Friday, February 27, 2015

Lower markets on disappointing news for US manufacturing

Dow dropped 82, but advancers slightly ahead of decliners & NAZ fell 24.  The MLP index rose 3+ to the 447s & the REIT index went up 2+ to the 335s.  Junk bond funds did little & Treasuries advanced, bringing the yield on the 10 year Treasury down to 2%.  Oil bounced back into the 49s & gold crawled higher.

AMJ (Alerian MLP Index tracking fund)

CLJ15.NYM...Crude Oil Apr 15....49.57 Up ...1.40 (2.9%)

Live 24 hours gold chart [Kitco Inc.]

William C. Dudley, pres of the Federal Reserve Bank of New York, said he sees reason for caution on how soon or how quickly to raise interest rates.  “Inflation is projected to stay for some time below the Fed’s objective of 2 percent,” he said & also cited “lingering headwinds” from the financial crisis.  Dudley was discussing an academic paper arguing the Fed should delay its first rate increase & then tighten more sharply thereafter.  The paper investigates whether there is a “new neutral” for long-term rates & finds it could range from a little over zero-2%, adjusted for inflation.  Dudley also repeated his view that raising rates too soon poses greater risks to the economy than lifting them too late.  While Dudley said he doesn’t accept the “secular stagnation” thesis of prolonged period of low growth & interest rates, the appropriate longer-run level of the federal funds rate will probably be lower than in the past because of slower growth in the labor force & worker productivity.  “My point estimate is that the longer-run value of the federal funds rate is 3.5 percent, well below its long-run historical level of 4.25 percent,” he said.  “At the same time, I also have little confidence about the accuracy of this specific estimate,” he added.  He said a cautious approach to tightening only applies as long as inflation expectations are stable, & added that globalization & a migration of financial activities away from the banking system may have made the federal funds rate less effective in influencing the economy.  Dudley also said investor expectations that the Fed will keep its benchmark rate low in the long run are helping to hold down bond yields & boosting growth.  If long-term yields stay low after the Fed starts to raise its short-term rate, he said, “it would be appropriate to choose a more aggressive path of monetary policy normalization.”

Dudley: Uncertainty on Long-Run Rate Argues for Caution

The Institute for Supply Management-Chicago business barometer decreased to 45.8 in Jan from 59.4 in the prior month.  Readings greater than 50 signal growth.  The forecast was for 58.  The estimates ranged from 55-59.6.

Chicago ISM Manufacturing Index Tumbles

JC Penney reported break-even results, missing estimates for EPS of 11¢, while revenue & comparable-store sales grew more than expected thanks to a "successful holiday season."  The retailer reported fiscal Q4 sales of $3.89B, up from $3.78B a year earlier, & topping estimates for $3.87B.  Same-store sales rose 4.4%, compared to forecasts for a gain of 3.8%.  In addition, the company said online sales totaled $428M, up 12.5%.  "I am extremely proud of all that has been accomplished to restore this great company,"  CEO Mike Ullman said.  "We are back in the eyes of our customers, back running the business effectively and back on solid financial footing. We fully intend to build on this momentum and continue to significantly improve our business in 2015."  JCP expects comp-store sales to increase 3-5% for fiscal 2015, while gross margin is expected to improve between 50-100 basis points versus 2014.  Free cash flow is projected to come in flat. "I have been very impressed by what I have seen in my first few months at J.C. Penney," pres & CEO-designee Marvin Ellison said.  "I believe 2015 will be an important year for J.C. Penney, and the team is focused on profitably executing our business."  Last month, JCP posted strong numbers for the 9-week holiday period, reporting comparable-store-sales growth of 3.7% over the year-earlier period.  The improvement renewed investor hope that the struggling retailer's turnaround is on the right track.  The stock sank 64¢ (7%).  If you would like to learn more about JCP, click on this link:

JC Penney misses Street estimate; stock drops 9%

J.C. Penney (JCP)

Stocks finished the month low on less than thrilling economic news.  Oil rigs declined for a 12 straight week.  This is a major contributor to the economy & it's hurting.  The GDP news was glum after the downward revision which will produce lower estimates for the Q1 growth rate.  GDP grew at a mediocre 2.4% rate last year following 2.2% in 2013.  Past recessions have had much strong growth rates.  Despite the negative market today, Dow rose an outstanding 1K in Feb bringing it into the black YTD (down 90 from the record reached 2 days go).

Dow Jones Industrials

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Markets tread water on mixed economic data

Dow fell 14, advancers over decliners almost 3-2 & NAZ lost 1.  The MLP index inched up pennies to 444 & the REIT index rose 1 to the 334s.  Junk bond funds were mixed & Treasuries advanced.  Oil climbed back to the 49s & gold also saw buying.

AMJ (Alerian MLP Index tracking fund)

CLJ15.NYM....Crude Oil Apr 15...49.23 Up ...1.06 (2.2%)

GCH15.CMX...Gold Mar 15....1,215.20 Up ...5.60 (0.5%)

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The economy in the US expanded at a slower pace in Q4 than previously reported, restrained by a smaller gain in stockpiles & widening trade gap, even as consumers continued to provide support.  GDP rose at a 2.2% annualized rate, down from an initial estimate of 2.6%,  according to the Commerce Dept. The forecast called for a 2% pace.  While overall growth was revised down, consumer spending climbed by the most in 4 years, underscoring the fundamental strength of the expansion.  An improving job market & cheaper fuel costs will probably keep supporting households this year, which will help the US overcome a slowdown in exports as the dollar climbs & foreign economies struggle.  For all of 2014, the economy grew 2.4% from the year before, following a 2.2% advance in 2013.  Consumer spending rose 2.5%, the most since 2006.  Household consumption grew at a 4.2% annualized rate in Q4, the most since Q4-2010.  It was previously estimated at 4.3%.  Purchases added 2.8 percentage points to growth.  A smaller gain in spending on goods than previously calculated was almost fully offset by a bigger advance in purchases of services, which grew at a 4.1% pace, the most since 2000.  Inventories contributed less to growth than earlier reported.  Stockpiles grew at a $88B annualized rate, down from a prior estimate of $113B.  Following the $82B increase in Q3, the smaller gain added 0.1 percentage point to growth, compared with a previously reported 0.8 point.  The trade gap weighed on growth more than previously estimated.  The difference between exports & imports shaved 1.15 percentage point from growth, compared with a 1.02 percentage point reduction previously estimated.

U.S. GDP Grew Less Than Previously Estimated

More Americans signed contracts to purchase previously owned homes in Jan, rounding out a week of housing data that depicted an uneven recovery.  The index of pending sales climbed 1.7% after a 1.5% drop the prior month that was smaller than initially estimated, according to the National Association of Realtors (NAR).  The forecast called for a 2% rise.  Employment gains & near record-low mortgage rates will help to underpin demand.  A lack of properties for sale, higher prices & still-tight credit are hurdles for some customers as first-time buyers remain reluctant to enter the market.  “All indications point to modest sales gains as we head into the spring buying season,” the NAR said.  “However, the pace will greatly depend on how much upward pressure the impact of low inventory will have on home prices.”  The group revised Dec data from a previously reported 3.7% decrease.  3 of 4 regions saw an increase, led by 3.2% in the South.  Compared with a year earlier, the index increased 6.5% on an unadjusted basis & was projected to climb 8.7%.  The pending sales gauge was 104.2 on a seasonally adjusted basis, the highest since Aug 2013.  A reading of 100 corresponds to the average level of contract activity in 2001, or “historically healthy” home-buying traffic.

Pending Sales of Existing U.S. Homes Rise to Highest Since 2013

US consumer sentiment fell from an 11-year high in Feb according to the University of Michigan.  It's final Feb reading on the overall index on consumer sentiment was 95.4, higher than the initial reading of 93.6 & the market forecast for a reading of 94.  However, the final sentiment index was lower than the final reading of 98.1 in Jan.

Consumer Sentiment Rises in Late February

Stocks aren't doing much today with uninspiring news. Oil recovered some of the losses from yesterday & is back to where it was in the first week of Jan.  The Feb rally brought  the Dow into the black YTD, up 370.  PM trading should be quiet.

Dow Jones Industrials