Thursday, November 20, 2014

Higher markets on strength in US economy

Dow climbed 33, advancers over decliners almost 2-1 & NAZ jumped 26.  The MLP index rose 4+ to the 518s & the REIT index was fractionally higher to the 317s.  Junk bond funds sold off & Treasuries rallied.  Oil went into the 75s on hopes OPEC will cut oil production & gold crawled higher.

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US prices excluding fuel & food increased more than forecast in Oct as a drop in energy costs failed to filter thru to other goods & services.  The core measure of the consumer-price index climbed 0.2%, the most in 5 months, after rising 0.1% in Sep, according to the Labor Dept.  The total cost of living was little changed last month, reflecting cheaper gasoline.  The forecast called for a 0.1% drop.  Rising costs for rents, airline fares, hotel rooms & furniture show the slowing in overseas growth that is helping restrain fuel prices & overall inflation isn’t rippling thru the economy.  That bears out forecasts by the Federal Reserve (FED) that cooling price pressures will prove temporary as the US economy strengthens.  The increase in the core gauge was the biggest since May & followed a 0.1% rise in Sep.  Economists had forecast a 0.1% increase.  The gain was broad-based.  Household furnishing & operations climbed 0.4%, the most in almost 2 years.  Airline fares climbed 2.4%, following months of declines, & hotel room rates increased 0.7%.  Overall consumer prices rose 1.7% in the 12 months ended Oct, the same as for Sep.  The core measure increased 1.8% from Oct 2013 after 1.7% in the prior 12-month period.  Energy costs declined 1.9% in Oct from a month earlier.  Gas prices have been falling for almost 5 months, helping cushion consumer budgets.  The average price of a gallon of regular gas was $2.86 yesterday, its lowest level since Nov 2010.  The FED’s 2% inflation goal is based on the personal consumption expenditures index, the Commerce Dept price gauge that is tied to consumer spending.  That measure climbed 1.4% in the 12 months thru Sep & hasn’t reached the 2% level since Apr 2012.

Consumer Prices in U.S. Excluding Fuel Rise More Than Forecast

China's Manufacturing Output
Photo:   Bloomberg

A Chinese factory gauge fell to a 6-month low in Nov, adding to signs broader stimulus is needed to halt a slowdown in the economy.  The preliminary Purchasing Managers' Index from HSBC Holdings & Markit Economics was at 50.0, below the estimate of 50.2 & lower than last month’s 50.4.  Numbers above 50 indicate expansion.  Following readings that showed fixed-asset investment in the first 10 months expanded the least since 2001 & credit growth weakened last month, the manufacturing report suggests targeted monetary easing is failing to boost growth, raising the prospect of further policy support.  Burdened by overcapacity & weak domestic demand, China’s economy is headed for the slowest full-year growth in more than 2 decades.  The central bank has refrained from broad-based interest rate or RRR cuts to avoid a fresh surge in debt.  At a regular cabinet meeting yesterday, Premier Li Keqiang said companies are still finding it difficult & expensive to get funding.  The PBOC may need to cut reserve ratios 2 or 3 times.  An index of manufacturing output fell to 49.5, a 7-month low & below the threshold of 50 that separates expansion & contraction.  Today’s report, known as the Flash PMI, is typically based on 85-90% of responses to surveys sent to purchasing managers at more than 420 companies.

China Factory Gauge at 6-Month Low Bolsters Easing Case: Economy

Intel, a Dow stock, said sales in 2015 will rise by a percentage in the “mid-single digits,” in line with estimates, as it pushes into markets outside PCs.  Gross margin next year will be about 62% the company said.  It also said it will raise its annual dividend 6.7% to 96¢.  On a quarterly basis, that’s an increase to 24¢.  Under CEO Brian Krzanich, INTC has benefited from steady corp PC demand as well as growing sales of chips for servers where it dominates with 98% of the market.  That means it’s filling almost all the orders for server processors from cloud data-center operators.  “After two years of decline, we’re growing again,” CFO Stacy Smith.  “2014 is turning out to be a better year than we thought.”  Analysts estimate 2014 revenue will rise 6%, after sales slipped the past 2 years.  For 2015, analysts had projected INTC would post sales of $57.8B for 2015, a gain of 3%, with gross margin of 62.5%.  While corp replacement of aging office equipment has helped slow the decline of the PC market, unit sales are still on course to shrink for a 3rd consecutive year, as consumers increasingly turn to smartphones & away from laptops, according to IDC.  The boost that corp PC purchases contributed to processor demand in 2014 will tail off next year, Smith said.  The company expects unit sales next year to be unchanged from 2014 & revenue in the PC-chip division to decline slightly, he said.  INTC is also still struggling to replicate its strength in computer chips in the market for phones & other mobile devices.  While the company today said it’s on course to meet its goal of shipping more than 40M tablet processors this year, that target has come at a cost.  The chipmaker has been paying device makers subsidies to use parts that are too expensive for mainstream tablets.  Those payments resulted in an operating loss in the mobile unit of $1.04B in Q3, following a loss of more than $1B in the previous period.  The stock went up 1.53.  If you would like to learn more about INTC, click on this link:
Intel 2015 Sales to Rise at Percentage in ‘Mid-Single Digits’

Intel (INTC)

Buyers remain in command of the stock market.  Today's gains were not impressive, but bulls will say they are still part of an upward trend.  The US economic data has been looking good lately, although that has been the case several times this year with minimal follow thru.  Additionally, drab numbers from Europe & China will adversely affect multi nationals.  For the time being, the bears are in hibernation.  But since reaching a record high on Nov 10, Dow is up a meager 105.

Dow Jones Industrials

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