Wednesday, July 22, 2015

Markets retreat after disappointing earnings

Dow dropped 68 (but off the lows), decliners over advancers 3-2 & NAZ tumbled 36 (still near its recent record).  The MLP index plunged 10 to the 368s while the REIT index went up 1 to the 317s.  Junk bond funds were weak & Treasuries rose with the chaos in financial markets.   Oil sank to the low 49s (setting up a test for the 45 lows) & gold is below 1100 (the lowest in almost than 5 years).

AMJ (Alerian MLP Index tracking fund)

CLU15.NYM....Crude Oil Sep 15....50.01 Down ...0.85  (1.7%)

Live 24 hours gold chart [Kitco Inc.]

Sales of previously owned US homes climbed to an 8-year high in June as momentum in the residential real estate market accelerated.  Closings on existing homes, which usually occur a month or 2 after a contract is signed, climbed 3.2% to a 5.49M annualized rate, the most since Feb 2007, according to the National Association of Realtors, & prices rose to a record amid tight supply.  The housing market has picked up in recent months as more jobs, historically low mortgage rates & greater household formation boost demand.  The forecast for the pace of existing-home projected a gain to a 5.4M pace.  The Realtors’ group revised May’s rate to 5.32M from a previously reported 5.35M.  Compared with a year earlier, purchases increased 9.6% on an adjusted basis.  The median price of an existing home rose 6.5% from Jun 2014 to $236K, the highest on record before adjusting for inflation.  The number of existing properties on the market rose to 2.3M in Jun compared with 2.28M at the end of May.  At the current pace, it would take 5 months to sell those houses compared with 5.1 months at the end of May.  The median time a home was on the market was 34 days, the fewest in records going back 4 years.  “The market is tighter compared to last year,” Lawrence Yun, NAR chief economist, said.  “Home values are rising too fast and we need more supply to bring the price growth down, consistent with income growth.”  The real-estate agents’ groups projects sales will total 5.26M this year, the most since 2007.  Purchases of existing homes increased in all 4 regions, led by a 4.7% gain in the Midwest.

Existing U.S. Home Sales Climb to Highest Level in 8 Years

Boeing, a Dow stock, cash flow surged during Q2, with the 787 Dreamliner pacing record jet deliveries as the company profited from an order backlog stretching into the 2020s.  Free cash flow of $2.6B reversed a Q1 negative result.  While BA pared its 2015 earnings forecast, the planemaker had telegraphed the move with its Jul 17 warning of a $536M after-tax charge on swelling costs to develop a new US Air Force refueling tanker.  Annual EPS will be $7.70-$7.90, BA said, down from the $8.20-$8.40 range that predated the disclosure of the tanker setback.  The charge was the 2nd in a year on the plane, bringing the combined costs on the initial fixed-price contract to $1.3B.  Quarterly EPS excluding some pension expenses was $1.62, beating the $1.37 estimate.  Sales of $24.5B exceeded the $24.3B prediction.  BA bought back $2B in stock, cushioning the blow from the charge on the tanker’s development.  The jet is based on the 767 passenger model.  BA expects 787 costs to climb this year, as it gathers inventory to prepare for a 20% rise in output.  Costs should start to fall next year when BA reaches the new tempo of 12 jets a month.  Last qtr BA delivered 197 aircraft handed to buyers, the most ever.  Commercial-jet revenue rose 18% to $16.9B, while sales for Boeing Defense, Space & Security fell 3% to $7.54B.  The stock rose 1.47.  If you would like to learn more about BA, click on this link:

Boeing Cash Flow Surges on Record Commercial-Jet Deliveries

Boeing (BA)

The ECB eased the pressure on Greek lenders as it prepares to embark on a 3rd tour of duty in Greece.  Officials raised the limit on Emergency Liquidity Assistance to banks by €900M ($981M) today.  Attention now turns to a bigger task, sending a team back to the Greek capital to monitor compliance with austerity policies that the gov accepted in return for another bailout deal.  The ECB has an interest in seeing Greece make good on its commitments, as the institution is embroiled there on multiple fronts from saving the banks to deciding when to include the nation in monetary stimulus.  If the gov of Prime Minister Tsipras fails to convince on reforms, the ECB will once again be burdened with the dilemma over whether it’s obliged to let the lenders collapse.  The ECB’s Governing Council had previously set ELA at €89.5B. Pres Mario Draghi persuaded his colleagues to raise ELA by €900M last week as well.  That was the first increase since late Jun, a reaction to the country’s parliament passing prior actions that allow talks to start on an aid package worth as much as €86B.  The extra liquidity helped Greek banks reopen on Mon for basic services, though capital controls remain in place.  The ECB has room to take further steps to ease restrictions on the banks should implementation of the reforms go well.  That could take weeks or months!  The ECB will monitor Greece’s aid program along with the European Commission & IMF.  Draghi says he’ll work on the assumption that the Greek gov will do as it’s pledged, while acknowledging that it might not.

ECB Said to Raise Greek Emergency Bank Aid Before Bailout

Dreary days have become common this year even though the popular stock averages are near record highs.  This disconnect may be sinking in to investors.  The Greek debt mess is far from over.  It's just limping along one day at a time.  The MLP industry is in a bear market with the index down almost 200 from its record highs last year.  As I said previously, the index will see 300 before it sees 400.  Apple (AAPL) lost over 5.  The bulls are on vacation.

Dow Jones Industrials

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