Thursday, April 17, 2014

Markets rise cautiously after weak earnings from Dow stocks

The Dow inched up pennies, advancers ahead of delciners almost 3-2 & NAZ added 11 after recent weakness.  The MLP slipped 1 to the 479s & the REIT index lost 1 to the 289s.  Junk bond funds went up while Treasuries pulled back.  Oil & gold fluctuated.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

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U.S. 2-year


U.S. 10-year


CLK14.NYM...Crude Oil May 14...103.89 Up ...0.13 (0.1%)

GCJ14.CMX....Gold Apr 14........1,301.00 Down ....2.10  (0.2%)

The number filing for unemployment insurance last week hovered near the lowest level in almost 7 years, showing the job market is making progress.  Jobless claims increased only 2K to 304K from a revised 302,K in the prior week (the lowest since Sep 2007), according to the Labor Dept.  The forecast called for an increase to 315K.  The total number receiving benefits fell to the lowest since the last recession began.  Dismissals are on the decline as companies, already lean from recession-era job cutting, gear up for rising sales as the economy strengthens.  Even with the improvement, Federal Reserve Chair Janet Yellen said yesterday that policy makers must be mindful of how short the US still remains of achieving its goals of full employment & price stability.  The 4 week average dropped to 312K, the lowest since Oct 2007, from 317K in the week.  Claims may be in for some bigger swings in coming weeks as the Easter holiday can complicate the adjustment of claims data for seasonal variations.  The number continuing to receive jobless benefits declined 11K to 2.74M, the fewest since Dec 2007.  The unemployment rate among those eligible for benefits held at 2.1%.

Jobless Claims in U.S. Hover Near Lowest Level Since 2007

Cloud Services
Photo:   Bloomberg

IBM, a Dow stock, Q1 revenue slid 3.9% to $22.5B, falling short of estimates amid declining demand for hardware & waning sales in developing countries. Adjusted EPS fell to $2.54, in line with estimates.  Now, the computer-services provider has to make up more ground to end the year with an increase in profit as it shifts its business from hardware to cloud computing & data analysis.  IBM reiterated its projection for 2014 adjusted EPS of at least $18, even as sales fall.  Analysts had estimated $22.9B in sales.  Profit was hurt by an $870M charge for job cuts.  The company is banking on a strong comeback.  In each of the past 3 years, Q1 earnings have made up 18% of full-year results.  If IBM stock earns $18 this year, Q1 will have represented just 14% of the total.  By the end of Jun, IBM will be 38% toward its profit goal, similar to last year, CFO Martin Schroeter said.  That implies Q2 EPS of $4.21-$4.39 a share, compared with the estimate of $4.39.  The company didn’t raise its profit goal for 2014 even though it cut its forecast for this year’s tax rate to 20% from 23%.  IBM is targeting adjusted EPS of $20 by 2015, up from $11.67 in 2010.  To get there, the company has tried to shift the focus to cloud services & data analytics to keep up with changes in the industry.  Technology customers are increasingly storing data & software on cloud-computing networks, rather than onsite, limiting their need for servers & mainframes.  IBM spent more than $1B to create a new group around its Watson technology, which analyzes large troves of data in plain English.  Cloud revenue grew more than 50% in Q1, & cloud offerings delivered as a service are now at an annual run rate of $2.3B. But that’s still a fraction of total $100B in revenue last year.  The stock sank 7.40.  If you would like to learn more about IBM, click on this link:

IBM Sales Fall Again, Pressuring Rometty’s Profit Goal

International Business Machines (IBM)

UnitedHealth, another Dow stock, Q1 profit fell 7.8%, hurt by cuts to its Medicare Advantage program for elderly & disabled Americans.  EPS decreased to $1.10 from $1.16, a year earlier.  But EPS beat by a penny the $1.09 estimate.  UNH has derived growth from Medicare & has the biggest program among publicly traded insurers, with 3M enrollees.  This month, the gov implemented a 2nd round of cuts to Medicare Advantage, insurers’ private version of the program, as required under Obamacare.  Its actuaries have said the cuts will result in a decline in enrollment for the first time since 2004.  The cuts, along with the impact of sequestration & other health reform fees, reduced EPS by about 35¢.  UNH estimates that total cuts to Medicare Advantage in 2015 will be 3-3.5%, CEO Stephen Hemsley said, calling the final rate cut “somewhat disappointing.”  Revenue rose to $31.7B from $30B a year ago, as its Optum technology business helped to offset the Medicare Advantage cuts.  While it has limited exposure to the public exchanges, its Optum unit has been credited with helping to fix the federal website for Obamacare plans, & has since been hired by several state websites.  Revenue from the Optum unit jumped 29% to $11.2B.  The stock fell 2.53.  If you would like to learn more about UNH, click on this link:

UnitedHealth First-Quarter Profit Falls on Medicare Cuts

UnitedHealth (UNH)

Stocks lost the forward momentum from the earlier this week.  Earnings from big name companies have disappointed with more mentions of lower sales.  Overall, earnings are mixed & Putin is out there threatening peace in eastern Europe.  Anything can happen over the long weekend & with the markets closed tomorrow,  traders will be adjusting positions today.

Dow Jones Industrials

This Undervalued Energy Stock is Set to Soar! Special Report

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