Monday, January 13, 2014

Markets tumble on worries about earnings season

Dow sank 179 (closing near the lows), declines over advancers almost 3-1 & NAZ plunged 61.  The MLP index was off a fraction in the 452s & the REIT index lost 2 to the 268s.  Junk bond funds were mixed while Treasuries gained.  Oil dropped, extending its slide in Jan, & gold was a little higher.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLG14.NYM....Crude Oil Feb 14....91.68 Down ...1.04  (1.1%)

Live 24 hours gold chart [Kitco Inc.]

Fannie Mae Headquarters
Photo:   Bloomberg

The US posted a record Dec budget surplus as higher payroll taxes, payments from Fannie Mae & Freddie Mac, & a declining unemployment rate helped improve gov finances.  Revenue exceeded spending by $53B, compared with a $1B deficit last year, according to the Treasury Dept.  The estimate was for a $44B surplus, the same as the CBO’s prediction.  The 1.2 percentage-points drop in the nation’s jobless rate to 6.7% in 2013 was the steepest calendar-year decline since 1983.  The strengthening economy & increased tax revenue cut the country’s deficit as a share of GDP by more than half to $680B in the fiscal year ended Sep 30 from a record $1.4T in 2009.  Today’s report showed revenue increased to $283.2B last month from $269.5B a year earlier spending totaled $230B compared with $270.7B a year earlier.  The deficit totaled $17B in the first 3 months of fiscal 2014, compared with a $293B shortfall in Oct-Dec 2012.  Payments from Fannie Mae & Freddie Mac were about $34B more last month than they were a year earlier.  Fannie Mae & Freddie Mac have taken $187B in aid since they were taken into conservatorship in 2008.  But they’ve returned $185B, which is counted as a return on the nearly 80% stakes the gov holds, not as repayment.  While Congress agreed to set gov spending in FY2014 at $1.01T, they still must pass legalization this week detailing funding gov operations, including the military & health-care services. Senators are also at a stalemate over renewing US unemployment benefits for the long-term jobless until offsetting cuts are found elsewhere in the budget.

The Chevrolet brand from General Motors swept the North American Car & Truck of the Year awards at the Detroit auto show today with its Corvette Stingray sports car & Silverado pickup.  The win underscores the automaker’s product resurgence following its 2009 gov-backed bankruptcy reorganization.  Ford (F) in 2010 was the last to sweep the awards with the Transit Connect van & the hybrid version of its Fusion sedan.  GM, helped by lower debt, reduced labor costs & a focus on only its strongest brands, is emblematic of a revitalized US auto industry that had its best sales last year since 2007.  The largest US automaker aims to capitalize on the wins with sales, said Mary Barra, the company’s top product development officer & next CEO.  “I hope that people look, and if they haven’t considered General Motors or Chevrolet they’ll get into the showroom because I’m confident if they get into the showroom they’re going to see a lot of vehicles they like,” Barra said.  “We’re right in the middle of 32 new products between 2013 and 2014, so my hope is that as we continue to get more of these award-winning products out into the market place that we’ll get attention and continue to win customers.”  GM has been helped by improved pricing after introducing 18 new or refreshed vehicles in the US last year.  14 more are planned this year.  The automaker had already been attracting praise for its new vehicles, including the Chevrolet Impala that last year became the first US car in at least 20 years chosen as the best sedan on the market by Consumer Reports.  Motor Trend named the CTS its car of the year.  The stock lost 45¢.

GM’s Chevrolet Brand Tops North America Car, Truck Awards at Detroit Show

General Motors (GM)

stock chart

Treasuries rose, with 10-year note yields reaching the lowest level in a month, before reports this week that may show US retail-sales growth slowed & inflation was in check.  The yield difference between 2 & 10-year notes narrowed to the least since Nov as investors scaled back economic-growth assumptions.  Benchmark yields dropped the most since Sep after a Labor Dept report showed payrolls increased at the slowest pace since Jan 2011  Treasuries returned 0.8% this month thru Fri after declining 3.4% last year.  The extra yield investors demand to hold 10-year securities instead of 2-year notes fell to 246 basis points, the least since Nov 29.

U.S. 10-Year Note Yields Reach 1-Month Low Before Retail Sales

This was not a good day in the markets.  Stocks were sold in all sectors.  Traders have had time to digest the jobs report on Fri & it is not as pretty as the superficial decline in the unemployment rate suggests.  The number of jobs added was very weak & the number who stopped looking for work is disturbing.  All is not well in this economy.  Earnings season starts with a number of lower revisions by analysts.  There is also a growing awareness that much of earnings strength last year was due to accounting adjustments, not higher sales.  Watch for sales data in these reports.  Today's sell-off shows a lack of confidence in Q4 earnings reports along with guidance for the new year.  Dow is oversold & down more than 300 this year.

Dow Jones Industrials

stock chart

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