Friday, October 21, 2016

Markets fall on earnings reports as dollar hits 8 month high

Dow dropped 96, decliners over advancers 5-4 & NAZ went up 2.  The MLP index lost 1+ to the 313s & the REIT index was fractionally lower to 343.  Junk bond funds were little changed & Treasuries were flattish.  Oil crawled higher (still above 50) & gold hardly budged.

AMJ (Alerian MLP Index tracking fund)

Light Sweet Crude Oil Futures,D

Gold Dec 16

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China stocks traded sideways but managed to end the session slightly up, as strength in infrastructure shares offset concerns rooted in continuing yuan weakness.  The blue-chip CSI300 index rose 0.3% to  3327 while the Shanghai Composite Index gained 0.2% to 3091.  For the week, CSI300 was up 0.7% while SSEC gained 0.9%.  Infrastructure-related stocks rose sharply, after China issued rules for management of gov funds used in private-public partnership (PPP) projects, many of which are for infrastructure work.  The sector was also helped by improving ties between China & Philippines, which bodes well for Beijing's strategy to win construction work in other countries.  That helped offset drags from the real estate sector, as well as negative impact from a weakening yuan.  The yuan slipped against the $ to a fresh 6-year low, as strong $ purchases by companies continued piling pressure on the Chinese currency.

China Shares Edge Up Both for the Day and Week

General Electric, a Dow stock, reported a 6.7% rise in quarterly profit, helped by strength in its power & renewable energy businesses.  But slow economic growth, particularly in the oil & gas business, continued to weigh on revenue, prompting GE to lower its revenue growth target & narrow the range of its profit forecast for the year.  Organic revenue, which excludes growth from acquisitions, rose 1%, below GE's forecast of 2-4% for the full year.  Analysts had been looking for stronger revenue growth after a weak H1.  But oil & gas revenue fell 25% in the qtr.  GE trimmed its full-year revenue forecast to flat to 2% growth.  EPS from continuing operations rose to 23¢ from 19¢.  Total revenue grew 4.4% to $29.27B.  GE's adjusted EPS jumped 10% to 32¢, beating the 30¢ estimate.  GE also narrowed its 2016 profit forecast to $1.48-1.52, compared with the $1.45-1.55 it forecast at the end Q2.  Analysts had been targeting H2 growth of about 15% in GE's power business, GE's largest division.  In Q3, power revenue grew only 7%.  The stock fell 61¢.  If you would like to learn more about GE,click on this link:

GE Profit Up But Revenue Forecast Trimmed

General Electric (GE)

McDonald's, a Dow stock & Dividend Aristocrat, turnaround gained momentum in the latest qtr as sales growth at established restaurants beat estimates.  Same-restaurant sales in its US rose a better-than-expected 1.3%, helped by demand for its all-day breakfast, the "McPick 2 for $2" promotion & the introduction of Chicken McNuggets without artificial preservatives.  Analysts polled had expected a gain of 1.2%.  CEO Steve Easterbrook, has introduced all-day breakfasts, simplified sprawling menus & improved service to turn around its business amid intense competition   Global sales at restaurants open at least 13 months rose 3.5%, handily beating the 1.5% gain expected.  The world's fast-food chain reported EPS of $1.50, compared with $1.40 a year earlier.  The company had 87M fewer shares outstanding, compared with the year-earlier period.  Excluding items, the company EPS was $1.62, beating the estimate of $1.48.  Total revenue fell almost 3% to $6.42B, down for the 9th straight qtr, but beat the estimate of $6.28B.  The stock shot up $2.68.  If you would like to learn more about MCD,click on this link:

McDonald's 3Q Earnings Beat Expectations

McDonald's (MCD)

Earnings reports are not bringing out buyers.  The strong $ is not helping, but more importantly, sales growth is drab.  The chart below shows that the early reports are not being well received.

Dow Jones Industrials

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