Wednesday, April 30, 2014

Dow finally ekes out a new record as Fed tapering continues

Dow climbed 45 to a new record (4 above the prior high), advancers over decliners 2-1 & NAZ went up 11.  The MLP index fell 1+ to the 483s & the REIT index went up 1+ to the 293s.  Junk bond funds were mixed while Treasuries saw limited selling.  Oil tumbled to a 4-week low after gov data showed US inventories extended a record high.  Gold still can not break above 1300.

AMJ (Alerian MLP Index tracking fund)










Treasury yields:

U.S. 3-month

0.02%

U.S. 2-year

0.41%

U.S. 10-year

2.65%

CLM14.NYM....Crude Oil Jun 14....99.65 Down ...1.63  (1.6%)

Live 24 hours gold chart [Kitco Inc.]




The Federal Reserve (FED) says the economy is rebounding after a weather-induced stall as consumer spending accelerates, allowing it to keep trimming the pace of bond purchases.  “Growth in economic activity has picked up recently, after having slowed sharply,” the Federal Open Market Committee said.  “Household spending appears to be rising more quickly.”   The committee pared monthly asset buying to $45B, its 4th straight $10B cut, & said further reductions in “measured steps” are likely.  FED Chair Janet Yellen is winding down record stimulus as the economy shows signs of recovering from a Q1 standstill.  At the same time, the FED repeated that it’s likely to keep the benchmark interest rate near zero for a “considerable time” after bond purchases end.  The officials repeated long-term inflation expectations remain stable.  The central bank’s preferred gauge of consumer prices climbed 0.9% in the year thru Feb & hasn’t exceeded the 2% goal since Mar 2012.  Bond purchases will be divided between $25B in Treasuries & $20B in mortgage debt.  The FED kept its forward guidance on borrowing costs, saying it will consider a “wide range of information” in deciding when to raise the benchmark federal funds rate, or the cost of overnight loans among banks.  The FED acted after a gov report today showed the economy slowed more than forecast in Q1 as harsh weather chilled investment & exports dropped.  The 0.1% annual pace of expansion followed 2.6% in Q4.

Fed Says Economic Rebound Allows Further Cuts to Bond Buying


Customers Browse Clothing in a Store in Berlin
Photo:   Bloomberg

Meanwhile, Mario Draghi got conflicting signals on inflation in Apr as the ECB considers taking unprecedented steps as soon as next week to avert the risk of deflation.  The headline annual inflation rate missed forecasts in rising to 0.7% from 0.5% in Mar, according to the EU statistics office.  Yet the core rate, which strips out volatile items such as energy, food, alcohol & tobacco, rose in line with estimates to 1%, & the price of services increased at the fastest pace in more than a year.  Today’s data was seen as critical for the ECB as it decides whether to embrace policies ranging from negative interest rates to quantitative easing.  Draghi said last week that the central bank may start broad-based asset purchases if the inflation outlook worsens.  The ECB, which seeks to maintain inflation just below 2% over the medium term, forecasts price growth at 1% this year, rising to 1.5% in 2016.  Today’s report, which also showed the decline of energy prices slowing to 1.2% from 2.1% in Mar, adds to the mixed signals coming from the area’s fledging recovery.  While economic confidence unexpectedly decreased in Apr, consumer sentiment improved more than estimated.  The unemployment rate, which probably held at 11.9% in Mar, has retreated from last year’s record.  ECB policy makers will also keep an eye on the strength of the € as they prepare for their next meeting on May 8.  If a rising exchange rate led to “a tightening of monetary conditions, a downward impact on inflation & potentially a threat to the ongoing recovery,” this would call for “policy action to maintain the current accommodative stance,” Draghi said.

ECB Gets Mixed Inflation Signals as Draghi Considers QE


Twitter User Growth Slows as Mobile Chat Competitors Gain Steam
Photo:    Bloomberg

Slowing user growth at Twitter pushed the stock to the lowest since last year’s debut.  The company said that membership in Q1 reached 255M, with year-over-year growth decelerating to 25% from 30 % in the previous period.  The stock plunged even as sales more than doubled to $250M, topping estimates.  Efforts to move past microblogging & into image & video sharing have failed to spur a surge in users in a market where competitive applications are gaining popularity.  The company needs more consumers adopting the service and staying on longer as it vies for marketing dollars in Web & mobile advertising.  The stock plunge magnifies the recent drop of many internet stocks.  Investors are questioning whether these companies, many of which are richly valued, can keep up revenue expansion.  The NAZ Internet Index is off 18% from a Mar peak.  CFO Mike Gupta said that the company has no plans to pursue a secondary share sale.  The net loss per share widened to 23¢ from 21¢ a year earlier.  Excluding some items, the company broke even, beating the 3¢ loss predicted.  Even as user growth slowed, people viewed their TWTR timelines more often, with 157B views, up 15% from a year earlier.  The company forecast Q2 revenue of $270-$280M & analysts estimated $272M.  Revenue for the year will be $1.2-$1.25B, TWTR said.  Using its ad network, acquired in last year’s purchase of MoPub, TWTR has said it can reach more than 1B phones.  Mobile advertising revenue accounted for 80% of total ad sales.  The stock sank 3.65 (9%).  If you would like to learn more about TWTR, click on this link for Trend Analysis:
http://club.ino.com/trend/?symb=TWTR&a_aid=CD3289&a_bid=6ae5b6f7

Twitter User Growth Slows as New Products Fail to Excite

Twitter (TWTR)




Stocks were happy to hear kind words from Janet Yellen, but just happy enough to barely reach a new high for the Dow.  Today's record close does not inspire confidence.  Markets were weighed down by drab data on GDP growth.  Earnings season is winding down & growth in revenue is a recurring theme in many of these reports.  After reflection overnight, let's see what stocks do tomorrow.

Dow Jones Industrials



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Markets marginally lower on weak tech sector

Dow went up 5, decliners barely ahead of advancers & NAZ lost 8.  The MLP index fell 1 to 483 & the REIT index was down fractionally to 292.  Junk bond funds were mixed & Treasuries fluctuated ahead of the FOMC press release.  Oil is now below 100 & gold pulled back again after attempting to top 1300.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month

0.02%

U.S. 2-year

0.42%

U.S. 10-year

2.69%

CLM14.NYM...Crude Oil Jun 14...100.16 Down ...1.12  (1.1%)

GCK14.CMX...Gold May 14......1,294.20 Down ...4.50  (0.4%)









Companies added more workers in Apr than at any time in the previous 5 months, signaling further progress in the labor market.  The 220K increase in employment followed a revised 209K gain the prior month that was stronger than initially estimated, according to the ADP Research Institute.  The forecast called for an advance of 210K.  The additions indicate companies are upbeat about the outlook for demand after harsh weather took a toll on spending at the start of the year.  The Labor Dept report on Fri is projected to show private payrolls rose 215K.  ADP’s numbers have been inconsistent in tracking the gov jobs data.  Goods-producing industries, which include manufacturers & construction companies, increased headcount by 24K.  Employment in construction rose by 19K, while factories added only 1K jobs.  Payrolls at service providers advanced 197K (typically low paying jobs).  Companies employing more than 499 workers added 57K jobs.  Medium-sized businesses, with 50-499 employees, took on 81K & small companies increased payrolls by 82K.

ADP Says Companies in U.S. Add Most Workers in Five Months


The US economy barely grew in Q1 as harsh winter weather chilled investment & exports dropped.  The expansion stalled even as consumer spending on services rose by the most in 14 years.  GDP inched up at a 0.1% annualized rate, compared with a 2.6% gain Q4, according to the Commerce Dept. The forecast called for a 1.2% increase.  Household purchases rose at a 3% pace, spurred by utility outlays & spending on health care tied to Obamacare.  The pullback in growth came as snow blanketed much of the eastern half of the country, keeping shoppers from stores, preventing builders from breaking ground and raising costs for retailers.  Gains in retail sales, employment & manufacturing at the end of Q1 indicate the setback will be temporary, so Federal Reserve policy makers meeting today will probably take little heed.  For all of 2013, the economy expanded 1.9% after a 2.8% gain in the prior year.  The gain in consumer purchases exceeded the 2% forecast.  Personal consumption added 2 percentage points to growth.  Spending climbed at a 3.3% in Q4.  While the wintry weather held back purchases of goods, which climbed at a 0.4% pace (the least in almost 2 years), it also boosted outlays on utilities to keep warm & did little to prevent spending on Obamacare.  Expenditures on services climbed at a 4.4% pace, the biggest gain since 2000.  Outlays of health care jumped by $43.3B at an annualized rate to $1.85T, contributing 1.1 percentage points to growth (the most since records began in 1947).

Growth Frozen as U.S. Business Investment Drops With Exports


Time Warner raised its full-year forecast & beat Q1 profit estimates as “The Lego Movie” boosted box-office receipts & “Game of Thrones” helped drive higher licensing fees.  EPS rose to 97¢, excluding one-time items & the results of Time Inc, the company said.  Analysts predicted 88¢.  Sales increased to $6.8B (excluding Time Inc), surpassing the estimate of $6.63B.  The Warner Bros studio reported operating income of $369M, up 40%.  Pay-TV distributors also paid more to carry programming such as professional basketball playoff games.  “We are off to a very strong start in 2014,” CEO Jeff Bewkes said.  “Warner Bros. picked up where it left off after a record-breaking year in 2013, with ‘The Lego Movie’ launching yet another franchise for us.”  The company raised its 2014 forecast & now expects adjusted EPS to expand by a “low teens” percentage, up from a prior projection of a “low double digit” percentage, from $3.51 in 2013.  Analysts were estimating 2014 adjusted EPS of $3.92, up 12%.  The stock rose 51¢.  If you would like to learn more about TWX, click on this link for Trend Analysis:
http://club.ino.com/trend/?symb=TWX&a_aid=CD3289&a_bid=6ae5b6f7

Time Warner Raises Forecast After Beating Profit Estimates on ‘Lego Movie’

Time Warner (TWX)




Stocks aren't doing much of anything before Janet Yellen speaks.  No surprises are expected.  She will say tapering is continuing with another $10B reduction in the monthly bond buying program.  Any additional commentary will get a lot of attention.  Techs remain out of favor.  Yesterday eBay (EBAY) reported & it's down 2.88 (5%) today.

Dow Jones Industrials







Tuesday, April 29, 2014

Markets gain ahead of FOMC meeting announcement

Dow climbed 86, advancers over decliners 3-2 & NAZ went up 29.  The MLP index rose 4+ to the 483s & the REIT index was even in the 292s.  Junk bond funds went up & Treasuries fluctuated.  While oil was higher, it backed off AM gains, & gold is still trying to break thru the 1300 ceiling.

AMJ (Alerian MLP Index tracking fund)








Treasyry yields:

U.S. 3-month

0.02%

U.S. 2-year

0.44%

U.S. 10-year

2.69%

CLM14.NYM....Crude Oil Jun 14....101.24 Up ...0.40  (0.4%)

Live 24 hours gold chart [Kitco Inc.]





U.S. Home Prices
Photo:   Bloomberg

Home prices in 20 US cities rose at a slower pace in the year ended Feb as the residential real-estate market cooled.  The S&P/Case-Shiller index of property values increased 12.9% from Feb 2013, the smallest 12-month gain since Aug, after rising 13.2% in the year ended in Jan.  The median projection called for a 13% advance.  Growth in property values eased as rising mortgage rates & severe winter weather restrained demand for dwellings in the first few months of the year.  Cooling price appreciation combined with an improving job market may help home sales regain momentum later in the year.  Home prices adjusted for seasonal variations increased 0.8% in Feb from the prior month, matching the estimate.  All of the 20 cities in the index showed a year-over-year gain, led by a 23.1% jump in & a 22.7% advance in San Francisco.  Cleveland showed the smallest year-over-year increase, with prices rising 3%.  Just 5 cities showed larger year-to-year gains in Feb.



IBM, a Dow stock, raised its quarterly div 16% to $1.10 (from 95¢) as CEO Ginni Rometty tries to appease shareholders while the company shifts businesses.  Earlier this month, IBM reported its 8th straight quarterly decline in revenue as it shifts its business from hardware to cloud computing & data analysis.  Rometty is banking on a strong comeback in the coming qtrs as she aims to deliver on a forecast for adjusted EPS of at least $18 this year.  The larger-than-expected div boost comes as IBM plans to reduce its pace of stock buybacks following an $8.2 billion splurge in Q1.  “Today’s announcement reinforces our commitment to delivering value to shareholders,” Rometty said.  “We will continue to invest aggressively in our strategic growth areas including cloud, big data analytics, social, mobile and security to position the company to drive growth and higher value for our clients.”  This marks the 19th straight year that it has increased the div.  IBM said earlier this month that it won’t sustain its rate of share repurchases from Q1, when buybacks more than tripled from a year earlier to the most since 2007.  The company plans to spend less than $5.8B total in the final 9 months of this year.  Repurchases have helped IBM meet projections for EPS simply by reducing the number of shares.  The stock rose 1.97.  If you would like to learn more about IBM, click on link for Trend Analysis:
http://club.ino.com/trend/?symb=IBM&a_aid=CD3289&a_bid=6ae5b6f7

IBM Increases Quarterly Dividend by 16% as Pace of Share Buybacks Slows

International Business Machines (IBM)




Merck & Co. Cholesterol Pill Mevacor

Photo:   Bloomberg

Merck, another Dow stock, beat earnings estimates as the company cut spending on promotions & research.  EPS excluding certain items was 88¢, 9¢ above the estimate.  Sales were $10.3B, down from $10.7B.  The company last year said it would lay off 8500 workers in a move to save $1B, trimming R&D, sales & management.  Those cuts showed up in these results.  EPS was 57¢, up from 52¢ a year earlier.  R&D costs fell 17% from a year before, to $1.57B, & marketing & administrative expenses dropped 8% to $2.73B.  “The prioritization process we introduced last year is clearly bearing fruit, as can be seen in the reduced R&D expenses,” said Roger Perlmutter, the company’s head of research.  Combined sales of the top product, the diabetes pill Januvia & related drug, Janumet, increased 3% to $1.33B from a year before.  But overall pharmaceutical sales fell 5% to $8.5B.  In the US, Januvia sales benefited from price increases, as revenue from the drug grew 3% while prescriptions of declined.  “We’re looking to see if we can grow again,” said Adam Schechter, VP of global human health.  The most-promising pipeline drugs are a new cancer treatment that uses the body’s own immune system to fight the disease.  It’s testing the medicine, MK-3475, in skin & lung cancers.  It also has a therapy for hepatitis C that does away with side-effect heavy injections that are a staple of current treatments.  The consumer-health business is for sale while the company determines the future of an animal-health unit.  The stock went up 2.04.  If you would like to learn more about MRK, click on link for Trend Analysis:
http://club.ino.com/trend/?symb=MRK&a_aid=CD3289&a_bid=6ae5b6f7

Merck (MRK)




Buyers were feeling good before the big announcement by the FOMC tomorrow.  Another $10B reduction in its bond buying program is assumed.  That is all but certain given the economic it's looking at.  Increasing the interest rate, of greater importance to traders, is viewed as far down the road.  Earnings reports have been fairly well received, but accounting adjustments & stock buybacks (not higher revenue) continue to be the main driving force behind the rise in EPS.  Dow is just 40 below its record.

Dow Jones Industrials









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