Tuesday, July 15, 2014

Markets edge lower after Janet Yellen testimony

Dow fell 31, decliners over advancers 5-2 & NAZ dropped 33.  The MLP index slipped 1+ to 514 & the REIT index lost pennies in the 306s.  Junk bond funds were mixed to lower & Treasuries did little.  Oil went below the important $100 support level & gold was flattish.

AMJ (Alerian MLP Index tracking fund)

CLQ14.NYM...Crude Oil Aug 14...99.76 Down ...1.15  (1.1%)

GCN14.CMX...Gold Jul 14.......1,310.60 Up ...4.30 (0.3%)

Janet Yellen told lawmakers the central bank must press on with monetary stimulus as “significant slack” remains in labor markets & inflation is still below the Fed’s goal.  “A high degree of monetary policy accomodation remains appropriate,” Yellen said today in semi-annual testimony.  “Although the economy continues to improve, the recovery is not yet complete.”  Yellen cited labor-market weaknesses even after an unexpectedly fast decline in unemployment put pressure on the Fed to consider accelerating their timetable for an interest-rate increase.  Yellen said that rates are likely to stay low for a “considerable period” after bond purchases end, which she said could happen following the Oct meeting.  While the economy appears likely to rebound from Q1 contraction, Yellen said the progress “bears close watching.”  Signs of labor-market slack include slow wage growth & low labor-force participation, Yellen said.  Housing “has shown little recent progress” as higher mortgage rates discourage buyers.

Yellen Says ‘High Degree’ of Easing Needed Amid Job-Market Slack

Retail sales showed a broad-based gain in Jun, which probably helped the US economy rebound in Q2.  Purchases increased 0.2% after a 0.5% advance in May that was larger than previously reported, Commerce Dept figures showed.  But the reading fell short of the 0.6% increase projected, restrained by a drop among auto dealers.  Demand climbed in 9 of 13 major categories.  Consumers are more comfortable opening their wallets as a strengthening labor market lifts earnings.  Higher wages give American households the wherewithal to withstand recent increases in food & gasoline costs that had chipped away at buying power.  Clothing stores, general merchandise merchants & non-store retailers, which include online vendors, were among the major retail categories showing gains last month.  The sales data for last month was held back by an unexpected 0.3% drop for auto & parts dealers.  The figures, which aren’t used in calculating GDP, were at odds with industry data.  Cars & light trucks sold at a 16.9M annual pace in Jun, the strongest since Jul 2006.  Deliveries at General Motors (GM) & Ford (F) exceeded estimates & the gov uses these industry figures in calculating growth.  Excluding cars, sales climbed 0.4% for a 2nd month.  Core sales, the figures used to calculate GDP & which exclude such categories as autos, gasoline stations & building materials, increased 0.6% last month, the best showing since Mar, after a revised 0.2% increase in May that was bigger than previously reported.

Retail Sales in U.S. Showed Broad-Based Increase in June

JPMorgan Chase & Co. CEO Jamie Dimon
Photo:   Bloomberg

JPMorgan, a Dow stock, posted Q2 profit that beat estimates as fixed-income trading revenue fell less than expected.   EPS declined to $1.46 from $1.60 last year.  EPS excluding some items was $1.59, topping the $1.31 estimate.  Revenue slid 2.3% to $25.4B from a year earlier.  Results were overshadowed by questions about the health of CEO Jamie Dimon who said that he would soon undergo radiation & chemotherapy for throat cancer.  While he reiterated today that his prognosis is excellent & that he’ll be able to work during 8 weeks of treatment, the disclosure raised fresh questions about succession planning at the bank he’s run since 2006.  JPM warned investors in May to expect Wall Street’s trading slump to continue thru Q2, saying that fixed income and equities trading revenue could drop 20% from a year earlier.  There were encouraging signs toward the end of Q2, including an improvement in “some markets activity,” Dimon said.  While client activity jumped in Jun, it didn’t carry over into Jul, CFO Marianne Lake said .  Fixed-income trading revenue fell 15% from a year earlier to $3.5B, beating the $3.14B estimate.  Equity-trading revenue dropped 10% to $1.2B on lower derivatives sales, matching the estimates.  The stock rose 2.19.  If you would like to learn more about JPM, click on this link:

JPMorgan Profit Beats Estimates on Trading, Shares Climb

J P Morgan Chase (JPM)

Janet reminded everybody that low interest rates are not going away anytime soon, no surprise.  Early earnings are coming in favorable although a key problem of lower revenue keeps coming up.  The way it is supposed to work in a bullish economy is that higher revenue brings higher earnings.  Not today.  And intl troubles are not going away soon.  I've lost track of all the conflicts, but each one has the potential to bring on selling.

Dow Jones Industrials

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