Wednesday, June 4, 2014

Markets edge higher after the Fed's Beige Book report

Dow rose 15, advancers slightly ahead of decliners & NAZ added 17.  The MLP index surged another 2+ to go over 500, for a new record, & the REIT index was fractionally higher in the 301s.  Junk bond funds were mixed to lower & Treasuries saw selling.  Oil was tad lower & gold also slipped back. 

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Walgreen, a Dividend Aristocrat, surged to its highest price in history as the company reported May sales that topped estimates.  Sales in comparable stores rose 4.4%, compared with an estimate of 4.1%.  Sales for fiscal Q3 (ended on May 31) increased 6.5% from a year earlier to $19.5B, the company said, higher than the $19.3B estimate.  Comparable same-store sales for Q3 increased 5.1%, while prescriptions filled at comparable stores gained 4%.  WAG operated over 8K drugstores, 120 more than a year earlier.  It owns 45% of Zug, Switzerland-based Alliance Boots, & is considering buying the rest of Europe’s largest pharmacy chain.  Shares may rise if the company lowers its tax rate by moving the company headquarters in a tax inversion procedure thru the deal.  The stock jumped $3.00 (4%) to $74.56.  If you would like to learn more about WAG, click on this link:

Walgreen Surges to Record as May Sales Top Estimates

Walgreen (WAG)

Service providers from construction companies to retailers expanded in May at the fastest pace in 9 months, signaling a broad-based rebound in the US economy after a dismal Q1.  The Institute for Supply Management’s (ISM) non-manufacturing index climbed to 56.3, the highest reading since Aug, from 55.2 in Apr.  Readings greater than 50 signal expansion.  17 of the 18 industries surveyed showed improvement.  The figures, combined with a pickup in manufacturing reported by ISM earlier this week, point to gains in business & consumer spending that will probably lift growth & spur employment after the economy shrank in Q1.  Service industries also performed well overseas as a report from the UK showed faster growth than forecast in May & confidence about the outlook prompted companies to boost hiring.  Today’s ISM data followed a report on Mon that showed manufacturing expanded in May at the fastest pace of the year as factories responded to increased orders by cranking up production.  The services survey covers an array of industries including utilities, retailing, health care & finance that make up almost 90% of the economy.  It also includes construction, mining & agriculture.  The measure of new orders rose to the highest level since Jan 2011 & the employment gauge also climbed.  The business activity index, which parallels the manufacturing production gauge, increased to a more than 2-year high.  “This is all derived from increased confidence, not just consumer, but it’s company-related,” Anthony Nieves, chairman of ISM’s non-manufacturing survey committee, said.  “At this level of business activity and new orders in the pipeline, employment is going to have to go up.”

Service Industries Propel Broad Rebound in U.S. Growth

Auto Sales
Photo:   Bloomberg

The Federal Reserve (FED) said the economy expanded at a modest to moderate pace last month as auto sales led household spending & the labor market improved.  “Consumer spending expanded across almost all districts,” the report said.  “Labor market conditions generally strengthened” with “hiring activity steady to stronger” in most of the US.  7 of 12 districts saw “moderate” growth, with the rest characterized as “modest,” the FED said in its Beige Book business survey, which is based on reports from its district banks.  The survey, released 2 weeks before policy makers meet, supports Chair Janet Yellen’s view that the economy is rebounding from a 1% contraction in Q1 caused largely by harsh winter weather.  The FED is watching the labor market as it moves to complete the bond-purchase program late this year & start considering the timing of the first interest-rate increase since 2006.  Growth accelerated in the Cleveland & St. Louis districts & slowed slightly in Kansas City.  The report also said that manufacturing “expanded throughout the nation” & transportation “strengthened in most districts” with ports showing “brisk growth” along the Southeastern coast.

Fed Saw Modest to Moderate Growth as Labor Market Improved

Midday news was favorable which brought back a few buyers into the market.  The MLP index going over 500 to another record is nothing short of eye popping.  However, the yield on that index has been reduced to only 5.5%, barely above the 5.37% record low set in 2007 which was followed a substantial sell-off.  Of course, in those days the yield on the 10 year Treasury was above 4½%.  The latest reports have raised the estimate on new jobs in May to 215K.  Today's tepid market rise indicates that nervousness is winning over bullish sentiment.

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