Markets crawl higher after Q4 GDP growth was reduced

Dow went up 49 (but well off the highs), advancers ahead of decliners almost 3-2 & NAZ fell 10.  The MLP index fell 2 to the 459s & the REIT index went up 2+ to the 286s, a 4 month high.  Junk bond funds were mixed while Treasuries pulled back.  Oil & gas just fluctuated.

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Treasury yields:

U.S. 3-month	0.05%
U.S. 2-year	0.32%
U.S. 10-year	2.66%

CLJ14.NYM

....Crude Oil Apr 14

....102.39

...0.01

(0.0%)

GDP grew at a 2.4% annualized rate in Q4, compared with the first estimate of 3.2% issued last month, revised figures from the Commerce Dept.  Smaller gains in consumer spending, inventories & exports weighed on an economy already slowed by the partial shutdown of federal agencies in Oct & weaker gov spending.  Less fiscal restraint this year & further progress in the labor market probably may boost GDP after the unusually harsh weather curbed growth early this year.  Business investment was one of the few areas of the economy that looked better in Q4 than previously estimated.  Spending on new equipment climbed at the fastest pace since Q3-2011.  Purchases of intellectual property, including computer software, showed the biggest advance in 6 years.

U.S. Economy Expanded at Slower Pace Than First Estimated


Ousted Ukrainian leader Viktor Yanukovych said he’s still the nation’s rightful president & urged Russia to refrain from military intervention in the southern Crimea region as tensions there flared.  Speaking publicly for the first time since leaving Ukraine, Yanukovych said the country should abide by a peace accord sealed a week ago with EU diplomats under which he’d remain leader through Dec.  His temporary replacement, Oleksandr Turchynov, said Russian troops were “directly involved” in the growing crisis in Crimea.  “The whole Ukrainian people were cheated -- I’d like to get an answer from those who signed this agreement,” Yanukovych said today.  He said he’s “categorically against intervention in Ukraine, against the violation of its integrity as a sovereign state.”  This confusing situation goes from bad to worse.

Defiant Yanukovych Urges Russia Restraint in Crimea


Citigroup said it discovered fraud on loans to a Mexican oil-services company, forcing the bank to lower last year’s profit by $235M.  The fraud occurred on loans made to Oceanografia that were backed by payments from state-owned oil producer Petroleos Mexicanos (Pemex), CFO Michael Corbat said.  Invoices from Oceanografia were falsified to represent that Pemex had approved them and processed by a Citigroup employee, Corbat said.  “As much as $400 million was misappropriated throughout the course of the fraud,” Corbat told employees.  “The financial impact will lower our 2013 net income by approximately $235 million.  The impact to our credibility is harder to calculate.”  Citi, which operates in more than 100 countries & gets about 20% of revenue from Latin Amaerica, has stumbled in the region before.  Mexico’s anti-corruption agency banned Oceanografia on Feb 11 from bidding on gov contracts for 21 months after saying the company violated agreements with Pemex.  That prompted Citi to begin a review of its ties to Oceanografia.  After working with Pemex, Citi determined that only $185M of the collateral backing $585M of loans to Oceanografia could be verified.  Mexico is taking over Oceanografia & its $335M of secured notes due 2015 have plummeted 52-35¢ cents on the dollar since the anti-corruption agency issued its ban.  With the revisions, Citi’s net income dropped to $13.7B for 2013, compared with the $13.9B previously reported.  The stock fell pennies.  If you would like to learn more about Citi, click on this link: 
http://club.ino.com/trend/?symb=C&a_aid=CD3289&a_bid=6ae5b6f7

Citigroup Reduces 2013 Earnings Results After Fraud Found at Mexico Unit

Citigroup (C)

Stocks retreated in the PM, closing the month on a negative note after posting substantial gains in Feb.  A growing mess in the Ukraine & a less robust US economy in Q4 may have encouraged sellers in a market that is overbought short term.  Dow still managed to advance 600 this month but remains down 250 YTD.

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Higher markets on economic data

Dow rose 85, advancers over decliners better than 2-1 & NAZ added 16.  The MLP lost 1+ to the 459s (still within 10 if its recent record) & the REIT index crawled fractionally higher.  Junk bond funds inched higher & Treasuries were weak.  Oil & gold fluctuated.

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Treasury yields:

U.S. 3-month	0.04%
U.S. 2-year	0.33%
U.S. 10-year	2.68%

CLJ14.NYM

....Crude Oil Apr 14

...102.18

...0.22

(0.2%)

GCH14.CMX

...Gold Mar 14

...1,328.00

...3.60

(0.3%)

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Consumer confidence in the US improved in Feb from a month earlier as more consumers grew optimistic about the outlook for the economy.  The Thomson Reuters/University of Michigan final index of sentiment rose to 81.6 from 81.2 in Jan. The estimate called for the measure to hold at its preliminary reading of 81.2.
Sustained sentiment indicates spending may pick up after bad winter weather across much of the US caused some to stay close to home rather than shop.  Wage growth & more hiring would help further brighten spirits & give consumers the wherewithal to increase their purchases.  The survey’s index of expectations 6 months from now increased to a 6-month high of 72.7 from 71.2 last month & the preliminary reading was 73.  The gauge of current spending, which measures Americans’ view of their personal finances, dropped to 95.4 in Feb from 96.8 a month earlier.  The initial reading was 94.  Cold temperatures & winter storms have helped limit progress in the labor market. 

Consumer Sentiment in U.S. Increases on Outlook for Economy


Contracts to purchase previously owned homes in the US rose less than forecast in Jan, adding to signs housing was weakening in early 2014.  The index of pending home sales climbed 0.1% after a 5.8% drop the prior month that was smaller than previously estimated, according to the National Association of Realtors.  The forecast called for sales to rise 1.8%.  Faster gains in hiring & consumer confidence are needed to sustain the housing recovery.  Home construction fell last month amid harsh winter weather, which combined with a lack of supply, strict lending rules & waning affordability to also reduce existing-home sales that are tabulated when a contract closes.  “Ongoing disruptive weather patterns in much of the U.S. inhibited home shopping,” Lawrence Yun, NAR chief economist, said.  “Limited inventory also is playing a role, especially in the West, while credit remains tight and affordability isn’t as favorable as it was a year ago.”  Contract signings decreased 9.1% from a year earlier on an unadjusted basis, after a 6.1% drop in the prior 12-month period.  Pending home sales are considered a leading indicator because they track contract signings.  Existing home sales are tabulated when a contract closes, typically a month or 2 later.  Recent data indicate adverse weather was one reason for depressed housing activity.

Pending Sales of Existing Homes in U.S. Rose 0.1% in January


Business activity in the Chicago area accelerated unexpectedly in Feb, adding to signs manufacturing gains will be sustained in 2014.  The Institute for Supply Management-Chicago said its business barometer increased to 59.8 this month from 59.6 in Jan.  The forecast called for the index to fall to 56.4.  Readings greater than 50 signal growth.  Car sales, home construction & consumer spending continue to boost the outlook for manufacturers, which make up 12% of the economy.  Faster wage growth & more job creation would lead to bigger & sustained gains.  Projections were 53-60.  The national factory index, from the Institute for Supply Management, probably rose to 52 in Feb from 51.3 the prior month, according to the latest estimates.

Manufacturing in Chicago Area Unexpectedly Grows at Faster Pace

Stocks are having another up day.  While today's data is encouraging, the damage that the harsh winter did to the economic recovery is not well understood.  Yield sensitive securities (MLPs, REITs, junk bond funds & even munies) are having a good year while the stock averages are struggling to get back to the records set at the end of last year.  Dow is up 670 this month, however it's still off more than 200 YTD.

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Higher markets after Yellen testimony

Dow climbed 74, advancers over decliners 2-1 & NAZ added 26.  The MLP index lost 2+ to the 461s & the REIT index fell 1+ to the 283s.  Junk bond funds were mixed & Treasuries rose.  Oil cut its AM losses & gold rose after Janet Yellen said recent data have pointed to “softness” in the US economy, increasing demand for the precious metal as an alternative investment.

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Treasury yields:

U.S. 3-month	0.04%
U.S. 2-year	0.32%
U.S. 10-year	2.64%

CLJ14.NYM

....Crude Oil Apr 14

....102.44

....0.15

(0.2%)

In Q4 US retailers suffered their darkest days since the recession.  With results in from 62 of 122 retail chains, the industry has posted its first profit quarterly drop since the economic contraction that ended in 2009, according to Retail Metrics.  Revenue also rose at the lowest rate since that year.  The results paint a grim picture of an industry hit hard by the sluggish job recovery & slow wage growth, which have turned US consumers into a nation of penny pinchers.  Earnings are expected to drop 6.1% during the holiday qtr while the S&P 500 Index companies are estimated to see profit rise of 8.5%.  “It was a very tough season for the retailers, no question about it,” Ken Perkins, president of Retail Metrics, said.  “They were facing pressure on multiple fronts.”  In Q4, total revenue is expected to climb 1%, the smallest gain since Q3-2009.  The lack of wage gains restrained many consumers from making discretionary purchases.  To cope, some chains cut prices by 50-60%.  The industry hasn’t seen such heavy discounting since the “fire sale” that took place during the Q4-2008.  Teen retailers were the hardest hit.  Their profit is decreasing 37 %, Retail Metrics found.  Electronics chains are down 17%, & discounters are dropping 12%.  34% of the retailers missed estimates, compared with a 13-year average of 20%.  While many retailers have yet to report their results, those chains are smaller & unlikely to affect the overall picture.

U.S. Retail Chains See First Profit Decline Since Recession


Federal Reserve (FED) Chair Janet Yellen said the central bank is likely to keep trimming asset purchases, even as policy makers monitor data to determine if recent weakness in the economy is temporary.  “Unseasonably cold weather has played some role,” she said.  “What we need to do, and will be doing in the weeks ahead, is to try to get a firmer handle on exactly how much of that set of soft data can be explained by weather and what portion, if any, is due to softer outlook.”  Yellen repeated FED statements that the central bank intends to reduce asset purchases at a measured pace, & she said in response to a separate question that the bond-buying program was likely to end in the fall.  At the same time, “if there’s a significant change in the outlook, certainly we would be open to reconsidering, but I wouldn’t want to jump to conclusions here.”  Yellen, in the 2nd day of her semi-annual testimony on the economy & monetary policy, also repeated the FED pledge to keep the benchmark interest low at least as long as unemployment stays above 6.5% & the outlook for inflation doesn’t exceed 2.5%.  Policy makers, at the Jan meeting, said they would soon have to modify the year-old commitment, according to minutes released last week.

Yellen Repeats Fed Likely to Keep Trimming Asset Purchases


However, troubled JC Penney did better.  The stock surged after forecasting an increase in annual revenue & margin expansion, prompting CEO Mike Ullman to predict its turnaround will be completed this year.  Same-store sales will rise by a mid-single digit percentage & gross margin will “significantly” improve this year he said.  Liquidity at the end of 2014 is projected to remain at $2B.  Ullman’s attempt to revive the department-store chain gained traction during a holiday season marked by a discount war among retailers seeking to attract tentative shoppers.  Following losses & plummeting sales caused by a former CEO, Ullman returned to the helm in Apr & helped the chain post its first same-store sales gain in Q3 since 2011.  The chain also posted its first profit in more than 2 years, benefiting its traditional discounting strategy and reviving popular private-label brands.  EPS was 11¢, compared with a loss per share of $2.51 a year earlier.  Excluding the sale of assets & tax benefits, such as a $270M change in the value of its pension, the company posted a loss of 68¢ per share.  The estimate was for a loss of 86¢.  The company has been improving its finances & operations, & now is ready to return to growth & profitability, Ullman said.  “The most challenging parts of the turnaround are behind us,” Ullman said.  Liquidity became a concern after the company substantial losses & spent heavily on trying the transformation of the century-old retailer.  After Ullman returned in Apr, the company raised almost $4B in cash thru borrowings & a secondary offering of shares.  Revenue fell 2.6% to $3.78B, trailing the $3.86B estimate.  Excluding sales during an extra week a year earlier, revenue would have risen 1.6%.  Same-store sales had the first gain since Q1-2011.  Revenue by that measure (including online sales) may increase by as much as 5% this qtr, the best performance since the period in 2006.  The stock jumped $1.51 (25%).  If you would like more information on JCP, click on this link:
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J.C. Penney Gains as Sales Forecast Signals Turnaround

J.C. Penney (JCP)

There is nothing like encouraging words from the FED on its easy money policy to send stocks higher.  But she said nothing new & the subsequent rally has become routine.  The current intentions about reducing the bond buying program is pretty much in place unless major events disturb present conditions.  Higher interest rates will follow which seems far away right now.  In the meantime, even though some retailers had good earnings reports, that industry is soggy.  Higher sales are tough to come by & that is surprising considering the recession is a faded memory for many.  While Dow is up more than 500 in Feb, it remains in the red YTD.

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I’m a huge fan of INO & from what I have seen so far, their service Marketclub!  This isn’t a stripped down version, everything in MarketClub is available to you. I don’t want to give everything away, but you’ll have unlimited access to my favorite 3 tools: Trade Triangles, Smart Scan & Alerts!  The best part is that the MarketClub customer support team will be providing UNLIMITED support!  You can call or email for an instant response to any question, comment or concern.

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