Thursday, August 18, 2016

Markets fluctuate after comments in FOMC minutes

Dow went up 21, advancers slightly ahead of decliners & NAZ added 1.  The MLP index lost a fraction to the 315s & the REIT index rose 1+ to the 363s.  Junk bond funds crawled higher & Treasuries rose in price.  Oil rose again & gold was weak.

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Federal Reserve officials were divided in Jul over the urgency to raise interest rates again, with some preferring to wait because inflation remained benign & others wanting to go soon as the labor market nears full employment.   "Several suggested that the committee would likely have ample time to react if inflation rose more quickly than they currently anticipated, and they preferred to defer another increase in the federal funds rate until they were more confident that inflation was moving closer to 2 percent on a sustained basis," according to the minutes of the Jul 26-27 policy meeting.  “Some other participants viewed recent economic developments as indicating that labor market conditions were at or close to those consistent with maximum employment and expected that the recent progress in reaching the committee’s inflation objective would continue, even with further steps to gradually remove monetary policy accommodation,” the minutes showed.  At the meeting, the FOMC left the benchmark interest rate unchanged & noted that “near-term risks to the economic outlook have diminished.”  A number of policy makers have suggested in public comments since the last meeting that it will probably still be appropriate to raise interest rates at least once this year, with some indicating a move could come as soon as the FOMC’s Sep 20-21 gathering.  Investors will listen closely for additional clues on timing when Janet Yellen will speak Aug 26 at Jackson Hole, Wyoming.  They put the probability of a rate increase this year at roughly 50%, according to the prices of federal funds futures contracts.

Fed Officials Split in July on Whether Rate Hike Needed Soon

Cisco, a Dow stock, fell after a report said the largest maker of networking equipment will cut as many as 14K employees worldwide (about 20% of its workforce).  The company will announce the cuts in the next few weeks according to an independent report.  CSCO declined to comment on the this report.  CEO Chuck Robbins, who took over in Jul 2015, has been working to boost growth by shifting its offerings toward software-based networking, security & management products, which customers increasingly prefer because they're less expensive & more versatile.  The job cuts stem from a transition away from its hardware roots.  In the near term, the deep job cuts could could have a “large potential positive impact” on the company’s results, boosting 2017 earnings by 9-13% per share.  CSCO will report fiscal Q4 earnings on Wed after the market close.  Analysts project a 2% decline in sales to $12.6B.  The job cuts will overshadow the earnings results according to the report.  If confirmed “we would see it as a sign that Cisco is finally beginning to behave like a company facing technological disruption,” the report predicted.  The move implies “that the new management team is willing to make the tough decisions necessary to navigate what we believe are going to be very choppy waters in the next 3-5 years.”  CSCO had about 73K employees as of Apr.  The company last announced a large round of layoffs in Aug 2014, when it eliminated 6K positions.  The new emphasis on software is requiring staff with a different set of skills.  The stock lost 40¢.  If you would like to learn more about CSCO, click on this link:

Cisco Shares Fall After CRN Report of as Many as 14,000 Job Cuts

Cisco (CSCO)

Lowe's is losing ground in its bid to capitalize on the US home-renovation boom.  The company reported disappointing Q2 sales growth & earnings that fell well below estimates, a sign the company isn't containing expenses.  EPS was $1.37 a share, excluding some items, below the $1.42 estimate.

Sales at Lowe’s stores open for more than a year rose 2%, down from the 7.3% gain in Q1 & missing the 4.1% the estimate.  Analysts have said LOW has been hurt by inferior locations & a relative lack of stores in the Northeast.  Total revenue climbed 5.3% to $18.3B, trailing the $18.4B projection.  The figure got a boost from the addition of Canadian home-improvement store chain Rona, which was bought in May for $2.6B.  Sales fell in northern US markets after an early spring pulled purchases for outdoor projects into Q1.  While sales in Q1 fell below projections, H1 still has the company on course to meet its annual forecast.  LOW forecast EPS this year would be $4.06 & analysts estimate $4.04.  “We are well positioned to capitalize on a favorable macroeconomic backdrop for home improvement in the second half of this year,” CEO Robert Niblock said.  The stock slumped 4.60 (6%).  If you would like to learn more about LOW, click on this link:

Lowe’s Lags Behind Home Depot With Disappointing Sales Growth

Lowe's (LOW)

There was nothing new or exciting in the minutes of FOMC meeting.  Obviously future data will drive decisions on what to do about interest rates.  However with Janet waiting for a guarantee before increasing interest rates again, the odds are little will be done for the rest of the year.  The possibility of 1 rate hike is of no great consequence while there are so many disappointing earnings reports (such as at retailers).  Low interest rates have been in place for a decade.  Hard to believe!

Dow Jones Industrials


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