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Wednesday, October 28, 2015
Choppy but higher market after FOMC announcement
Dow rose 198, advancers over decliners 3-1 & NAZ gained 65. The MLP index jumped up 10+ to the 321s & the REIT index was up a fraction to the 226s. Junk bond funds were mixed to higher & Treasuries retreated taking the yield on the 10 Year bond to almost 2.1%. Oil soared to the 45s (however still at depressed levels) & gold pulled back while stocks rose.
Federal Reserve (FED) policy makers said the economy is still expanding at
a “moderate” pace & they will consider tightening policy at their
next meeting in Dec without making a commitment to act this year. Even with a slower pace of recent job gains, “labor market
indicators, on balance, show that underutilization of labor resources
has diminished since early this year,” the FMOC
said. The FED also removed a line from the Sep statement saying that
global economic & financial developments “may restrain economic
activity somewhat,” saying only that the central bank is
monitoring the intl situation. Central bankers also added a
reference to the possibility of increasing the rate in Dec based on
“realized and expected” progress in reaching their goals.
Janet & colleagues have been watching for more
labor-market improvement & signs that inflation is rising toward their
goal, despite headwinds from overseas, as they debate the a rate
increase. The assessment of the labor market, which said
the pace of job gains “slowed & the unemployment rate held steady,” compared with last month’s language citing “solid job gains &
declining unemployment.” The FOMC vote was 9-1, as Richmond Fed pres Jeffrey Lacker
dissented for a 2nd straight meeting, again calling for a quarter
percentage-point rate increase. Household spending & business fixed investment have been
“increasing at solid rates in recent months,” the FED said, compared
with language in Sep that those indicators have “been increasing
moderately.” The FED reiterated that it expects inflation to rise gradually toward its 2% goal in the medium term.
Snack food maker Snyder's-Lance said it will buy Diamond Foods for
$1.27B to expand in the "better-for-you" foods category,
which includes baked potato chips & fat-free popcorn. The deal comes as consumers are increasingly moving away from
salty & sugary snacks & opting for healthier products such as baked
snacks & trail mixes. Snyder's-Lance offered $40.46 per DMND share, 0.775 in Snyder's-Lance shares & $12.50 in cash. Snyder's-Lance, which makes Pretzel Crisps & Lance peanut butter
sandwich crackers, said the deal is valued at $1.9B including
$640M of debt. Diamond Foods' "better-for-you" foods includes 100 calorie packs of
Emerald snack nuts, organic & baked Kettle potato chips & the Pop
Secret line of fat-free popcorn. DMND sales have fallen in the past 2 qtrs, & has
missed estimates for the last 4, due to its exit from a
low-margin business & the strong dollar. It exited a low-margin nut products
business this year & has outlined plans to source 70% of its
North America sales from non-GMO-certified products next year. The company has also been struggling to recover from an accounting
scandal in 2012 in which it delayed payments to suppliers to show lower
costs in its financial statements. It settled with US regulators in
2014. LNCE, whose sales have beaten estimates in the
past 3 qtrs, also reported lower-than-expected
sales for Q3. The company expects the transaction to close in early 2016 & immediately add to its earnings after that. LNCE stock dropped 2.83 (8%) & DMND went up 3.11 (9%). If you would like to learn more about LNCE, click on this link: club.ino.com/trend/analysis/stock/LNCE?a_aid=CD3289&a_bid=6ae5b6f7
IBM, a Dow stock, agreed to acquire digital assets from Weather, which include
the Weather Channel & Weather Underground apps and websites,
attempting to strengthen its ability to crunch data for customers &
capitalize on the Internet of Things. The Weather
Channel television property, which isn’t part of the acquisition, will
license weather forecast data & analytics from IBM under a long-term
contract. Terms of the purchase weren’t disclosed. CEO Ginni Rometty has been seeking to bolster IBM’s cloud & data analytics offerings, shifting from software sales &
information-technology services amid a stock decline & multiyear
revenue slump. The Weather Co acquisition extends a bet that
cognitive computing by IBM’s Watson division, which draws insights from
vast amounts of data, will drive future growth. IBM this year purchased Merge Healthcare for $1B to add medical imaging technology & data to the Watson Health Cloud business unit. Combining
the technology & expertise from the 2 companies will serve as the
foundation for the new Watson Internet of Things unit & cloud
platform. IBM stock rose 2.97. If you would like to learn more about IBM, click on this link: club.ino.com/trend/analysis/stock/IBM?a_aid=CD3289&a_bid=6ae5b6f7
After the announcement by the FOMC, Dow dropped more than 100 based on the gut reaction. Bulls returned & bid the Dow back up to a solid advance, closing at session highs. Everybody was expecting Janet & friends to postpone the rate hike one more time. Even though they sort of promised next time they would get serious about raising the interest rate, they have said that numerous times before. Chances are they will find another excuse to delay. Next year will be the 10th anniversary of the low interest rates & it was called a "temporary condition." Tomorrow GDP data for Q3 will be reported.
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...2.49 
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