Monday, October 20, 2014

Higher markets on hopes for Apple earnings

Dow rallied in the PM finishing up 19, advancers over decliners better than 2-1 & NAZ climbed 57.  The MLP index jumped up 5+ to the 502s (& up about 50 from the depths last week) & the REIT index rose 4 to the 306s.  Junk bond funds were higher & Treasuries also gained.  Oil was steady & gold rose for the first time in 3 sessions on speculation that the Federal Reserve will delay raising interest rates as global economic growth slows.

AMJ (Alerian MLP Index tracking fund)

CLX14.NYM....Crude Oil Nov 14....82.79 Up ...0.04 (0.1%)

Live 24 hours gold chart [Kitco Inc.]

When it comes to pulling up to the gasoline pump, Americans haven’t had it this good since 2011.  Plunging fuel prices will free up as much as $60B over the next year that the consumer can spend on a fall jacket, a movie ticket or just more groceries.  The boost to incomes should lift US & overseas economic growth.  A sustained drop in gasoline prices will do double duty as a source of extra cash & a psychological lift that may push consumer confidence to multiyear highs. Improving sentiment combined with hiring gains that are on track for the best year since 1999, healthier household finances & still-low borrowing costs will add to the likely burst in purchasing power.  The average price of regular gasoline at the pump fell to $3.10 a gallon yesterday, the lowest since Jan 2011 & down 57¢ since the end of Jun, according to AAA.  Since fuel accounts for about 3% of consumer spending & futures contracts suggest its price will be down about 20% by Mar from a year earlier, household incomes could get a boost.  Lower energy bills have also put households in a better mood.  A 10% decline in fuel expenses may have boosted the Thomson Reuters/University of Michigan consumer sentiment  index by about 2 points to 86.4 this month, the strongest since Jul 2007.

American Consumers See Windfall From Lower Gasoline Costs

China's economic growth will slow to about 4% annually after 2020 following decades of rapid expansion, according to the Conference Board.  China faces a “deep structural slowdown & broad uncertainty” in the decade ahead.  China’s development model, based on state direction of capital & growth-fixated monetary policy, generated “deep seated” risks and imbalances, it said.  “The course of China’s growth has always harbored the potential for deceleration at least as rapid as its acceleration,” David Hoffman, VP of the Conference Board’s China Center for Economics & Business said.  “We are beginning to see the signs of this transformation take hold.”  China’s gov has signaled it will tolerate slower economic growth this year by refraining from broad stimulus.  Weighed down by a property slump, China’s GDP probably expanded 7.2% in Q3, the slowest in more than 5 years.  The IMF in Jul urged China to set a growth target of 6.5-7% for 2015, warning of a “web of vulnerabilities” in the economy from real estate & rising debt.  This month, it forecast 7.4% GDP growth this year & 7.1% in 2015.  The Conference Board said that foreign companies may benefit in some ways from more moderate growth in China, including greater ease in attracting skilled workers & more opportunities to buy struggling local enterprises.  China’s growth goal was 7.5% in 2012 & 2013, with actual expansion of 7.7% both years.  The full transition of China’s economic growth model will probably be a long slog as the adjustment process will “necessarily be painful,” the Conference Board said.

China Growth May Slow Sharply From 2020: Conference Board

Primark Store in Berlin
Photo:    Bloomberg 

Sears Holding will lease space to Primark Stores, a British budget-clothing retailer that’s expanding in the US.  Primark will set up shop in 7 Sears stores in the Northeast.  Separately, SHLD announced a rights offering that could generate as much as $625M for general corp purposes.  “Sears Holding is strategically transforming one of the largest retail real estate portfolios in the United States over time while continuing to operate its existing stores in large, but rationalized selling space,” Jeff Stollenwerck, pres of real estate for SHLD, said.  CEO Edward Lampert & biggest investor is squeezing more cash out of the company following 9 straight qtrs of losses.  His recent transactions include a $500M div from the spinoff of the Lands’ End clothing unit & a rights offering for most of the stake in Sears’s Canadian division.  The offering consists of 8% senior unsecured notes due 2019 & warrants to purchase shares of common stock.  SHLD lost $975M in H1 of its fiscal year.  That follows a combined $2.3B in losses in the past 2 fiscal years.  At 6 of the 7 locations in today’s real estate deal, Sears will continue to operate alongside Primark.  At the 7th site Sears will close down.  Primark will then share that space with another Sears subtenant.  Primark will lease a total of about 520K square feet from Sears.  The British retailer will take over the space in the next 12-18 months as it continues to push beyond its home market.  Primark, one of Europe’s fastest-growing clothing chains, has said it was planning to add stores in the Northeastern US, the first of which is slated to open at the end of next year.  SHLD stock shot up 6.55 (23%).  If you would like to learn more about SHLD, click on this link:

Sears Holdings (SHLD)

Dow stock IBM (IBM) has to take 2nd seat to Apple (AAPL) in the new world.  AAPL announces earnings after the close & expectations are high after the new product announcements.  Of course there wasn't much time to ship the iPhones, but its fans are loyal.  Analysts are looking for $1.31, up 12¢ from last year.  There will be plenty of other earnings as this is the heart of earnings season.  With expectations so high, there is little room left for disappointment.  I keep thinking of buy on the rumor & sell on the news. 

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