Wednesday, March 18, 2015

Stocks and commodities soar after FOMC announcement

Dow surged 227, advancers over decliners better than 4-1 & NAZ climbed 45.  The MLP index rebounded an enormous 9+ to the 426s in what is a volatile market & the REIT index jumped 6+ to 340.  Junk bond funds rose & Treasuries also rallied, taking the yield on the 10 year Treasury below 2%.  Oil shot up to the 44s & gold, rising from its depths, also had a very good day.

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CLJ15.NYM....Crude Oil Apr 15....42.83 Down ...0.63  (1.5%)

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The Federal Reserve opened the door to an interest-rate increase as soon as Jun, while also indicating it will go slow once it gets started.  The new signals were contained in a statement that ended an era by dropping an assurance that the Fed will be “patient” in raising rates, & in a fresh set of estimates that lowered the median for the federal funds rate the end of 2015 to 0.625% compared with 1.125% in Dec.  “Just because we removed the word patient from the statement doesn’t mean we are going to be impatient,” Chair Janet Yellen said in.  The FOMC said it will be appropriate to tighten “when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”  “An increase in the target range for the federal funds rate remains unlikely at the April” meeting, it said.  Yellen is preparing for an exit from the most aggressive easing in its 100-year history as the job market overcomes the damage wrought by the deepest recession since the 1930s.  At the same time, inflation & wage growth that remain too low are giving her reasons for caution.  While Fed officials lowered their estimate for the federal funds rate at the end of 2015, they said that “this change in the forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range.”  Dropping the pledge to be “patient” marks a shift away from the explicit guidance on the future path of policy that it has used since late 2008 to keep longer-term borrowing costs low.  The Fed will now set policy at each meeting based on the latest economic data, making its actions less predictable.  The Fed repeated that it sees “strong job gains” & that labor-market conditions have “improved further.”  Still, the committee lowered its assessment of the economy, saying growth has “moderated somewhat.”  In Jan, it said the economy was “expanding at a solid pace.”  Export growth has weakened & the housing recovery remains slow.  Yellen has said the promise to be “patient” means the FOMC would probably wait at least 2 meetings before raising rates.  The next FOMC meetings are scheduled for Apr & Jun.

Fed Drops ‘Patient’ Stance, Opening Door to June Rate Increase; Markets Surge

IMF officials told their euro-area colleagues that Greece is the most unhelpful country the organization has dealt with in its 70-year history.  In a short & bad-tempered conference call yesterday, officials from the IMF, ECB & the European Commission complained that Greek officials aren’t adhering to a bailout extension deal reached in Feb or cooperating with creditors.  German finance officials said trying to persuade the Greek gov to draw up a rigorous economic policy program is like riding a dead horse while the IMF team said Greece’s attitude to its official creditors was unacceptable.  Concern is growing among officials that the recalcitrance of Tsipras’s gov may end up forcing Greece out of the euro, as the cash-strapped country refuses to take the action needed to trigger more financial support.  Tsipras is pinning his hopes for a breakthrough on a meeting with euro leaders this week in Brussels.  “These are difficult talks,” Merkel told her parliamentary group yesterday.  She said that the outcome of the talks is completely open.  Euro-region finance ministers are urging Greece to draw up a plan to fix the economy in exchange for emergency loans to keep the country afloat.  As Tsipras challenges his creditors to blink first, gov money is running out, raising the prospect of a cash crunch as early as this month.  The country faces more than €2B in debt payments Fri, & gov salaries & pensions must be at the end of Mar.  Officials from the institutions monitoring the bailout said that Greece is unilaterally pushing measures thru parliament that have an unclear fiscal impact & without consulting euro them.  

IMF Considers Greece Its Most Unhelpful Client Ever

Starbucks is planning a 2-1 stock split, its first such move in almost a decade, after shares of the coffee-house chain reached a record high last month.  “This split is a direct reflection of the past seven years of increasing shareholder value,” CEO Howard Schultz said.  “Shareholders are experiencing an all-time high in value as we continue to deliver world-class customer service and, in turn, record profits and revenue.”  After SBUX shares declined in 2007 & 2008, hurt by the recession & financial crisis, they have climbed for 6 straight years & the stock rose to its record high.  It also said it would test a new delivery service in Seattle & NY’s Empire State Building, letting customers get their lattes sent directly to their offices.  This is its 6th 2-1 split since the IPO in 1992.  Starbucks’ previously announced Q3 EPS projection will equate to 32¢, or 32-33¢ when excluding some items.  For the year, EPS should be $1.77-$1.79 a share, or $1.55-$1.57 when adjusted.  The stock went up 1.45.  If you would like to learn more about SBUX, click on this link:

Starbucks Planning 2-for-1 Split, Its First in Almost Decade

Starbucks (SBUX)

Janet's words were well received & maybe the Israeli election helped bring out buyers.  Markets believe there is no rush to increase interest rates, making the bulls happy.  A reduction in the outlook for the US economic outlook soothed nerves.  Let's see what tomorrow brings as the Greek debt mess looks like a disaster in the making.  It's strange to see stock, bonds, Treasuries & gold go up at the same time!  Dow is back over 18K & NAZ touched its important ceiling of 5K before backing off.

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