Tuesday, May 19, 2015

Markets drift lower on earnings and housing data

Dow added 3, decliners over advancers 2-1 & NAZ lost 6.  The MLP index fell 4+ to the 443s & the REIT index was down chump change in the 324s.  Junk bond funds slid lower & Treasuries sold off.  Oil lost ground again, falling to the 58s, & gold pulled back although held above 1200.

AMJ (Alerian MLP Index tracking fund)

CL.NYM...Crude Oil Jun 15...58.51 Down .....0.92  (1.6%)

GC.CMX...Gold Jun 15.....1,213.70 Down ...13.90  (1.1%)

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New residential construction in the US surged in Apr to the highest level in more than 7 years, indicating the industry has moved beyond a weather-related soft patch to regain strength.  Housing starts jumped 20.2% to a 1.14M annualized rate, the most since Nov 2007, from a 944K pace in Mar, according to the Commerce Dept.  The forecast was 1.02M.  More permits, a proxy for future construction, were issued than at any time since Jun 2008.  An improving labor market & mortgage costs close to multiyear lows are reviving residential construction, a sign that the weakness in early 2015 was probably due to harsh winter weather.  Builders have said the spring selling season is off to a good start, & sentiment data for May showed developers are optimistic about the next six months.  Last month’s jump in starts was the biggest since 1991.  But construction slumped 16.7% in Feb as harsh weather prevent developers from starting new projects.  The Commerce Dept also issued its annual revision to the construction data which affected the numbers back to Jan 2013.  Permits increased to a 1.14M annualized rate, a sign construction will remain strong this month.  They were projected to climb to a 1.06M pace after 1.04M the prior month.  The surge in housing starts last month was paced by single-family projects in the West & multifamily in the Northeast, pointing to broad-based gains in the industry.  Construction of single-family houses in the US jumped 16.7% to a 733K rate, the most since Jan 2008.  Work on multifamily homes, such as townhouses & apartment buildings, climbed 27.2% to an annual rate of 402K.  3 of 4 regions showed gains, led by the Northeast & West.

Housing Starts in U.S. Jump to Seven-Year High

German investor confidence fell more than forecast after growth in Europe’s largest economy slowed at the start of the year.  The ZEW Center for European Economic Research index of investor & analyst expectations, which aims to predict economic developments 6 months in advance, fell to 41.9 in May from 53.3 in Apr.  That’s the lowest level since Dec.  Economists had forecast a decline to 49.  Growth in Germany slowed more than forecast in Q1, even as the euro area, its largest trading partner, expanded at the fastest pace in almost 2 years.  While the Bundesbank predicts momentum in German manufacturing will be sluggish in the months ahead, it sees consumer spending supporting the economic recovery.  German GDP rose 0.3% in Q1, less than in neighboring countries such as France or Spain & the 19-nation euro area, which expanded 0.4%.  A gauge of current conditions fell to 65.7 in May from 70.2 the previous month.  While investors adjusted expectations after “unexpectedly poor growth figures” in Q1 & turmoil in stock & bond markets, “only a small number of survey participants actually expect a deterioration of the economic situation,” the ZEW said.  The German economy “will probably continue to expand in coming months,” the Bundesbank said in its monthly report published on Mon.  The Ifo institute’s index of business climate rose to a 10-month high of 108.6 in Apr.

German Investor Confidence Falls Amid Slower Growth

Wal-Mart, a Dow stock & Dividend Aristocrat, posted Q1 earnings that missed estimates after US sales grew more slowly than projected & currency fluctuations ate into profit.  EPS amounted to $1.03, excluding some items & analysts had predicted $1.05.  Revenue also was light, with the US supercenters & Sam’s Club locations posting slower growth than estimated.  CEO Doug McMillon faces the dual challenges of reviving growth at home & contending with the strong dollar overseas, which has whacked the value of its intl revenue.  Currency effects are now expected to reduce sales by $14B this year, up from a previous projection of $10B.  The company gets more than ¼ of its revenue from intl markets.  “We expect currency to remain a significant headwind for the year,” CFO Charles Holley said.  McMillon has been working on a turnaround plan that includes cutting expenses & boosting efficiency. So far this year, has eliminated a layer of management within stores & raised the wages of rank & file workers.  But the company is struggling with a broader shift in how shoppers spend their money.  U.S comparable-store sales rose 1%, excluding fuel.  Analysts had projected a 1.5% gain.  Sam’s Club outlets posted a 0.4% increase versus a prediction of 1.6%.  Total revenue slipped less than 1% to $114.8B, missing an estimate of $116.2B.  Yesterday WMT said Q2 EPS would be $1.06-$1.18.  Analysts estimated $1.17.  Currency effects are expected to reduce EPS by 13¢ this year, up from a previous estimate of 10¢ WMT said.  “The company’s continued investments in e-commerce, as well as wages and training for U.S. associates, were headwinds on our operating income during the quarter,” treasurer Claire Babineaux-Fontenot said.  The stock slumped 3.06.  If you would like to learn more about WMT, click on this link:

Wal-Mart Results Miss Estimates as Currency Crimps Earnings

Wal-Mart (WMT)

The housing data was encouraging although it was somewhat muted following the big drop in the prior month.  Earnings at WMT were clearly disappointing &more of that will be coming from other retailers.  However the popular averages remain essentially at record highs.  That's called a disconnect. 

Dow Jones Industrials

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