Wednesday, May 21, 2014

Markets rally after Federal Reserve minutes

Dow shot up 158 closing near the highs, advancers over decliners 2-1 & NAZ added 34.  The MLP index rose fractionally in the 489s & the REIT index lost 1+ to the 296s.  Junk bond funds rose & Treasuries retreated.  Oil rose to a one-month high after a gov report showed US supplies tumbled last week as imports dropped to a 17-year low.  Gold declined as the Federal Reserve said it sees a muted inflation risk from continued stimulus, lowering demand for the precious metal as a hedge against rising consumer costs.

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CLN14.NYM....Crude Oil Jul 14....104.05 Up ...1.72 (1.7%)

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Janet Yellen
Photo:   Bloomberg

The Federal Reserve (FED) said continued stimulus to push unemployment lower doesn’t risk sparking an undesirable jump in the inflation rate.  With inflation expected to remain well below the 2% goal, the FOMC doesn’t “face a trade-off between its employment & inflation objectives, & an expansion of aggregate demand would result in further progress relative to both objectives,” according to minutes of the Apr 29-30 meeting.  FED officials also discussed the need to improve their guidance on the likely path of interest rates, & they heard a staff presentation on the tools that could eventually be used to control short-term borrowing costs once policy makers decide to lift them above zero.  Policy makers are watching progress toward their goal of full employment as they consider the timing of the first interest rate increase since 2006.  The FED has said the benchmark rate is likely to stay low for a “considerable time” after it ends a bond-purchase program that’s set to wind down by late this year.  In their presentation, the staff said the tools that could be used to control short-term interest rates included overnight reverse-repurchase agreements, the term deposit facility, & interest on excess reserves.  Asset sales were not mentioned.  Participants agreed that “early communication” of their exit strategy “would enhance the clarity and credibility of monetary policy.”  While no decisions were taken, “participants generally favored the further testing of various tools,” according to the minutes.  FED Chair Janet Yellen testified 2 weeks ago that the FED will probably end bond buying in the fall if the labor market continues to improve.  Still, she said “a high degree of monetary accommodation remains warranted” with inflation & employment far from the central bank’s goals.

Fed Sees No Inflation Risk in Stimulus Policies

US crude imports dropped to a 17-year low last week as the shale boom bolstered output, moving the nation closer to energy independence.  The Energy Information Administration said arrivals slid 658K barrels a day to 6.47M, the fewest since Jan 1997.  Output rose 6K barrels a day to 8.43M, the most since Oct 1986.  The combination of horizontal drilling & hydraulic fracturing, or fracking, has unlocked supplies from shale formations in the central US, including the Bakken in North Dakota & the Eagle Ford in Texas.  The US met 87% of its energy needs in 2013 & 90% in Dec, the most since Mar 1985, according to the EIA, the Energy Dept’s statistical arm.  Imports peaked at 11.3M barrels a day in Jul 2004.  Crude supplies have fallen in 2 of the past 3 weeks after reaching 399M barrels last month, the most since the EIA began publishing weekly data in 1982.

U.S. Crude Imports Drop to 17-Year Low as Shale Bolsters Output

Lowe's, the 2nd-largest US home-improvement retailer, posted Q1 profit that topped estimates as better merchandising choices helped it withstand weaker demand caused by harsh weather.  EPS increased to 61¢ from 49¢ a year earlier.  Excluding some items, EPS was 62¢ while analysts projected 60¢.  CEO Robert Niblock has added workers to stores & introduced merchandise with wider profit margins as rising home prices spur people to spend more on their homes.  While the long winter held sales at established stores to a 0.9% gain, trailing the 5% increase estimated, LOW maintained its forecast that revenue by that measure would advance 4% this year.  “Consumers continue to have an increased willingness to invest in their homes” because home prices keep rising, Niblock said.  Real estate values have room for more appreciation as the economy improves.  EPS this year will be $2.63, the company said, up from a previous projection of $2.60.  Analysts estimate $2.62.  Total sales last quarter rose 2.4% to $13.4B, trailing the $13.9B estimate.  Same-store sales fell 5% in the Northeast due to the extended winter weather.  The chain also maintained its forecast for an annual revenue gain of 5%.  “The single biggest impact on the first quarter was weather and the delayed spring,” Niblock said.  He pointed out that the company missed sales expectations last year, still reiterated its annual forecast & ended up topping it.  Its growth strategy has shifted to boosting sales at current stores rather than opening new locations.  The one recent exception came last year, when LOW bought the majority of Orchard Supply Hardware Stores assets, including 72 stores, out of bankruptcy for about $205M.  The stock slipped pocket change.  If you would like to learn more about LOW,
Click here for a FREE analysis of LOW and be sure to notice the intermediate time frame

Lowe’s First-Quarter Net Beats Estimates as Chain Withstands Harsh Winter

Lowe's Companies (LOW)

Nothing like calming words from the FED to bring out stock buyers.  But market breadth was not impressive & it's sad when a continuation of low interest rates, not a booming economy, is responsible for market gains.  Even after today's advance, NAZ remains down over 200 from the Mar peak.  Momentum stocks are still having a tough year while just about all yield stocks (including muni bonds) are up.  Not sure what this conflicting data means.

Dow Jones Industrials

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