Wednesday, June 18, 2014

Markets rally after FOMC said the economy is rebounding

Dow advanced 98, advancers ahead of decliners better than 2-1 & NAZ went up 25.  The MLP index dropped 3+ to the 501s & the REIT index climbed 1+ to 300.  Junk bond funds were mixed to lower & Treasuries rose.  Gold slid back after recent strength & gold inched higher.

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CLN14.NYM....Crude Oil Jul 14....105.93 Down ...0.43  (0.4%)

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The Federal Reserve (FED) said growth is bouncing back & the job market is improving as it continued to reduce the monthly pace of asset purchases.  “Economic activity is rebounding in the current quarter and will continue to expand at a moderate pace thereafter,”  Janet Yellen said at a press conference following the Federal Open Market Committee (FOMC) meeting.  Even with declines in unemployment, “a broader assessment of indicators suggests that underutilization in the labor market remains significant.”  The FOMC trimmed bond-buying by $10B for a 5th straight meeting, to $35B, keeping it on pace to end the program late this year.  The policy makers are debating how long to keep interest rates near zero as the labor market improves & inflation moves closer to the 2% goal.  The FOMC repeated that it’s likely to “reduce the pace of asset purchases in further measured steps” & that it expects rates to stay low for a “considerable time” after the bond-buying ends.  Updating their economic forecasts, the officials predicted their target interest rate will be 1.13% at the end of 2015 & 2.5% a year later, higher than previously forecast.  However they lowered their long-run estimated rate to 3.75% from 4%, reflecting slower long-term growth for the US economy.  Their estimated long-term growth at 2.1-2.3%, compared with 2.2-2.3% in Mar.  “Inflation has continued to run below the committee’s 2 percent objective,” Yellen said, & low inflation “could pose risks to economic performance.”  At the same time, longer-term expectations are still “well-anchored.”  The personal consumption expenditures index, the FED’s preferred inflation gauge, rose 1.6% from a year earlier in Apr, the most since Nov 2012 while the consumer price index rose 2.1% in May.

Fed Says Economy Rebounding as It Trims Bond Purchases

Pushmerga Forces
Photo:   Bloomberg

Pres Obama is briefing top lawmakers on Iraq with no sign he’s ready to order a military intervention to help the Shiite-dominated gov fight off Sunni militants threatening Baghdad.  Obama is still “assessing the options available,” according to the White House press secretary.  An armed response by the US won’t resolve the conflict, he said, & Obama is reviewing potential courses of action “through the lens of our national security interests.”  Obama won’t consider sending ground troops into combat.  Iraqi Prime Minister Maliki has requested US air power strike the Sunni insurgency that is dividing the country on sectarian lines, less than 3 years after the departure of the last US troops.  Iraq’s oil production, the 2nd-largest among OPEC nations, could also be at risk.  The central gov has been battling insurgents for control of a major refinery at Baiji, north of Baghdad.  So far, there hasn’t been any “major disruptions” in oil supplies from Iraq.  But Brent Crude, used to price more than half of the world’s oil, has risen above $114 a barrel.

Obama Holds Off on Airstrikes as Iraq Risks Breakup

Con Agra said earnings missed its forecast amid slow sales of consumer foods & shrinking profit at its private-label business.  Q4 EPS was about 55¢, excluding some items, the company said.  CAG had predicted 60¢ for the period.  The sluggish results, which also prompted a Q4 writedown of $681M, brought selling in its shares.  The company is struggling to digest last year’s acquisition of Ralcorp Holdings, which sells private-label foods to supermarkets, drugstores & other retailers.  CAG said its consumer-foods business saw sales volume decline 7%, while profit was “weak” in the private-brands division.  The company is facing pricing pressure in supermarket brands, an industry that’s been growing but offers slim margins.  Quarterly operating profit for that unit fell about $60M from a year earlier, CAG said.  The private-label struggles, as well as profit challenges at certain retail brands such as Chef Boyardee, contributed to the writedown in Q4.  “We are disappointed with the consumer foods volume performance,” CEO Gary Rodkin said.  “We are in the process of improving product mix and promotion strategies.”  To get back on track, the company also is cutting administrative costs & boosting productivity, Rodkin said. Growth of EPS should accelerate to a high single-digit rate by fiscal 2016 & 2017.  “We expect to have the flexibility to invest in our business for good long-term growth,” Rodkin said.  The stock sank 2.38 (7%).  If you would like to learn more about CAG, click on this link:

ConAgra Cuts Forecast After Consumer Foods, Private Brands Slump

ConAgra (CAG)

Stocks traders had a sigh of relief after there were no surprises following the FOMC meeting.  Of course, they are preplanned & very little is left to chance.  Meanwhile the Iraq disaster goes from bad to worse, the bad guys are winning.  There is little opposition from gov forces & Obama dithers over using air power to slow the theft of American equipment left behind.  I'm surprised that gold has not surged from the increased uncertainty in the MidEast.  Now marginal money is going into stocks, a new safe haven investment.  After starting lower, the Dow rose to breakeven when the Janet spoke & continued rising to close at the highs (inches from a new record).

Dow Jones Industrials

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