Tuesday, January 20, 2015

Markets decline lower oil prices and JNJ earnings

Dow dropped 104, decliners over advancers 2-1 & NAZ was off 15. The MLP index fell 1+ to the 437s & the REIT index was fractionally lower to the 349s.  Junk bond funds slid back & Treasuries advanced, bringing the yield on the 10 year Treasury below 1.8%.  Selling in oil resumed, taking it to the 46s, but gold continued its recent climb.

AMJ (Alerian MLP Index tracking fund)

CLG15.NYM...Crude Oil Feb 15...46.45 Down ...2.24  (4.6%)

GCF15.CMX...Gold Jan 15......1,285.60 Up ...8.70 (0.7%)

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Confidence among US homebuilders hovered in Jan close to a 9-year high, indicating the residential real estate market is poised to expand this year.  While the National Association of Home Builders/Wells Fargo builder sentiment gauge fell to 57 from 58 in Dec, readings greater than 50 mean more respondents report good market conditions.  The forecast called for 58.  A strengthening job market & mortgage rates near historically low levels will probably keep underpinning demand for homes in 2015.  A report on Fri showed consumer confidence jumped in Jan to the highest level in 11 years, raising the odds more households will be looking for residences.  The gauge of current single-family home sales held at 62.  The reading on prospective buyer traffic declined to 44 from 46 in the prior month, while the index of the 6-month sales outlook decreased to 60 from 64.  Builder confidence eased in the North, South & West.  It climbed in the Midwest.

Confidence Among U.S. Homebuilders Little Changed in January

German investor confidence jumped to the highest level in 11 months as the ECB prepares for quantitative easing & the € weakens.  The ZEW Center for European Economic Research index of investor & analyst expectations, which aims to predict economic developments 6 months in advance, climbed for a 3rd consecutive month in Jan to 48.4 from 34.9 in Dec.  The forecast was for an increase to 40.  The reading comes 2 days before the ECB’s Governing Council gathers to consider large-scale gov-bond purchases as its biggest tool yet to avert euro-area deflation.  Speculation over the plans has already helped push Germany’s benchmark DAX Index to a record high & the € to an 11-year low, & boosted fund flows that probably contributed to the Swiss National Bank's shock decision to end its currency cap.  A measure of the current situation rose to 22.4, up from 10 in Dec & a gauge of expectations for the area increased to 45.2 from 31.8.  Germany's Bundesbank has been a chief opponent of adding stimulus at this time.  It said yesterday that while the country’s 2015 inflation outlook must be revised “significantly downward” because of the slump in oil prices, forecasts for economic growth this year & next could be revised upward.

German ZEW Investor Confidence Gains as Stimulus Nears

Johnson & Johnson, a Dow stock & Dividend Aristocrat, forecast lower earnings in 2015 as competition cuts into revenue for some of its best-selling drugs.  Adjusted EPS this year should reach $6.12-$6.27.  That figure excludes an estimated charge of 32¢ for intangible amortization costs, an expense previously included in its pro forma results.  Incorporating that figure, 2015 EPS would be $5.80-$5.95 compared with 2014 adjusted EPS of $5.97.  Last Jan, JNJ forecast 2014 adjusted EPS of $5.75 -$5.85, then increased the outlook throughout the year.  The company is seeking to replenish its product lineup as drugs such as hepatitis C treatment Olysio & blood thinner Xarelto face new competition.  The accounting decision on intangible amortization means the company is no longer deducting the changing cost of hard-to-value assets like trademarks & patents in the company’s adjusted earnings.  The drugmaker is facing increased competition in its pharmaceutical business, the industry leader for the past several years.
Q4 EPS of $1.27, excluding one-time items, beat the $1.26 estimate.  But revenue decreased 0.6% to $18.3B, compared with the $18.5B average projection.  Without currency fluctuations, sales would’ve risen 3.9%.  Prescription drug revenue rose 9.6% to $8B, weighed down by a 2.7% decline outside the US.  The medical device and diagnostic unit saw sales fall 9B to $6.65 B.  Sales of consumer goods & over-the-counter medicine, including Tylenol & Motrin, dropped 3.9% to $3.61B.  The stock lost 3.40.  If you would like to learn more about JNJ, click on this link:
Johnson & Johnson Forecasts Profit Decline on Competition

Johnson & Johnson (JNJ)

Once again, earnings are disappointing.  The strong dollar can be expected to hurt multi nationals.  MLPs are down in the dumps, with the index 110 below its record highs just a few months ago.  Last week's advance in the stock market may prove to be a temporary pause.  Dow has fallen over 400 in Jan, not a good start for the new year.

Dow Jones Industrials

stock chart


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