Thursday, May 29, 2014

Markets rise after GDP data

Dow advanced 65 closing at the high, advancers over decliners 2-1 & NAZ was up 22.  The MLP index lost pocket change in in the 491s & the REIT index inched up a fraction in the 299s.  Junk bond funds were mixed & Treasuries rallied again.  Oil advanced, remaining near its multi-year highs.  Gold reached a 16-week low amid speculation that the US will rebound from its winter slowdown.

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China’s mini-stimulus is beginning to morph into something larger.  The ruling Communist Party is trying to revive the economy without repeating the mistakes of its $586B stimulus begun in 2008, which caused a record buildup of debt & inflated property bubbles around the country.  Premier Li Keqiang last week called on regional authorities to help stabilize expansion as he seeks to ensure that the gov meets its goal of about 7.5% growth.  Measures have multiplied since the State Council on Apr 2 outlined steps including faster railway spending & tax breaks to support growth, with news of additional actions this week.  The Finance Ministry on May 28 called for faster spending of budgeted funds which should be positive for expansion.  Guangdong province, the largest regional economy, will allocate 64.7B yuan ($10.4B) to support growth, according to the local gov’s website.  The National Development & Reform Commission, China’s main economic-planning agency, is studying a fund of at least 100B yuan for transportation that will solicit some private investment, the state-run Economic Information Daily reported yesterday.  The stimulus may be starting to appear in indicators after Apr data showed a deepening slowdown with decelerations in industrial-output & investment growth.

China Stretches ‘Mini’ Label for Stimulus as Steps Grow

Contracts to purchase previously owned homes in the US rose for a 2nd month in Apr, a sign the residential real estate market is stabilizing after a weak start to the year.  The pending home sales index climbed 0.4% after a 3.4% increase in Mar that was the first gain in 9 months, the National Association of Realtors said.  The projection called for the Apr index to rise 1%.  Housing demand has cooled as higher prices & borrowing costs put ownership out of reach for some prospective buyers.  While mortgage rates have been falling in recent weeks, an improving employment outlook & easier access to credit would provide an additional push for the industry.  Purchases fell 9.4% from the year prior after a 7.5% decrease in the 12 months that ended in Mar.  The pending sales index was 97.8 on a seasonally-adjusted basis.  A reading of 100 corresponds to the average level of contract activity in 2001, or “historically healthy” home-buying traffic.  Pending home sales rose 5% in the Midwest & 0.6% in the Northeast.  Contract signings declined 2.9% in the West & 0.6% in the South.  Pending sales are considered a  leading indicator because they track new purchase contracts.  Existing homes sales are tabulated when a contract closes, usually a month or 2 later.  “Higher inventory levels are giving buyers more choices, and a slight decline in mortgage interest rates this spring is raising prospective home buyers’ confidence,” NAR chief economist Lawrence Yun said.  Housing began to slow in the middle of 2013, with residential investment becoming a drag on the economy during the last 2 qtrs, its worst 6-month performance since H1-2009 (bottom of he recession).  Homebuilding subtracted 0.16 percentage point from GDP in Q1 after a 0.26 percentage-point hit in Q4-2013.

Pending Sales of U.S. Existing Homes Increased 0.4% in April

Costco posted fiscal Q3 profit that missed estimates even as comparable sales gained 6%. EPS rose to $1.07 from $1.04 last year.  But analysts projected $1.10.  US retailers of all stripes struggled with harsh winter weather & shaky consumer confidence during Q1.  Even so, sales at stores open more than a year increased, with a 6% advance excluding changes in gasoline prices & foreign-currency exchange rates.  Total Q3 sales rose 7.1% to $25.8B, similar to the $25.9B estimate.  Revenue from membership fees advanced 5.6% to $561M.  The stock was down a dime.  If you would like to learn more about COST, click on:

Costco Quarterly Profit Trails Estimates Even as Sales Rise

Costco (COST)

The negative report on GDP did not scare buyers away.  Dow is just a whisper away from its recent record high, but is also up less than 1% YTD.  By another measure, it is up 15% from its record high set in Oct 2007.  The annualized gain is just 2%.  This is another reminder that the economy is been struggling to advance in recent years.  The rising stock market was brought about by low interest rates & this stock market has become addicted to them.

Dow Jones Industrials

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