Tuesday, January 20, 2015

Markets pare early losses as tech rally offsets global economic concerns

Dow inched up 3, decliners over advancers 3-2 & NAZ went up 20.  The MLP index rose fractionally to 439 & the REIT index was off 2+ to the 347s.  Junk bond funds traded lower & Treasuries advanced although early gains were pared.  Oil sank to the low 46s & gold continued climbing, coming close to 1300 (up 100 this year).

AMJ (Alerian MLP Index tracking fund)

3 Stocks You Should Own Right Now - Click Here!

CLG15.NYM....Crude Oil Feb 15....46.13 Down ...2.56  (5.3%)

Live 24 hours gold chart [Kitco Inc.]

Morgan Stanley's Fixed-Income Trading Slumps
Photo:   Bloomberg

Morgan Stanley profit that missed estimates as fixed-income trading revenue fell to the lowest since the financial crisis.  Q4 EPS was 47¢, from 2¢ a year earlier.  EPS was 39¢ including an accounting adjustment, a tax benefit, a change in compensation policy & other one-time items.  That compared with the 50¢ estimate.  Fixed-income trading revenue fell 14% to $599M, excluding the one-time items, a steeper drop than many had estimated.  CEO James Gorman has seen his firm’s revenue from that business drop to less than half what it was in 2006 as he seeks to cut the amount of capital the unit requires.  Q4 revenue from fixed-income sales & trading excluded debt-valuation adjustments & a $468M charge from changing the valuation of some over-the-counter derivatives to incorporate funding costs.  Funding valuation adjustments, or FVA, estimate a present value of those funding costs rather than spreading them over the life of the derivative contract.  Revenue excluding DVA & including FVA declined 8.2% to $7.54B from a year earlier.  Book value per share climbed to $34.62 from $34.16 at the end of Sep.  The firm’s return on equity was 5.4% for the qtr.  In equities trading, revenue rose 8.1% from a year earlier to $1.63B.  The brokerage division posted net income of $736M on record net revenue of $3.8B.  MS last year boosted its targets for the wealth-management unit’s profit margin, saying it can reach a goal of as high as 25% by Q4 even without help from higher markets or interest rates.  A tax benefit, the bank’s 3rd of 2014, totaled more than $2B for the year.  The Q4 gain comes from changing its brokerage subsidiary to a corp.  The stock fell 14¢.  If you would like to learn more about MS, click on this link:

Morgan Stanley Misses Estimates on Bond-Trading Revenue

Morgan Stanley (MS)

Delta Air Lines Q4 profit beat estimates, boosted by cheap fuel & strong demand in the US.  The carrier benefited from a 39% reduction in oil prices during the period, even as fuel hedging costs limited gains.  More passengers flying domestically which helped offset pressure on intl routes.  “As we begin 2015, we have a significant opportunity from lower fuel prices, which will drive more than $2 billion in fuel savings over 2014,” said CEO Richard Anderson.  EPS was 78¢, adjusted for one-time items, surpassing the estimate of 77¢.  Operating revenue rose 6% to $9.6B.  Fuel expense declined $342M, driven by lower market prices & higher refinery profits.  DAL said its operating margin is forecast to be 11-13% in Q1 & estimated a fuel price of $2.45-$2.50 a gallon.  In Q4, the average fuel price was $2.62 a gallon.   With fuel costs continuing to decline, analysts wonder how long airlines will be able to maintain fares.  If ticket prices fall, analysts said carriers may struggle to raise prices once fuel costs start increasing again.  Fuel is typically the largest expense for airlines, accounting for as much as 1/3 of total operating costs.  The hedging contracts, in which it paid for protection against rising oil prices, are expected to eat into the company’s profits this year.  In Dec, DAL said its hedges would hurt full-year 2015 earnings by $1.2B.  DAL had $1.4B in special charges in Q4, leading to a net loss of $712M, due largely to a mark-down of the value of its fuel hedges.  The stock went up 3.33.  If you would like to learn more about DAL, click on this link:
Delta Earnings Beat Analysts’ Estimates on Cheaper Fuel

Delta Air Lines (DAL)

China’s new-home sales jumped last month after the first interest rate cut since 2012 boosted demand & developers made more apartments available to tap improving sentiment in the nation’s property market.  Housing sales surged 41% to 938B yuan ($151B) from Nov & were 4.2% higher than a year earlier, making Dec the first year-on-year increase in 12 months.  Home sales recovered after the central bank cut interest rates in Nov & eased curbs in an industry that had become a drag on growth.  Developers added new apartments for sale at a faster pace last month to clear inventories, after the gov lowered borrowing costs & eased mortgage restrictions.  The sustainability of the recovery in the real estate market remains uncertain.  Inventory levels in the biggest “first-tier” cities of Beijing, Shanghai, Shenzhen & Guangzhou remain at 14 months of sales, near a 5-year high, while those for many smaller cities have risen to levels near 48 months of sales, according to SouFun Holdings.  Home sales fell 7.8% last year, as tight credit & an economic slowdown sapped demand.  The average new-home price in 100 cities tracked by SouFun fell for an 8th consecutive month in Dec, extending the year’s decline to 2.7%, according to the nation’s biggest real-estate website owner.  Growth in real estate investment slipped to 10.5% last year from 20% in 2013.  New property construction dropped 11% last year, reversing a 14% increase in 2013 & promising to ease an oversupply.  The growth in unsold housing inventories slowed to 26% amid rising sales, down from 37% in 2013.

China New Home Sales Jump After Interest Rate Cut Boosts Demand

Late day buying reduced early market losses.  Earnings continue to come in drab.  The US economy is performing better than during the years following the financial crisis, but the rest of the world is limping along at best.  China just had its slowest year of growth in some time, but gov stimulus measures may be helpful in 2015.  Europe is struggling, trying to return to better times.  Meanwhile Dow is having a tough year so far.  Oil back at 46 is not a good sign for the stock market.

Dow Jones Industrials

No comments: