Wednesday, July 16, 2014

Markets rise on deal talk and earnings

Dow climbed 77 to a new record, advancers over decliners almost 5-4 & NAZ added 9.  The MLP index jumped 3+ to the 519s & the REIT index as up fractionally in the 506s (its highest level in more than a year).  Junk bond funds were mixed to lower & Treasuries rallied along with stocks.  Oil climbed back over 100 after US crude stockpiles tumbled as refineries increased processing rates to the highest level in almost 9 years.  Gold had a modest rebound from a 3-week low as imports by India, the world’s 2nd-largest user, surged 65% last month.

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CLQ14.NYM....Crude Oil Aug 14....101.20 Up ...1.24 (1.2%)

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The Federal Reserve (FED) said economic growth was modest to moderate as all 12 of its districts reported stronger consumer spending & expanded manufacturing, & a third saw “robust to very strong” auto sales.  “Retail sales grew modestly in most districts, with increases that were generally similar to the previous reporting period,” the FED said in its Beige Book survey.  The metal & auto industries “generally reported positive growth” while manufacturers in 4 districts saw “increased demand for their products from the energy sector.”  5 districts reported “moderate” growth in Jun & Jul, down from 7 in the prior report, while the remainder said they had “modest” expansions based on reports collected before Jul 7.  Many regions saw growth for professional & business services, including health-care consulting, advertising, engineering, accounting & technology.  An unexpectedly fast decline in the jobless rate is putting pressure on the central bank to consider moving up the timing for the first increase in the main interest rate since 2006.  Janet Yellen told a House panel today that rates will probably stay low for a “considerable period” after the central bank halts bond purchases, most likely in Oct.  The FED said labor markets improved with all regions showing “slight to moderate employment growth.”  Several noted “some difficulty finding workers for skilled positions.”  Wage pressures “remained modest” in most districts.  Inflation was generally contained, with “slight to modest price increases for both inputs and finished goods” in most districts.  Reserve banks cited higher prices for meat, dairy products, construction materials & some metals.  The report showed tourism expanded in all regions, with 4 citing “robust activity” at hotels.  Transportation firms saw “broad-based demand for trucking & rail services” & ports in the Richmond district has “strong growth” in container traffic.  But real estate reports varied.  Many districts reported low inventories & rising home prices along with “mixed” demand.  Commercial construction generally strengthened across the US because of higher demand & low vacancy rates.  Yellen told lawmakers in her semi-annual testimony that the FED must keep up its unprecedented monetary stimulus to combat persistent job-market weakness.

Fed Saw Modest to Moderate Growth in June on Consumer Spending

Confidence among US homebuilders rose more than forecast in Jul, reaching the highest level in 6 months, as growing payrolls brightened the outlook after a shaky first half.  The National Association of Home Builders/Wells Fargo sentiment measure climbed to 53 from 49 in Jun.  Readings above 50 mean more respondents said conditions were good.  The forecast projected it would rise to 50.  The housing market is showing signs of improvement after higher mortgage rates & harsh winter weather stalled the recovery earlier this year.  A strengthening labor market, combined with wage gains & rising consumer sentiment, will probably support further progress in the industry as the FED winds down its unprecedented stimulus program.  The measure of the 6-month sales outlook rose to its highest level since Sep, climbing to 64 from 58 in Jun.  An index of current single-family home sales increased to 57, the best reading since Jan, from 53, while the gauge of prospective buyer traffic rose to 39 from 36.  Builder confidence strengthened in all 4. regions, with the West rising to 59, the highest in 6 months, from 53.  “An improving job market goes hand-in-hand with a rise in builder confidence,” the builders association said.  “As employment increases and those with jobs feel more secure about their own economic situation, they are more likely to feel comfortable about buying a home.”

Homebuilder Confidence in U.S. Climbs to Six-Month High

Starbuck's new 3-story cafe in Bogota could be the type of location the coffee-shop chain’s customers see more often.  “We are designing and opening flagship stores around the world,” CEO Howard Schultz said after the chain opened its first location in Columbia.  The cafe is a 2700-square-foot store with a heated patio, concrete columns, mirrors on the ceiling & walls of colorful plants.  “We are in a position to open the kind of stores that are similar to what Apple (AAPL) & Niketown have been able to do,” he said.  There’s a new flagship location being planned for the US.  The Colombian store may serve as a blueprint for the coffee-shop operator as it opens more enormous locations.  The Bogota cafe makes use of locally sourced wood, antique & hammered-brass light fixtures, & sells Colombian-inspired food such as cheese sticks & croissants with a sauce similar to dulce de leche.  The company plans to open 1500 new stores this fiscal year, including about 600 in its Americas region.  Last year, the chain opened a 3000-square-foot flagship store in Bengaluru, India & 2 flagships in China.  The 2-story cafe in Beijing is decorated with mooncake molds, Chinese blue ceramics & has coffee bars on both levels.  In the US, SBUX lists recently opened locations in New Orleans; Anaheim, California; & Orlando, Florida, as “high-design” cafes.  The company has more than 20K locations in 65 countries, including about 740 stores in Latin America.  The stock lost 16¢.  If you would like to learn more about SBUX, click on this link:

Starbucks Sees Adding More Cafes Like Multilevel Bogota Location

Starbucks (SBUX)

stock chart
Early earnings reports are being given good grades (based on easy grading) & talk of deals (which is only talk) brought out buyers.  But market breadth continues only moderate.  Dow is up 550 YTD (3%) after a very weak start in Jan.  Yield securities, such as MLPs & REITs, have done much better, although their advances have stalled in Jul.  The administration called for congressional action to stop US companies from using cross-border mergers to escape the US tax system.  These moves are not welcome by the markets & will get more attention if passed by congress.

Dow Jones Industrials

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