Friday, August 22, 2014

Lower markets after Yellen comments

Dow dropped 21, decliners over advancers 3-1 & NAZ lost 2.  The MLP index fell 1+ to the 528s & the REIT index was off 2+ to the 209s.  Junk  bond funds slid lower & Treasuries retreated.  Oil is headed for a 5th consecutive weekly decline, the longest losing streak in 9 months, on concern refineries will reduce demand for crude as the end of summer driving season approaches.  Gold inched higher.

AMJ (Alerian MLP Index tracking fund)

CLV14.NYM....Crude Oil Oct 14...93.25 Down ...0.71  (0.8%)

GCQ14.CMX...Gold Aug 14.....1,277.70 Up ....4.00 (0.3%)

Janet Yellen
Photo:   Bloomberg

Janet Yellen said slack remains in the US labor market even after gains made during the 5 years of economic recovery.  “The economy has made considerable progress in recovering from the largest and most sustained loss of employment” since the depression, Yellen said at the Fed’s annual economics conference in Jackson Hole.  Even so, she underscored the FOMC statement last month that “underutilization of labor resources still remains significant.”  Yellen’s remarks appeared in line with the message from minutes of the Jul FOMC meeting, which showed officials growing more aware that labor markets are approaching full employment.  Still, pinpointing a full recovery in the job market is difficult given the “depth of the damage” from the recession, she said.  Her speech walked through the arguments of how much slack might be related to weak demand as opposed to more permanent trends.  “Significant structural factors have affected the labor market, including the aging of the workforce and other demographic trends, possible changes in the underlying degree of dynamism in the labor market, and the phenomenon of ‘polarization’ -- that is, the reduction in the relative number of middle-skill jobs,” she said.  For some of the structural changes, she presented a counter-argument on why they could also represent cyclical trends.  Disability applications may reflect “perceptions of poor job prospects,” she said.  Bad job opportunities may have brought forward retirements, so the aging workforce may contribute less to declining labor participation in future years.  Most Fed officials forecast they will need to raise the benchmark rate sometime next year after holding it near zero since Dec 2008.  The estimate released after the Jun meeting projects a rise to 1.13% at the end of 2015 & to 2.5% a year later.

Yellen Still Sees ‘Significant’ Under-Use of Labor Resources

Gap Q2 profit that topped estimates as bargain-hunting shoppers snapped up discounted clothing at its Old Navy chain.  EPS rose to 75¢ from 64¢ year earlier.  Excluding a gain from an asset sale, EPS was 70¢, ahead of the 69¢ estimate.  Net sales rose 2.9% to $3.98B.  CEO Glenn Murphy is working to maintain sales growth as the choppy economic recovery restrains shoppers’ appetites for new fashions.  The chain’s lower-priced Old Navy brand led the sales gains for the 2nd straight quarter.  Companywide same-store sales were little changed, compared to a 5% increase last year.  The chain posted a same-store sales decline of 5%, compared with a 6% increase a year earlier.  Sales by that measure at Old Navy rose 4%, versus a 6% gain last year.  Banana Republic’s comparable-store sales were little changed.  GPS is investing $300M in technology over the next 3 years to improve online & in-store services with features such as self-checkout & online reservations for in-store pickup.  Online net sales increased 11% to $515M last quarter.  GPS also said it would open its first namesake-brand stores in India next year thru franchise partner Arvind.  The first stores will open in Mumbai & Delhi, & the retailer plans to have about 40 stores in the country.  The stock gained 2.02.  Of you would like to learn more about GPS, click on this link:

Gap Profit Tops Estimates as Old Navy Boosts Sales

Gap (GPS)

Jeff Stratton
Photo:   Bloomberg

McDonalds, a Dow stock & Dividend Aristocrat, said long-time restaurant exec Mike Andres will take over as pres of the US operations as Jeff Stratton retires amid increased domestic competition.  Stratton, will retire after 41 years with the brand.  Andres worked in multiple roles at MCD, including leading its central US unit & the company’s former Boston Market subsidiary.  He has been CEO of Logan’s Roadhouse since early last year.  The company, which gets 1/3 of its revenue from domestic locations, has struggled to attract customers this year as new chains lure away customers & established rivals introduce cheaper food deals.  Sales at US stores open at least 13 months fell 3.2% in Jul & have been flattish for many months.  The stock was up pennies.  Of you would like to learn more about MCD, click on this link:

McDonald's (MCD)

McDonald’s Says Andres to Run U.S. as Stratton Retires

Stocks are drifting lower without any conviction.  As usual in Aug, volume is low so small prices movements mean little.  Dow still has a good gain for the week as it tries to hold above the important 17K support level.  For over 2 months, it has been unable to crack thru in a meaningful way & that trend should continue next week with even slower trading.

Dow Jones Industrials

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