S&P ends longest winning streak in almost 2 years

Dow fell 38, decliners ahead of advancers almost 2-1, NAZ was up 1 & S&P 500 slid 1.  The Financial Index was even at 201.  The MLP index fell 2+ to the 289s while the REIT index was off pennies in the 262s.  Junk bond funds were mixed to lower & Treasuries were a tad higher.  Oil hardly budged & gold lost 9.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month	0.096%
U.S. 2-year	0.261%
U.S. 10-year	1.651%

CLU12.NYM

Crude Oil Sep 12

92.67

0.20 (0.2%)

Photo:   Bloomberg

Chancellor Merkel's softening stance toward the ECB rescue plan for Spain & Italy is repelling investors who bought bunds because of her fiscal vigilance.  Investors seeking a haven from tumbling bond markets were willing to accept yields below zero for German bunds due in as long as 3 years because they were confident in her pledge that she wouldn’t add to the nation’s debt to expand bailout programs for weaker neighbors.  Funds managing more than $4T are turning against bunds on concern Germany’s costs to bail out the eurozone's most indebted nations will rise.  The total could reach €500B ($614B) or 45% of Germany’s current debt outstanding.  Many money euro maney managers are reducing or eliminating bund holdings.

Merkel Returns to Crisis as Bond Buying Remains in Focus


Pfizer, a Dow stock, took another step forward with a plan to spin off its animal health unit by registering the IPO with regulators.  PFE plans to sell as much as 20% of the new company, to be called Zoetis, to raise cash.  Current investors will be able to swap a portion of their PFE shares for stock in the new company.  PFE also could hold the stock for sale later.  This filing moves to complete the final announced piece of CEO Ian Read's effort to shrink the company by selling & spinning off non-drug units, which included the recent sale of its infant nutrition unit for $12B.  The stock slipped 23¢.

Pfizer Files for IPO in Plan to Spin off Animal Health

Pfizer (PFE)

Sears plans to spin off its Hometown & Outlet stores as well as some hardware stores into a separate publicly traded company.  There are 1238 Hometown, Outlet & hardware stores, according to SHLD.  It has already closed 5 Hometown stores, 8 hardware stores & 1 Outlet store.  SHLD, which also owns Kmart, has looked at spinoffs & real estate sales to restore profitability & boost shareholder value.  Aside from the separation of the stores, the company announced in May that it would spin off a stake in its Canada division.  SHLD expects to raise $346M with the spin-off.  Previously it said that it expected the deal to raise between $400-$500M.  A cash dividend of $100M is also expected to be paid to SHLD.  For fiscal 2011, the combined Sears Hometown, hardware & Outlet businesses had net income of $33M on sales of about $2.34B, below 2010 net income of $49B on sales of approximately $2.35B.  The stock rose $3 (6%).

Sears Spinning Off Some Stores Into Separate Co.

Sears Holdings (SHLD)

Stocks fell, with the S&P 500 Index (barely) halting its longest rally since 2010, while Treasuries rose amid concern about slowing Asian growth.  Dow was down 100 & the S&P 500 was down 9 at their lows, but buying in the PM limited the losses by day's end.  The € gained a fraction to over $1.23, up only a couple of pennies from recent lows. Overall this rates as a lackluster day, a lazy summer day with many away on holiday.  But euro leaders, among others, will be returning soon, adding excitement to the markets.

Dow Jones Industrials

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Dow finished at its highest level in more than 4 years

Dow shot up in early trading & held most of those gains by day's end.  Dow finished up 65, advancers over decliners 5-2 & NAZ gained 4 (although 35 below its highs).  Bank stocks continued strong, taking the Financial Index up 2+ to 210.  The MLP index rose a fraction to the 399s (up 18 off its low 3 weeks ago) & the REIT index index added 2½ to 263, a new multi year high.  Junk bond funds inched higher but Treasuries pulled back.  Oil climbed to a one-month high after US manufacturing increased at the fastest pace in 10 months, signaling that economic growth will accelerate.  Gold fell (a smidgen) for a 2nd straight day as signs of stronger US industrial growth boosted prospects for the economy & eroded the appeal of gold as a haven.

JPMorgan Chase Capital XVI (AMJ)

Click below for the latest market update:

Treasury yields:

U.S. 3-month	0.086%
U.S. 2-year	0.266%
U.S. 10-year	1.952%

CLM12.NYM

...Crude Oil Jun 12

...106.27

.... 1.40  (1.3%)

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Photo:   Yahoo

Manufacturing grew in Apr at the strongest rate in 10 months, easing concerns the economy had lost momentum at the start of Q2.  The Institute for Supply Management index of national factory activity rose to 54.8 from 53.4 in Mar, topping expectations for the reading to decline to 53 & was also above the top end of forecasts.  A reading below 50 indicates contraction in the manufacturing sector, while a number above 50 indicates expansion.  Manufacturing accounts for about 12% of US economic activity & has been a cornerstone of the recovery from the 2007-2009 recession.  The ISM gauge of employment also rose to its highest level since last Jun, to a reading of 57.3 from 56.1.  The forward-looking new orders component racked up its best reading in a year at 58.2, up from 54.5.  The national ISM report was in contrast to some regional manufacturing reports from the industry group, including Chicago that showed the rate of growth slowed last month.  It also bucked the trend of other recent data that suggested the economy lost some steam as Q2 got under way, highlighting the bumpy nature of the recovery.  Yes, very bumpy.

Manufacturing in U.S. Grows at Fastest Pace in a Year: Economy



Photo:   Yahoo

Sears Holdings, the best performer on the S&P 500 in 2012, started May with a big 15% surge.  The retail chain is planning to spin off some of its operations into a company that will be known as Sears Hometown and Outlet Stores which is driving substantial buying interest & putting volume on pace to significantly exceed the normal activity of the past 3 months.  In the first 4 months of 2012, the stock was already up 69% & the stock shot up $8.32 on May 1.

Sears Surges on Spinoff Plan

Sears Holdings Corporation (SHLD)

Automatic Data Processing, a Dividend Aristocrat, fiscal Q3 net income rose 7% as the number of employees on client payrolls increased & new business was added.  EPS was 92¢, above 85¢ last year & topped the 91¢ forecast.  Revenue rose 7% to $2.92B from $2.74B, meeting the estimate.  Revenue in the employer services unit, which handles payroll services, climbed 7% & revenue in the professional employer organization services unit, which provides human resources & employee benefits programs, rose 15 %.  Vehicle dealer services revenue increased 7%.  The company maintained its guidance for fiscal 2012 EPS to climb 8-9% from $2.52 per share a year ago, implying EPS of $2.72-$2.75.  Revenue is still anticipated to increase 7-9% from 2011's $9.88B, implying $10.57-$10.77B.  Analysts expect full-year EPS of $2.74 on revenue of $10.7B.  Last month, ADP completed its acquisition of the human resources subsidiary of SHPS, an employee benefits administration company.  The stock fell 41¢ on the news.

 Automatic Data Processing 3Q profit tops Street AP

Automatic Data Processing, Inc. (ADP)

Even after late day selling, the markets still had a good day.  Dow finished at its highest levels in more than 4 years.  But Dow pulled back 55 in the last hour & NAZ also saw late day selling which just about wiped out what had been a big day.  Weakness into the close has to make the bulls nervous, especially after markets reached multi highs.  Fri approaches & that brings the big jobs report for Apr.  Although expectations are for reduced hiring, markets could still be disappointed if the numbers are too low.

Dow Industrial

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Limited gains for markets while waiting for news from Greece

Dow was up 46, advancers over decliners 5-2 & NAZ advanced 23.  From the AM lows, the Financial Index rose 2 to the 198s,

The MLP index was flat in the 407s & the index has been trading around this record level all week.  The REIT index gained 3 to the 245s (helped by the Sears announcement, see below), junk bond funds continued on their winning ways as investors seek their relatively high yields & Treasuries climbed after the successful auction.  Oil rose to the highest level in more than 9 months as jobless claims held at a 4-year low in the US & German business confidence surpassed forecasts.  Gold, flight to safety investment, continued at its highest levels in 3 months.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month	0.086%
U.S. 2-year	0.299%
U.S. 10-year	1.984%

CLJ12.NYM

...Crude Oil Apr 12

...107.93

... 1.65

(1.6%)

Photo:   Bloomberg

Sears Holdings announced steps to reassure investors about its ability to pay down debt after announcing it intends to separate its Sears Hometown & Outlet businesses & certain hardware stores through a rights offering expected to raise $400-500M.  The rights will entitle stockholders to purchase shares in the combined Sears Hometown & Outlet Stores businesses & certain hardware stores & will be transferred to holders of Sears Holdings common stock.  SHLD also reached a deal to sell 11 stores to General Growth Properties (GPP).  The actions come at a time when business lenders such as CIT (CIT) are keeping SHLD on a tight leash.  The real estate deal is expected to generate $270M in the next 2 months.  SHLD stressed that it had substantial liquidity & strong assets even as it needs to improve its operating performance.  "It is important to note that we are an asset rich enterprise with multiple resources that dash at our disposal, which we believe provides us with ample financial flexibility," CFO Schriesheim said.  This announcement came after it reported a huge quarterly net loss from a poor showing during the holiday season.  The net loss was $22.47 per share, after a number of one-time charges, compared with a profit of $3.43 a share a year earlier.  Excluding one-time items, EPS was 54¢.  The stock recovered 9.72 (19%) after a dismal performance last year.

Sears to Raise Up to $770 Million With Store Sales After Quarterly Loss

Sears Holdings Corporation (SHLD)

Treasuries rose after the sale of $29B in 7-year notes drew stronger-than-average demand amid concern Europe's sovereign-debt crisis hasn’t been contained.  The 10-year yields reached a one-week low as the European Commission said the region’s economy will shrink this year, dragged down by Italy & Spain.  At today’s auction, the bid-to-cover ratio was 3.11X compared with an average of 2.81X for the previous 10 sales.  The yield on the benchmark 10-year bond fell 3 basis points to 1.99% after touching 1.97%, the lowest in a week.  The 7-year notes drew a yield of 1.418%, compared with a forecast of 1.456%.  Indirect bidders, including foreign central banks, purchased 41.8% of the notes, compared with an average of 39.9% for the past 10 sales.  Direct bidders, non-primary dealer investors that place their bids directly with the Treasury, purchased 19.3%, the most since at least Feb 2009, compared with an average of 11.9% at the last 10 auctions.  Risk averse thinking is alive & well.

Treasuries Erase Losses After Seven-Year Note Demand Swells


In Q4, home prices fell 2.4% from a year earlier, as sales were boosted by investors seeking lower-cost distressed properties.  Prices dropped 0.1% from Q3 on a seasonally adjusted basis according to the FHA.  In Dec, prices retreated 0.8% from a year earlier but increased 0.7% from Nov.  Foreclosures are boosting the supply of properties & dragging down values for all houses.  Banks may seize more than 1M homes this year after legal scrutiny of their foreclosure practices slowed actions against delinquent property owners in 2011.  Distressed properties, comprising foreclosures & short sales in which the lender agrees to a transaction for less than the mortgage balance, accounted for 35% of all home purchases in Jan, according to the National Association of Realtors.   As measured by the National Association of Realtors, the median home price was $162K in Dec & fell to $154K in Jan.  More mixed news about housing.

Home Prices in U.S. Fell 2.4% in Fourth Quarter From Prior Year, FHFA Says

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Photo:   Yahoo

Target, a Dividend Aristocrat, Q4 income fell 52% due to sluggish holiday sales.  But business has rebounded since then, & the company offered a full-year profit outlook that was above expectations.  Revenue rose 3.3% to $20.94B, below $21.2B forecasted by analysts.  Revenue at stores opened at least a year rose 2.2%.  Profit margins slipped to 28.4 from 28.7% in the year-ago period.  "We're pleased with the pace of our sales since the holiday season," said CEO Steinhafel.  "Yet, we expect we'll continue to see mixed signals in the economy going forward."  TGT had EPS of $1.45 in Q4 ended Jan 28, similar to $1.45 per share, in the year-ago period.  Analysts had expected $1.40.  The company reiterated its annual goal to generate $8 per share on sales of $100B+ by 2017.  The stock gained 1.53 (3%).

Target Fourth-Quarter Earnings Exceed Analysts’ Estimates on Sales Growth

Target Corporation (TGT)

Even in the confused muddle about European debts, the € climbed another penny, pushing on $1.34.  It's hard to make much sense of the markets with the Greek debt refinancing still in limbo.  The jobless data was welcomed by the markets & reports from retailers have been generally good.  But with these following winds, Dow was not able to crack 13K as has been the case all week.  It will ty again tomorrow after we learn more about the Greek bondholders' willingness to accept haircuts on their holdings.

Dow Industrials

Sideways markets after better than expected consumer confidence data

Markets were essentially even.  Dow & NAZ were flat while decliners slightly beat advancers.  The Financial Index was down pennies in the 177s.

The MLP & REIT indices were little changed but junk bond funds edged higher & Treasuries slipped a tad.  Oil rose to a 2-week high, over $100, after confidence among US consumers beat expectations in Dec, bolstering the outlook for fuel demand.  Gold fell below $1600.

AMZ   Alerian MLP Index

DJR   Dow Jones Equity REIT Index

Treasury yields:

U.S. 3-month	0.005%
U.S. 2-year	0.286%
U.S. 10-year	2.024%

CLG12.NYM

...Crude Oil Feb 12

...100.36

... 0.68

(0.7%)

GCZ11.CMX

...Gold Dec 11

.......1,598.10

.... 6.60

(0.4%)

Get the latest market update below:

Photo:   Bloomberg

Confidence among US consumers rose in Dec to the highest level in 8 months.  The Conference Board’s index increased to 64.5, exceeding all estimates & the highest since Apr, from a revised 55.2 reading in Nov.  The measure averaged 53.7 during the recession that ended in 2009.  Unemployment that dropped last month to its lowest in more than 2 years & the lowest price for gasoline since Feb are prompting households to take advantage of discounts during the holiday shopping season.  The improvement in sentiment could help sustain household purchases, which account for about 70% of the economy, into the new year.

Consumer Confidence Rose More Than Forecast

Photo:   Bloomberg

Sears plans to close 100-120 Kmart & Sears full-line stores & expects its adjusted Q4 EBITDA to drop more than halve from a year ago.  The company reported $933M in adjusted Q4 earnings before interest, taxes, depreciation, & amortization last year.  The retailer expects to earn $140-$170M by selling off inventory in affected stores & selling or subleasing store space.  The company also expects store closure & inventory reduction to lower peak inventory in 2012 by $500-$580M.  Sears also expects to record a non-cash charge of $1.6-$1.8B in Q4 related to a valuation allowance on certain deferred tax assets.  For the qtr-to-date, same-store sales at its Kmart unit dropped 4.4% & Sears Domestic comparable sales fell 6%.  The retailer is a victim of the economy, aggressive competition & its own reputation for run-down locations & poor customer service.  The stock sank $9.20 (20%) on the news.

Sears Plunges on Plans to Close as Many as 120 Stores

SHLD   Sears Holdings

Photo:   Bloomberg

Many consumers across the US took advantage of discounts on the day after Christmas, which this year was a holiday & a potential boon to retailers aiming for a strong finish to the shopping season.  Holiday sales will rise 3.8%, compared with a 5.2% advance last year, according to the National Retail Federation.  Sagging home prices & high unemployment continue to weigh on US.  Personal spending climbed only 0.1% last month, less than the median 0.3% gain projected.  Wages & salaries fell 0.1% from Oct.  Retailers continued to discount & keep stores open longer than ever.   While the discounts may help move the merchandise, they also could squeeze profit margins.

Bargains On Offer From Kohl’s to Target as Sales Growth Lags 2010: Retail


Many traders are away.  Today & the rest of the short week should feature little excitement in the markets.  The SHLD news was disappointing, although not unexpected.  Combined with the sluggish retail sales elsewhere does not send good signals for the markets.  Dow broke thru 12K, although not with conviction & now it's stuck again.  I view it as a flexible 12.2K ceiling that is holding & may continue to hold for the rest of the week.

Dow Jones Industrial Average

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