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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Lower markets on increased sovereign debt worries

The Dow was weak all day, testing 12K, but finished off its lows.  Dow dropped 74, decliners ahead of advancers almost 4-1 & NAZ fell 21.  Bank stocks were hit with selling, but the Financial Index, down 3½ to 174, has been holding up well, trading sideways in the 170s for the last month.

The MLP index shot up 2+ to the 268s while the REIT index fell 5 to 223.  Junk bond funds were soft but Treasuries inched higher.  Oil continued weak, following the lead of stocks & gold also had a bad day. 

ALERIAN MLP Index (^AMZ)

DJ REIT INDEXDJR (^DJR)

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Treausry yields:

U.S. 3-month	0.005%
U.S. 2-year	0.230%
U.S. 10-year	2.042%

CLZ11.NYM

...Crude Oil Dec 11

...98.05

... 0.94

(1.0%)

Photo:   Bloomberg

Costs related to closing stores & other restructuring pushed net income at Lowe's down 44%, but adjusted results beat expectations.  With the housing market moribund & consumers' continued caution on spending, CEO Robert Niblock said that he does not expect a full rebound until at least 2013.  LOW said last month that it would close 20 underperforming stores in 15 states & cut nearly 2K jobs to focus on its more profitable locations.  Niblock said he expects consumer demand will improve once home prices bottom out, which could occur in 2012.  "Once we get through that, and employment starts moving in the right direction, there's quite a bit of pent up demand," he said.  "Our performance is not at the level we expect relative to the market or frankly that we demand of ourselves as we define success, so we're taking action," Niblock said.  EPS was 18¢ in the qtr ended Oct 28, down from 29¢ a year earlier . Revenue climbed 2% to $11.9B. Adjusted earnings amounted to 35¢, not counting the charges, compared to expectations of 33¢.  The company expects EPS of 20-23¢ in Q4, with revenue at stores open at least a year coming in flat to rising 1%.  Analysts expect EPS of 23¢.  The stock rose 39¢.  More earnings reports are coming this week from retailers.

Lowe’s Profit Beats Analysts’ Estimates, Helped by Sales at Older Store

Lowe's Companies, Inc. (LOW)

German Chancellor Merkel's Christian Democratic Union party voted to allow euro states to quit the currency area, endorsing the prospect of a move not permitted under euro rules.  The resolution, which requires the approval of 2 coalition partners before becoming policy, is part of her push for closer political ties & tighter budget rules in the European Union, with euro countries setting the pace.  The drive is her answer to the debt crisis that began in Greece 2 years ago.   “We’re not throwing anybody out,” the Finance Minister said.  “But if a country can’t carry the burden or doesn’t want to carry the burden, & the Greek people have to carry a heavy load, then we have to respect the country’s decision.”  Aiming for more a deeply integrated 17-nation euro area sets Merkel on a collision course with the 10 non-euro countries in the EU & raises the possibility of a Greek exit.  Solutions to the euro debt mess remain a "work in progress" & nobody knows where it will lead.

Merkel’s Party Votes to Allow Exits From Euro


Gloomy news is easy to find.  One report says the odds of a US recession in early 2012 exceed 50% as a result of Europe’s debt crisis, according to researchers at the Federal Reserve Bank of San Francisco.  Sovereign debt problems refer to Greece, Italy & now Spain.  As if that's not enough, Argentina’s central bank cut dollar reserve requirements after bank deposits plunged $645M last week following the gov’s moves to restrict foreign exchange purchases in South America’s 2nd-biggest economy.  Next week, the super committee in DC will give its report & that will probably reflect a divided attitude about reducing federal deficits.  If the report is not accepted, mandatory cuts in federal spending will kick in.  Can you spell, "uh-oh?"  But Dow keeps hanging in there, not plunging like it did 3 years ago.  12K has held well & 11.6K, the absolute floor, has been rock solid.  If that gives way, look out below.

Dow Industrials (INDU)

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Markets fell on Euro zone worries

Dow fell 76 (110 above its lows), decliners over advancers 5-2 & NAZ dropped 31.  Market leaders, bank stocks, led the way lower but also finished off the lows.

S&P 500 Financials Sector Index

Value	173.90
Change	-3.41   (-1.9%)

Like stocks, the MLP index gave up some of its recent gains & the REIT index slipped a fraction in the 225s.  Junk bond funds inched higher & Treasuries gained.  Oil was lower on concerns about economies in Europe, i.e. Germany.  As investors became more nervous they sought out gold again, bringing it back near the record highs last week.

Alerian MLP Index

Value	355.68
Change	-2.72    (-0.8%)

Get the latest market update below:

Treasury yields:

U.S. 3-month	0.015%
U.S. 2-year	0.183%
U.S. 10-year	2.223%

CLU11.NYM

...Crude Oil Sep 11

...86.76

... 1.12

(1.3%)

Photo:   Yahoo

Home Depot, a Dow stock, raised its fiscal-year profit forecast for the 2nd time in 3 months as timely promotions & a focus on cheaper products helped it gain market share from rival Lowe's (LOW & a Dividend Aristocrat).  Same-store sales rose in all but 3 of its top 40 markets, with particular strength in Midwest & South Atlantic regions, CEO Frank Blake said, adding he was "encouraged that soft housing markets like California, Florida, Arizona and Nevada were positive in the quarter."  HD still expects fiscal-year sales to rise 2.5% & forecasts EPS of $2.34 excluding stock repurchases, up from a prior forecast of $2.24.   In Q2, sales at stores open at least a year, rose 4.3% globally, including a 3.5% rise in US, making it the 9th consecutive qtr that it has outshone its smaller rival (LOW same-store sales fell 0.3%).  Same-store sales thus far into Aug are "quite positive," CFO Carol Tome said.  HD reported a 1.1% rise in the number of customer transactions, while the average ticket rose 3.3% to $54.04.  Q2 EPS rose to 86¢ from 72¢ a year earlier, easily beating expectations of 83¢.  Sales increased 4.2 % to $20.23B, beating estimates of $19.9B.  Demand was strong for building materials & outdoor garden products as HD has shifted focus to cheaper products such as faucets & paint to increase shopper traffic.  The stock rose 1.66.

Home Depot Raises Annual Forecast as Quarterly Profit Beats Estimates

Home Depot, Inc. (The) (HD)

Photo:   Yahoo

France & Germany called for a "new economic government" for Europe, with mandatory balanced budgets enshrined in the constitutions of all euro zone members as a way to overcome the debt crisis that has threatened the common currency.  French President Nicolas Sarkozy & German Chancellor Angela Merkel's push for long-term political solutions instead of immediate financial measures, like a single European bond, sent the € sliding, down half a penny to $1.44.  They also proposed a Europe-wide tax on financial transactions & pledged to harmonize their countries' corp taxes.  But it's unclear how the euro bloc will put in place what its leaders have suggested & how a proposed tax on financial transactions may affect demand for European assets.  Sarkozy & Merkel stressed their commitment to defending the common currency & presented their proposals after meeting amid signs of economic slowdown.  They want a "true European economic government" that would consist of the heads of state & gov of all eurozone nations.  Markets sold off initially because they were hoping that new European bonds would solve Euro problems.

Merkel, Sarkozy to Shun Euro Bonds

Photo:   Bloomeberg

Berkshire Hathaway increased its stake in  Wells Fargo (WFC), building equity holdings amid a markets decline that the Warren Buffett said provided an opportunity for buying stocks “on sale.”  His firm added 9.7M shares of the biggest US home lender in Q2, boosting its holding 2.8%.  “I like buying on sale,” Buffett said. “Last Monday, we spent more money in the stock market buying than any day this year.”  The increase in the WFC cost BRK.A about $277M.  Buffett remains a bullish investor.  BRK.A's high priced stock fell $761 & WFC was down 47¢ in a weak bank sector.

Buffett Increases Wells Fargo Stake

Berkshire Hathaway Inc. (BRK/A)

Wells Fargo & Company (WFC)

Trading today was not that meaningful.  Stocks sold off significantly, especially after the news that there were no dramatic results following the big meeting of the European leaders.  That emotional reaction did not last long, buyers returned to limit losses.  However the upward momentum that had carried the markets in the last few days was lost.  Global economic & financial problems drone on, not good for stock markets.  Dow is up 250 this month but there may be more selling ahead.  Sep (when Congress returns) is statistically the worst month for stocks followed by wild Oct.

Dow Industrials (INDU)

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