  A rise in home prices has encouraged homeowners to take updelayed projects & invest more in their properties this year. The housing recovery has also sparked professional contractorsto spend more, helping sales at home improvement chains.  The company also improved distribution, cut costs & tailored marketing & merchandising efforts to local markets.  EPS jumped to 95¢ from 63¢ a year earlier & beat the forecast of 90¢.  Sales rose 7.4% to $19.5B, beating the estimate of $19.2B.  Sales at stores open longer than 12 months rose 7.4%, including an 8.2% gain at US locations.  Comparable-store sales may rise 7% this year, the company said, up from a previous forecast for a gain of as much as 6%.  CEO Frank Blake said in Sep that rising home prices would lift renovation spending even as higher mortgage rates pressured the housing market.  The stock jumped 1.80 to a new record. 

Home Depot Profit Tops Analysts’ Estimates on Housing

Home Depot (HD)

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Best Buy Co. Store in San Francisco

Photo:   Bloomberg

All retail news was not as good.  Best Buy stock fell after saying it will keep pace with competitors’ discounts in the holiday season, hurting Q4 profitability.  CEO  Hubert Joly, seeking to stem the loss of customers, agreed to match rivals’ online prices during last year’s holiday season & made the policy permanent in Feb.  BBY will face an “increasingly promotional environment” in Q4 & is determined to remain competitive with rivals’ prices, CFO Sharon McCollam said.  “It is table stakes in our transformation,” McCollam said.  “So if our competition is in fact more promotional in the fourth quarter, we will be too and that will have a negative impact on our gross margin.”  Q4 gross margin may be 0.8-0.9 percentage points lower than last year.  Gross margin in last year's Q4 was 22.6%.  To make up for the lower prices, Joly has eliminated jobs & worked to slash operating expenses.  He’s also expanded store space for Samsung gadgets & devices running the Windows 8 operating system, while revamping the retailer’s outdated website.  Q3 EPS was 16¢ compared with a loss of 3¢ a year earlier.  Excluding some items, EPS was 18¢, ahead of a 12¢ forecast.  Sales slipped 0.2% to $9.36B, just below the $9.37B projection.  The stock nosedived 4.57 (10%).

Best Buy Falls as Holiday Discounts Threaten Profit

Best Buy (BBY)

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Stocks continue to mark time with the bias towards higher.  Janet Yellen has promised she will keep interest rates low forever which should should bring out more stock buyers.  But yield stocks were soft on those thoughts as they have been since May.  Obamacare & its economic implications are being ignored, tomorrow's problems are not worth bothering about.  Just that threat is ominous.  Uncertainty is on the rise & there are no simple solutions for this mess that will pinch consumers hard. 

Dow Jones Industrials

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