Markets drift lower on euro debt nervousness

Dow fell 3, decliners over advancers 3-2 & NAZ was off pocket change despite another good day for Apple (AAPL).  The Financial Index gained a fraction in the 203s, a high since May 2.  The MLP index fell a fraction to 296 & the REIT index lost 1 to the 264s.  Junk bond funds were mixed to higher & Treasuries were off a tad.  Oil & gold did little.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month	0.086%
U.S. 2-year	0.282%
U.S. 10-year	1.812%

CLU12.NYM

Crude Oil Sep 12

96.06

0.05 (0.1%)

Photo:   Bloomberg

Lowe's cut full-year-earnings & revenue forecasts after posting a 10% drop in Q2 net income & revenue at stores opened at least a year declined 0.4%.  Results were hurt in part by a timing shift in how it reported the qtr & a charge tied to job cuts.  But the latest performance also shows the company's efforts to revamp its merchandise & prices isn't working.  In particular, its return last summer to offering permanent low prices in many items across the store, instead of offering fleeting discounts, hasn't yet resonated with shoppers who have been accustomed to seeing big sales signs.  In fact, it said that it will take until middle of next year, instead of year end for the chain to reap the benefits of its transformation as it had originally predicted.  "We knew it would take time to see the full benefits of our actions," CEO Niblock said. "The team is making progress on these initiatives but frankly, the benefits are accruing at a slower rate than I had expected."  EPS was 64¢ which compares with 64¢ a year ago.  Fiscal 2012 has one less week than last year & the timing shift lowered EPS by about 3¢.  Removing a charge tied to previously announced job cuts & the impact of the timing shift, EPS was 68¢.  Revenue fell 2% to $14.25B from $14.54B.  The timing shift accounted for 1.8 percentage points of the decline.  Analysts expected EPS of 70¢ on revenue of $14.44B.  For fiscal 2012, LOW now expects EPS of about $1.64 & revenue to be about flat with 2011's $50.2B.  It previously predicted EPS of $1.73-$1.83, with revenue rising 1-2%.  Analysts are forecasting EPS of $1.80 on revenue of $50.58B.  The stock dropped 1.61 (6%).

Lowe’s Net Misses Analyst Estimates as Comparable Sales Slip

Lowes's (LOW)

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Photo:   Yahoo

Apple's surging stock propelled the market cap to $623B, beating the record for market caps set by Microsoft (MSFT), a Dow stock, in the heady days of the internet boom when its market cap reached $620B.  After a 4-month dip, the stock has hit new highs recently because of optimism around what is believed to be the impending launch of the iPhone 5, & possibly a smaller, cheaper iPad.  It's market cap is now worth 53% more than #2 Exxon Mobil (a Dow stock & Dividend Aristocrat).  Analysts are still in love with AAPL with an average price target of $745.  Apart from the iPhone & "mini iPad," analysts are speculating that AAPL plans to make a TV set to complete its suite of consumer electronics products.  The stock surge has made it a major part of many investment portfolios.  The company makes up 4.7% of the value of the S&P 500 index.  The stock closed at $655.15, up $17.04.  

Apple Market Value Reaches Record U.S. High Amid Optimism Over Next IPhone

Apple (AAPL)

Photo:   Bloomberg

Best Buy tumbled after it named Hubert Joly as its new CEO.  He will take over in next month & BBY plans to keep operating as a public company.  Founder Richard Schulze is trying to acquire BBY, but the board has declined to give him access to confidential financial information.  Schulze said he was still working on an acceptable agreement with BBY & was “shocked” by the company’s statement.  The board has “insufficient information to make a reasonable conclusion” on Schulze’s bid partly because of his failure to disclose financing and equity partners, BBY said.  Q2 results will be reported tomorrow.  While Joly is “an accomplished executive,” Schulze said “Best Buy continues to face enormous challenges and needs a clear path and a proven leadership team with deep retail experience and knowledge of Best Buy.”  The stock fell 2.11 (10%) in this confusing situation.

Best Buy Appoints Hubert Joly CEO as Schulze Rejects Due Diligence Offer

Best Buy (BBY)

Stocks continue to mark time in what is traditionally a slow time in the markets with many away on vacation.  AAPL had another fantastic day, but that was not good enough to lift the stock averages (of which it is the largest component).  All eyes are on Europe.  In addition, on Fri Big Ben will make a speech from Jackson Hole which has the potential to bring excitement.  The next 2 weeks could bring fireworks to the markets.  But nobody knows what to expect.

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Markets advance on euro bond buying program

Dow rose 21, advancers over decliners 2-1 & NAZ was up 22.  The Financial Index was up a fraction to 200, an almost 3 month high.  The MLP index rose 2+ to the 392s but the REIT index fell a fraction in the 268s.  Junk bond funds were mixed & Treasuries had modest gains.  Oil advanced to a 2-week high as stocks gained while the German gov backed the ECB’s bond-buying plan, adding to optimism that the region’s debt crisis will ease.  Gold was higher but continues near 1600 where it has been for months.

AMJ (Alerian MLP Index tracking fund)

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Treasuryb yields:

U.S. 3-month	0.076%
U.S. 2-year	0.236%
U.S. 10-year	1.551%

CLU12.NYM

...Crude Oil Sep 12

...92.13

... 0.73

(0.8%)

Photo:   Bloomberg

When ECB President Draghi vowed on Jul 26 to do “whatever it takes” to defend the €, he succeeded in stemming a slide that pushed the currency down 6% since late Mar. Traders in the options market responded by raising bets against the currency by the most in 11 weeks.  Options to protect against further weakness climbed in the past 2 weeks by the biggest amount since May.  Between Jan 12, 2011, when German Chancellor Merkel vowed to do “whatever is needed to support the euro” & Draghi’s almost-identical pledge, Portugal, Spain & Cyprus sought bailouts & the region’s $13T economy teetered on recession.  Growth will trail its peers thru at least 2014 as numerous are cutting their outlooks.  While traders aren’t anticipating a failure of the common currency, the €’s depreciation shows investors see better opportunities almost anywhere else in the world.

Draghi Echoing Merkel Has Trader Raise Bets Against Euro

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Photo:   Yahoo

Best Buy's co-founder is offering to take the electronics seller private, only months after leaving as the company's chairman.  BBY will consider the offer but called it "highly conditional."  Many are skeptical that former Chairman Richard Schulze's opening offer of $24-$26 per share would get a deal done.  It could be tricky to line up investment firms to pay for it.  Over the past year, it has announced a major restructuring plan as BBY is trying to avoid the fate of its rival Circuit City, which went bankrupt in 2009.  The offer values the company at as much as $8.8B (Schulze already has 20%).  The offer would represent a 36-47% premium over the Fri close.  Schulze said he would have preferred to pursue a deal privately but went public with the offer for the sake of speed.  The stock gained $2.35 to $19.99 but is still about $5 below its potential worth because of doubts on getting the deal done.

Best Buy’s Founder Schulze Offers to Buy Retailer for Up to $26 Per Share

Best Buy (BBY)

Photo:   Bloomberg

US banks are relaxing their terms on credit cards & lending for autos & commercial real estate, according to a Federal Reserve (FED) survey.  "Domestic banks, on balance, continued to report having eased their lending standards across most loan types over the past three months," the FED said in its quarterly survey of senior loan officers.  While lending standards are tightening at branches of foreign banks, "domestic banks reported that their business had increased due to decreased competition from European banks and that they remain willing to accommodate additional such business," the Fed said.  Banks are lending the most since the recession ended in Jun 2009, supporting an economy burdened by 8.3% unemployment.  The survey said that banks loosened standards for loans to large & medium-sized firms, while loan standards to small business were little changed for the 4th consecutive survey.  Banks that eased standards on business loans "continued to cite more aggressive competition from other banks and nonbank lenders as a reason.  Only about a fourth of banks that had eased lending policies had done so because of a more favorable or less uncertain economic outlook."  Demand increased for commercial real estate loans according to a "relatively large" number of survey respondents & standards for such loans were more likely to be eased than tightened.  Consumer lending standards for car financing & credit card loans eased, while standards for other consumer borrowing were about unchanged.  A "relatively large" number of loan officers reported stronger demand for prime mortgages during the survey period, while lending standards for those home loans were little changed although standards "tightened somewhat for nontraditional mortgages."

Fed Says Banks Ease Standards on Business, Consumer Loans


Markets were sloshing around trying to figure out where to go.  But the bulls have the upper hand after the strong gain on Fri.  The biggest drive behind the rise was an absence of bad news out of Europe, but there is plenty of it under the surface.  The Dow went over 13.1K & is looking to top the 13.4K high reached over 3 months ago.  Markets are still vulnerable as Dow fell 50 in the last half hour, limiting the daily gain.

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Gloomy thoughts on global economies bring a major sell-off

Dow opened lower & continued to head south all day.  It finished down 213 (closing at the lows), decliners over advancers 6-1 & NAZ sank 53 (even mighty Apple declined). The Financial Index fell 4 to the 201s & is off 14 from its 2012 highs reached a month ago.  The MLP index plunged 7+ to the 381s (30 below irs recent record highs) & a new low for 2012.  The REIT index was down a very big 5 to the 243s & junk bond funds were a little lower.  Treasury 10-year yields fell below 2% for the first time in almost a month on speculation the European sovereign-debt crisis is worsening as yields on Spanish & Italian bonds rose.  Oil fell in sympathy with stock but gold climbed to a one-week high as it is being viewed as a safe haven investment in troubled times.. 

JPMorgan Chase Capital XVI (AMJ)

Markets fall on weak Spanish debt auction and stimulus doubts

Buying in the PM reduced losses.  Dow fell 124, decliners over advancers 4-1 & NAZ was off 45 in a weak tech sector.  Bank stocks led the selling, taking the Financial Index down 3+ to 210.

The MLP index fell a very big 4+ to just above 390 (about even YTD) & the REIT index was off 2½ to the 252s (still near its recent highs).  Junk bond funds were lower, but Treasuries gained as the stock market retreated.  Oil tumbled after the Energy Dept said US stockpiles surged the most since 2008 as domestic crude output climbed to the highest level in 12 years.  Gold had a very bad day, down $48, on a strong dollar.

JPMorgan Chase Capital XVI (AMJ)

Click below for the latest market update:

Treasury yields:

U.S. 3-month	0.071%
U.S. 2-year	0.349%
U.S. 10-year	2.238%

CLK12.NYM

...Crude Oil May 12

...101.77

... 2.24

(2.2%)

Photo:   Bloomberg

Best Buy, the world’s largest electronics retailer, may have its credit rating lowered to junk status by S&P as it plans to close stores to improve its performance.  Currently it has a BBB- rating, the lowest level of investment grade, & was placed on credit watch with negative implications.  BBY is closing 50 big-box stores & cutting staff jobs, generating savings to spend on promotions & training store employees. The company plans to add 100 smaller-format Best Buy Mobile stores in the US in the current fiscal year.  A downgrade would indicate how serious its problems are.  The stock fell 60¢ & has a dreary chart.

Best Buy May Be Cut to Junk at S&P as Closings Show Weakness

Best Buy Co., Inc. (BBY)

Photo:   Bloomberg

SanDisk, a maker of memory chips, fell after it cut its revenue guidance for Q1.  It now expects to report revenue of $1.2B, down from an earlier forecast of $1.3-$1.35B which is also below the analyst forecast of $1.34B.  It lowered its forecast for gross margin to below 39%, rather than 39-42%.  Little detail was provided on what's behind the shortfall, beyond saying that demand was weaker than expected.  Several analysts cut full-year forecasts to match the Q1 outlook & reduced price targets.  However, some said they expect demand to come back in H2.  SanDisk's flash memory goes into smartphones & camera memory cards, & increasingly into laptops.  Flash memory prices are volatile although suppliers have been careful about adding capacity.  The stock sank $5.54 (11%).

SanDisk Declines Most Since January on Lower Sales Forecast

SanDisk Corporation (SNDK)

Monsanto said that a strong & early US seed selling season drove its fiscal Q2 income up 19% & it raised its earnings outlook for the full year.  Increased corn seed sales in Latin America also boosted results.  EPS was $2.24, above $1.88 a year earlier.  Revenue rose 15% to $4.75B from $4.13B.  Results topped expectations for EPS of $2.11 on revenue of $4.53B.  Q2 is important because it sells seeds ahead of the planting season in the Northern hemisphere.  Sales of corn seeds, by far the biggest segment, rose 17% to $2.82B.  Soybean seeds, its next largest segment, rose 12% to $698M.  The company boosted expectations for full-year adjusted EPS by 10¢ to $3.49-$3.54.  Including all one-time gains & losses, it expects to report EPS of $3.45-$3.50, a little below expectations of $3.51. The Dept of Agriculture just said that corn supplies are down 6%, indicating supplies will remain tight & prices high in the near term.  The USDA predicted that farmers will plant more corn this spring, the highest level since 1937.  The stock dropped 1.22.

Monsanto Raises Forecast as Profit Tops Estimates on Corn

Monsanto Company (MON)

The corp news was not good today.  MON is doing well as business from farmers is strong.  But BBY & SNDK disappointed with earnings season approaching.  Alcoa (AA), the first Dow stock to report, will announce on Tues with big banks right behind it.  Price for gas at the pump is just under $3.93, very troubling for the economy.  Sluggish stock action this week suggests markets are very nervous about earnings results.  Dow is down about 140 this week but has been able to hang in above the 13K floor & that floor has become very important to hold

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