Wednesday, October 15, 2014

Markets decline on earnings and economic data

Dow tumbled 197, decliners over advancers better than 2-1 & NAZ was off 53. The MLP index settled down a bit & is off only fractionally in the 356s while the REIT index is up pennies in the 303s.  Junk bond funds dropped about 2% (big for them) & Treasuries rallied again, taking the yield on the 10 year Treasury down to 2.06%.  Oil & gold climbed a little higher on bargain hunting.

AMJ (Alerian MLP Index tracking fund)

CLX14.NYM...Crude Oil Nov 14...81.50 Down ...0.34  (0.4%)

GCV14.CMX...Gold Oct 14......1,235.80Up ....2.20 (0.2%)

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US retail sales dropped more than forecast in Sep, reflecting a broad-based pullback that signaled consumers took a breather.  The 0.3% decrease followed a 0.6% Aug gain that was the biggest in 4 months, according to the Commerce Dept.  The forecast called for a 0.1% decline.  The pickup in hiring has failed to spur bigger gains in wages, which means households have yet to see the kind of jump in purchasing power that will drive sustained increases in demand.  The recent drop in gasoline costs will give consumers extra cash to spend on other goods & services in coming months, helping underpin the biggest part of the economy.  The figures used to calculate GDP, which exclude categories such as food services, auto dealers, home-improvement stores & service stations decreased 0.2%, the first drop since Jan, after rising 0.4% in Aug.  8 of 13 major categories showed decreases last month, 4 were up & 1 was little changed.  Those seeing a decline in demand included auto dealers, service stations, furniture stores & building material merchants.  Purchases at clothing stores dropped 1.2%, the most since Oct 2012.  Sales fell 0.8% at automobile dealers, the most since Jan, after a 1.9% increase the prior month.  Industry data show Americans’ spending on cars & light trucks cooled last month after reaching an 8-year high in Aug.  Sales dropped to a 16.3M annualized rate in Sep, the lowest since Apr, from a 17.5M pace a month earlier (the highest since Jan 2006) according to Ward’s Automotive Group.

Retail Sales in U.S. Dropped More Than Forecast in September

Intel is projecting sales that are poised to top estimates in Q4 as companies snap up PCs with the latest chips to replace aging machines.  Revenue will be $14.7B, plus or minus $500M.  Analysts had predicted $14.5.  INTC also said Q3 sales rose to a record.  The report signals that corp spending will continue to be a bright spot in the PC market thru the end of the year, even as global unit shipments are set to decline.  The company’s dominance in semiconductors that power server machines for data centers is also helping it benefit from the surge in demand for mobile computing, as its processors feed information to smartphones over the internet.  The company said gross margin, the only measure of profitability that it forecasts, will be about 64% in Q4.  Analysts on average projected 62%.  Q3 EPS rose to 66¢ from 58¢ a year earlier & sales rose 7.9% to a record $14.6B.  Analysts had predicted EPS of 65¢ on sales of $14.4B.  Gross margin, or the percentage of sales remaining after deducting the cost of production, was 65%.  8 out of every 10 PCs sold are based on an INTC microprocessor & its market share in servers  is 98%.  That reach makes the company’s earnings a broad indicator of demand & spending across the economy.  “We’re seeing strength in mature markets and relatively weaker emerging markets,” CFO Stacy Smith said.  “We’re seeing strength in enterprise, and more question marks around the consumer segment. China continues to be a relatively weak market for us.”  Sales in Intel’s PC-processor division rose 8.9% to $9.19B, while revenue in the server-chip group gained 16% to $3.7B.  The company’s growth in PC chips was led by a 21% jump in products for notebook computers.  Desktop-chip shipments rose 6%.  Worldwide PC shipments fell 1.7% in Q3, IDC said last week, a smaller decline than the 4.1% drop that the market researcher had predicted.  Sales in the US climbed 4.3% as companies continued to replace machines that were running on Windows XP.  The stock was off 71¢ in a down market.  If you would like to learn more about INTC, click on this link:
Intel Sales Poised to Top Estimates on Corporate Demand

Intel (INTC)

Bank of America, which agreed to a record $16.7B settlement of gov mortgage probes in Aug, posted a surprise Q3 profit as revenue from trading stocks & bonds increased.  Adjusted EPS, which exclude an accounting gain, was 40¢, beating the 32¢ estimate.  CEO Brian Moynihan has booked more than $70B in costs tied to his predecessor’s takeovers of Countrywide Financial & Merrill Lynch.  He said that the firm’s underlying earnings power would become apparent once the litigation costs subsided.  “We saw solid customer and client activity and improved profitability in most of our businesses relative to the year-ago quarter,” Moynihan said.  Revenue slid 4.3% to $21.2B.  Profit rose at businesses overseen by COO Thomas K. Montag, including a 24% increase in global banking to $1.41B, which includes investment banking.  Trading profit rose 21% to $641M, excluding the impact of accounting charges & tax adjustments.  That was driven by an 11% jump in fixed-income sales & trading revenue to $2.25B, fueled by currencies, mortgages & commodities trading, & a 5.9% increase in equities-trading revenue to $1.03B.  BAC announced the latest settlement in Aug, saying it would pay $9.65B in cash & $7B in consumer relief.  The Justice Dept probe was the last major legal hurdle from the mortgage business, & “the rest of the stuff is pretty well done,” Moynihan said.  The stock fell 50¢.  If you would like to learn more about BAC, click on this link:

BofA Posts a Surprise Profit on Trading Gains After Mortgage Settlement

Bank of America (BAC)

Economic reality is bringing on more selling in stocks.  Earnings are not inspiring buyers.  News around the world continues to be gloomy.  China is trying to restart its growth engine, Europe is about to report another recession & macro economics in the US are stumbling & uneven.  The bleeding in MLPs eased up today after the index (known for a low beta) is having its worst month in history.  Dow is down YTD because of a 1K drop so far in Oct.  This will be a bad month for stocks.

Dow Jones Industrials

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