Stocks plunge on growing recession worries

This was an ugly day for the markets on many scores, a reminder of the worst days 3 years ago.  Dow sank 391 (buying into the close reduced the damage), decliners over advancers 7-1 & NAZ dropped 82.  Bank stocks were market leaders again today & the Financial Index is at a 30 month low.  Long forgotten, it was at record highs over 500 just 4 years ago (the end of 2007).

S&P 500 Financials Sector Index

Value	155.68
Change	-4.79    (-3.0%)

The MLP index had a day which rivals its worst.  The REIT index fell 5+ to below 205 & junk bond funds were off about 2% (big for them).  Treasury 10 & 30 year bonds soared again bringing record low yields.  The yield on the 30 year bond is below 2.8%.  That's all of 2.8% for 30 years!  Oil sold off badly along with stocks.  Gold also fell, a little more difficult to figure that one out since it's considered a safe haven investment.  There are rumors that central banks were selling.  If so, that pressure will not last.

Alerian MLP Index

Value	343.42
Change	-10.05    (-2.8%)

Treasury yields:

U.S. 3-month	0.000%
U.S. 2-year	0.198%
U.S. 10-year	1.719%

CLX11.NYM

...Crude Oil Nov 11

...80.19

.... 5.73  (6.7%)

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Meg Whitman

Hewlett-Packard, a Dow stock, is set to name Meg Whitman, the former eBay CEO, as its new CEO, forcing aside Leo Apotheker after just 11 months on the job.  The HPQ board is meeting & an announcement is expected at the close of trading.  Whitman is getting the nod because there are few available people with the ability to run complex technology business.  Apotheker is being removed because the board lost confidence in his ability to lead the company long-term.  Whitman's appointment would represent yet another turnaround strategy at the world's largest computer company. The stock fell 1.18 after a pop yesterday on the rumor.

HP Said Preparing to Name Whitman Permanent CEO

Hewlett-Packard Company (HPQ)

Photo:   Bloomberg

United Technologies, a Dow stock, will buy Goodrich for about $16B in cash, calling the aerospace & defense company a perfect addition that will allow it to take advantage of rapidly growing demand for aircraft components.  GR makes a variety of aircraft components including landing systems, wheels & brakes, along with systems for military aircraft.  The deal is expected to create a $66B company, with a little less than half of its sales coming from aerospace.  "I am bullish on aerospace and the whole team is bullish on aerospace, it's one of the few areas with a brighter outlook today," CEP Louis Chenevert said.  "Goodrich again like UTC is well positioned with higher content on many new platforms," he added.  The deal had been rumored for days, sending GR shares soaring.  UTX will pay $127.50 a share, amounting to a 47% premium above the stock's price last Thur before word of a pending deal first leaked.  GR was up 11.11 to 120.60 & UTX fell 6.56.

United Technologies to Buy Goodrich for $16.5 Billion as Plane Orders Jump

Goodrich Corporation (The) (GR)

United Technologies Corporation (UTX)

Fear is in command, causing markets to sell off.  The VIX, volatility index, shown below, is back in the 40s.  Earlier this year it was lumbering along in the mid teens.  Over 40 spells trouble.  The FED's actions yesterday reinforced fears that recession is around the corner, so it reacted with the bond buying program.  Meanwhile Greece is still begging for another bailout, doing all that it can to get the money.  Massive federal deficits are still not getting much attention, but they represent another very dark cloud overhanging the markets.  Dow closed 13 above its low close in Aug.  The low held, bulls like to see that.  But its still down 900 in Sep, not a very good month!

Volatility Index (^VIX)

Dow Industrials (INDU)

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Markets shoot up on strong earnings

Dow jumped 163, advancers ahead of decliners 8-1 & NAZ gained 43.  While higher, banks stocks are having only muted gains.

S&P 500 FINANCIALS INDEX

Value 215.67


Change  0.57   (0.3%)


The MLP index was up only pennies in the 279s & the REIT index was up a small fraction in the 237s.  Junk bond funds were little changed & the Treasury market was quiet.  Oil rose for a 2nd day ahead of the weekly gov report on supply levels, amid signs that recovery in the world’s biggest economy is supporting fuel consumption.  Gold rose above $1,500 to another record as a weaker dollar & concern about debt & faster inflation spurred demand for an alternative investment.

JPMorgan Chase Capital XVI (AMJ)



Treasury yields:


U.S. 3-month  0.06%

U.S. 2-year      0.66%

U.S. 10-year    3.38%

CLM11.NYM ...Crude Oil Jun 11 ...109.39 ...1.11  (1.0%)
GCJ11.CMX .....Gold Apr 11 ........1,503.00 ...8.50  (0.6%)


Abbott (ABT), a Dividend Aristocrat, Q1 income fell 14% on restructuring & acquisition costs among other expenses.  EPS was 55¢, but excluding one-time items it earned 91¢ (ahead of forecasts of 90¢). Last year ago EPS was 64¢, or 81¢ excluding one-time costs. Revenue grew 17% to $9.04B.   Revenue was led by higher sales of the company's best-selling product Humira, which increased 18% to $1.65B.  ABT backed up its previous 2011 profit outlook. Excluding 84¢ in one-time costs, the company expects to earn $4.54-4.64 in 2011 & analysts are forecasting $4.60.  The stock was up 26¢ after a nice run in the last 3 months.

Abbott 1Q profit falls 14 percent on chargesAP

Abbott Laboratories (ABT)




United Technologies (UTX), a Dow stock, said Q1 profit jumped 17% as revenue rose & orders climbed for the industrial elevator, aerospace & heating & cooling businesses.  EPS rose to $1.11 from 93¢ last year, ahead of expected EPS of $1.07.  Revenue rose 11% to $13.3B.  Guidance for 2011 was raised to $5.25-5.40 (analysts are expecting $5.36).  CEO Louis Chenevert credited the stronger global economy for strength in UTX markets. The company expects 2011 revenue to be $57B, the high end of its previous guidance in Dec (analysts expect revenue of $57.2B).  The stock rose $4 to the 86s, a big plus for the Dow.

United Tech's 1Q profit up on stronger revenueAP

United Technologies Corporation (UTX)




The bulls are excited & having a good day as the sun enters Taurus.  After trading flat for a few months, Dow is at a new 2½ year high, very bullish.  But problems are lurking.  Gas at the pump rose to $3.84 yesterday & somewhat related, fighting continues in Libya.  Also, banks, traditional market leaders, are not leading.  Most important, gold is at new record levels.  But bigger picture, bulls have taken control of the markets again.

Dow Industrials (INDU)

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Wobbly markets despite good earnings

Dow gained 7, advancers over decliners 5-4 & NAZ was up all of 4 despite Apple (AAPL) surging to another all time record price. Banks finally had an off day, although they closed above their lows. This is easy to understand with all the pressure Goldman Sachs (GS), off 1.05 today, is under & proposed legislation for increased regulation. But the Financial Index still has had an excellent advance since Feb.


S&P 500 FINANCIALS INDEX

Value 224.05

Change -1.21

% Change -0.5%

The Alerian MLP Index was down pennies, just under 315. But the Dow Jones REIT shot up 3¾ to 208 & only 2 below the yearly highs set last week. Junk bond funds were flat to lower while the Treasury 10-year Treasury bond had a big rise, taking the yield down 7 basis points to 3.74%.


Alerian MLP Index --- YTD




Dow Jones REIT Index -- YTD





Oil fell back in the PM but gold was firmer & may want to climb back to its 1200+ record.

CLM10.NYM

..Crude Oil Jun 10

..83.63

.. 0.22 ......(0.3%)

GCJ10.CMX

..Gold Apr 10

..1,147.10

.. 8.50 ......(0.8%)

Gold Super Cycle Click Here

GLD (ETF) --- YTD






United Tech (UTX), a Dow Stock, reported Q1 profits rose 20% from its efforts to cut costs & boost productivity, the first increase in a year. UTX raised the lower end of its 2010 profit guidance to $4.50 per share from $4.40 previously given. United Tech is also benefiting from rising orders, particularly in emerging markets. As a result, business growth will resume in H2. The company earned 93¢ per share in Q1, up from 78¢ last year & ahead of the 90¢ estimate. But revenue slipped to $12.1B from $12.25B last year. UTX expects EPS in the range of $4.50-$4.65 (including $350M in expected restructuring charges & one-time gains of $100M) in 2010. The stock rose 2.73 to 76.93. The other 3 Dow stocks reporting earnings today had a mixed picture:

AT&T (T)_________-0.32
Boeing (BA)_______+2.75
McDonald's (MCD)__+0.02

United Technologies 1Q profit jumps on cost cutsAP


United Technologies -- 2 years

Photo: Bloomberg

Massive gov borrowing continues as the Treasury announced an unprecedented $128B in note auctions next week. This will be composed of $44B in 2-year notes, $42B in 5-year securities, $32B in debt maturing in 7 years along with $10B in 5-year Treasury Inflation Protected Securities (TIPS). The Treasury said in Feb that the auctions have been expanded enough to fund the budget deficit, any changes would depend on tax receipts & how fast the economy recovers. An improving economy should allow the Treasury to borrow less (what they call "modest reductions") going forward. But less still means whopper size borrowings.

Treasury May Sell Record Amount of Notes, Primary Dealers Say



Dow has been going sideways around 11.1K for a week (the height of earnings season). But it had a 10% move up from its 10K floor in Feb. Maybe it just needs a rest. Greek debt problems have not been solved & look like they could drag on for some time. Increased financial regulation is coming, probably this week. And massive gov borrowings are not going away for the foreseeable future. However Apple stockholders are happy looking at a record stock price, up 14+ to the 259s.

Dow Jones Industrials -- YTD

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Rally is ending in 2nd day

Stocks rose in early trading on encouraging news from JP Morgan (JPM), a Dow stock. Since then the averages pulled back. Dow is down 8, advancers over decliners almost 2-1 & NAZ is down 7. JP Morgan reported earnings of 54¢ down from 1.20 last year but beat estimates of 44¢ sending the stock up 4. Buyers jumped on most bank stocks, although Bank of NY Mellon (BK) fell 2½ on lower earnings which did not beat expectations. Interesting, both banks had similar lower earnings but beating expectations is what counts for the stock price. 2 other Dow stocks reported different results. Coca Cola (KO) had lower earnings when a one time charge from its main bottler is included. That lower number did not beat estimates, stock down 2. United Technology (UTX) reported better earnings exceeding analysts forecasts, up 3+. KO repeated the common theme in earnings reports, overseas business is good while domestic is sluggish (at best).

Oil was down 1 (3 down days in a row) to the 133s for the usual assortment of reasons. A smaller price decline for oil is helping MLP's. The Alerian MLP index rose 2 to the 265s, getting away from the 262 low it touched yesterday. Hurricane season & its impact on MLPs will start to get more attention in the next few weeks.

The markets went thru a lot yesterday. Bank of America, another Dow stock, one I like, is up 6 (that's SIX dollars) or 30% from its low yesterday AM. The VIX, volatility index, has been in the high 20s in recent days, but is now down to 24.69 (still very high). Enthusiasm for bank stocks should diminish as oversold conditions are corrected. Kimberley Clark (KMB), reporting negative guidance a couple of days ago, was down yesterday. Earnings news & guidance will guide stock prices, glum ones will not be treated well.