Tuesday, August 18, 2015

Markets fall, led by Wal-Mart

Dow was off 33, decliners over advancers almost 2-1 & NAZ declined 32.  The MLP index slipped 2+ to the 364s & the REIT index was up pennies in the 325s.  Junk bond funds were mixed to higher & Treasuries continued weak.  Oil tried to climb back to 43 & gold was weak.

AMJ (Alerian MLP Index tracking fund)

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CLV15.NYM....Crude Oil Oct 15...43.14 Up ...0.73 (1.7%)

Live 24 hours gold chart [Kitco Inc.]

Wal-Mart, a Dow stock & Dividend Aristocrat, cut its annual earnings forecast for the year, hurt by currency fluctuations & a high-profile pay bump for US employees.  It now expects EPS of $4.40-$4.70 this fiscal year, which runs thru Jan.  WMT had previously forecast EPS of as much as $5.05.  CEO Doug McMillon is coping with a strong dollar overseas, which has cut into revenue.  At home, WMT is raising wages, aiming to retain more employees & improve customer service.  While those efforts have increased costs, they are helping fuel growth, McMillon said.  Comparable-store sales, excluding currency & fuel spending, rose 1.5% in Q2, beating the 1% projection.  WMT also posted Q2 earnings that missed estimates.  EPS amounted to $1.08, excluding some items.  Analysts had expected $1.12.  Lower gas prices likely helped the company increase foot traffic because consumers were less concerned about the cost of driving.  At the same time, retailers have been struggling to get consumers to spend more of that money they are saving from lower gas prices in brick-and-mortar stores.  There was also higher “shrink” in Q2, reflecting more theft or waste of products.  Concerns about an increase in interest rates by the Fed & slowing economies abroad also have been weighing on consumer confidence, but an improving job market has helped keep spending afloat.   The company announced plans in Feb to raise wages to at least $9 an hour this year & $10 by 2016, along with a related effort to improve training & bolster hours.  The move will reduce EPS 24¢, includes an 8¢ hit in the fiscal Q3, which runs thru Oct.  WMT had previously said the effort would cost 20¢ this year.  “The changes we need to make require investment, and we’re pleased with the steps we’ve taken,” McMillon said.  “Even if it’s not as fast as we’d like, the fundamentals of serving our customers are consistently improving, and it’s reflected in our comps and revenue growth.”  The stock dropped 2.43 to a new yearly low.  If you would like to learn more about WMT, click on this link:

Wal-Mart Lowers Forecast as Pay Raises, Currency Take Toll

Wal-Mart (WMT)

The ECB reduced the maximum level of emergency aid available to Greek banks in a sign the country’s financial tensions are easing after a rescue package was agreed with creditors.  The ECB Governing Council decided to cut the ceiling on Emergency Liquidity Assistance provided by the Bank of Greece to €89.7B ($99B) from €90.4B, according a leaker.  The move is the first such reduction since lenders were forced to rely on the facility in Feb.  Under the terms of a 3rd intl rescue for the country agreed this month worth as much as €86B, Greece’s stricken lenders are in line for up to €25B in recapitalization funds.  As the country lurched close to a departure from the euro this year, lenders suffered capital flight & deteriorating collateral quality, pushing them to tap the Bank of Greece for emergency funding.  The Greek central bank asked the ECB to lower the ceiling for ELA, citing improving liquidity conditions, according to another leaker.  While the aid is technically provided by the Bank of Greece, its use is being reviewed every 2 weeks by the ECB.

ECB Reduces Maximum Greek Bank Aid

Home Depot, a Dow stock, boosted earnings & sales forecasts for the year as the continued rise of US home prices encourages Americans to fix up their houses.  EPS this year will be $5.31-$5.36, including the planned completion of the Interline Brands acquisition.  That’s up from a previous forecast of $5.24-$5.27.  Analysts estimated $5.27, not including the Interline takeover.  The company is benefiting from 40 straight months of rising housing prices, which make homeowners more confident about investing in their dwellings.  Americans also may be betting on future gains, since home prices still haven’t returned to their 2006 peak.  EPS in fiscal Q2 increased to $1.73, up from $1.52 a year earlier.  Excluding some items, EPS was $1.71, matching estimates.  Sales rose 4.3% to $24.8B, topping projections.  Same-store sales, which includes revenue only from established stores & the web, rose 4.2%, with an increase in the number of transactions driving most of the gain.  Analysts projected a 3.5% gain.  The company continued to see a shift toward homeowners taking on bigger projects, with appliances, flooring & plumbing leading sales gains.  Purchases of more than $900 rose 6.3%.  Same-store sales are especially important because it has basically stopped opening new stores, once a key driver of its growth, & is now focused on increasing revenue thru internet purchases & getting more out of its existing locations.  Online revenue rose 25% to $1.24B.  That accounted for 5% of total sales while making up almost a qtr of company growth.  Same-store sales will increase as much as 4.9% this year, the company said, up from a forecast of a gain as high as 4.6% that it provided in May.  The stock rose 3.10.  If you would like to learn more about HD, click on this link:

Home Depot Raises Forecast as Housing Market Boosts Sales

Home Depot (HD)

While stocks were weak, volume was light.  WMT is a biggie, & because it is so large, its results have implications for the total US economy.  And the message is for more weakness, although probably not weak enough for the Fed to delay a rate hike in Sep.  But US consumers have had to endure limited growth in household income for years which is why GDP growth has only been mediocre.  Dow is down in Aug & in the red 300 YTD.

Dow Jones Industrials

stock chart 


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