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:

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U.S. 2-year


U.S. 10-year


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:

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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