Markets vacillate following favorable factory data

Dow lost 9, advancers ahead of decliners 5-4 & NAZ was up 8.  The Financial Index was up a fraction in the 201s, near 3 month highs.  The MLP index fell a fraction to 391 while the REIT index was up 1 to the 263s.  Junk bond funds inched higher & Treasuries pulled back again, taking the yield on the 10 year Treasury bond up almost 40 basis points from its recent record lows.  Oil slipped & gold was a little higher. 

AMJ (Alerian MLP Index tracking fund)

Treausry yields:

U.S. 3-month	0.097%
U.S. 2-year	0.281%
U.S. 10-year	1.779%

CLU12.NYM

...Crude Oil Sep 12

...92.95

... 0.48

(0.5%)

GCQ12.CMX

...Gold Aug 12

.....1,599.70

.... 0.30

(0.0%)

Get the latest daily market update below:

Photo:   Bloomberg

US homebuilders grew more confident in the housing recovery in Aug, as many reported that prospects for sales are the best they've been since the home bubble burst 5 years ago.  The National Association of Home Builders/Wells Fargo builder sentiment index rose 2 points to 37, up from 35 in Jul.  That's the highest reading since Mar 2007.  The index, which is based on responses from 478 builders, has risen steadily since Jan.  Any reading below 50 indicates negative sentiment about the housing market & the index hasn't reached that level since Apr 2006, the peak of the housing boom.  Another indication that the housing market is on the mend.

Homebuilder Confidence in U.S. Increases to Five-Year High

Photo:   Bloomberg

US factories made more cars, computers & airplanes last month, a hopeful sign that manufacturing is recovering after a weak spring.  Industrial production, which includes output at factories, mines & utilities increased 0.6% in Jul from Jun, the 4th straight monthly increase, according to the Federal Reserve.  Factory output, the most important component, rose 0.5%, the 2nd straight increase.  Factory output has risen 21.9% since its recession low in Jun 2009 & is just 1.7% below the pre-recession peak for factory output reached in Apr 2007.  The Jul increase was led by a 3.3% surge in output of motor vehicles & parts.  Production of computers & primary metals such as steel also showed big gains.   Mining output, which includes oil & gas production as well as coal mining, increased 1.2%. Utility output rose 1.3%, largely because of hot weather in many parts of the country.  Manufacturing has slowed this spring as consumers cut back on spending & businesses invested less in machinery & equipment.  In another report, a survey from the Federal Reserve Bank of New York showed manufacturing conditions in the New York region shrank in Aug.  The Empire State index fell to -5.9, down from a reading of 7.4 in Jul.

Industrial Production in U.S. Rises 0.6% on Autos, Utilities

Photo:   Bloomberg

Target, a Dividend Aristocrat, had higher net income in Q2 as it paves the way for an upcoming move into Canada.  It saw solid spending by customers & it raised its outlook for the year.  TGT has reached out to customers with 2 growth initiatives: offering a larger selection of foods & also a program started in 2010 which gives shoppers a 5% discount when they pay with Target-branded credit & debit cards.  It has also expanded into urban markets using smaller versions of its big-box stores.  It is pleased with the performance of its first 3 locations & is looking outside the country for growth as well.  TGT will soon begin opening the first of 125-135 stores at store locations once owned by Zellers, Canada's 2nd-largest discount chain.  EPS was $1.06 which compares with $1.03 last year.  Excluding expenses tied to Canada, EPS was $1.12, topping expectations of $1.01.  Overall revenue rose 3.5% to $16.5B.  Analysts forecasted $16.75B.  Revenue at stores opened at least a year rose 3.1%.  The company expects EPS in Q3 to be 83-93¢ & analysts expect 77¢.  TGT also raised its EPS guidance for the year by a nickel to $4.65-$4.85.  Analysts are expecting $4.30.  The stock gained 1.26 & has done well in the last year.

Target Raises Profit Forecast as Groceries Boost Sales

Target (TGT)

Markets continue to meander looking for direction in a quiet month.  There is no dramatic news coming out, partially because Europe is on summer holiday.  But its problems have not gone away.  US economic news is a little better than it has been.  But year end is approaching & the possibility of significant tax hikes is keeping business & consumers cautious about the outlook.  Dow stays near 13K, unable to break thru its high at 13.4K.  That trend should remain thru the end off Aug.

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Markets slump on increased Euro worries

After starting higher, selling came back to bring the averages into the red.  Dow fell 33 (closing at its lows), decliners over advancers 2-1 & NAZ lost 19.  More selling in bank stocks took the Financial Index down 3 to 191, a 3½ month low.  The MLP index was down a fraction to another new low in May (in the 377s) while the REIT index fell 3 to the 252s (13 below its recent yearly highs).  Junk bond funds edged higher & Treasuries were a little higher.  Oil & gold continued to see a lot of selling, both at multi monthly lows.

JPMorgan Chase Capital XVI (AMJ)

Click below for the latest market update:

Treasury yields:

U.S. 3-month	0.092%
U.S. 2-year	0.282%
U.S. 10-year	1.762%

CLM12.NYM

Crude Oil Jun 12

92.62

1.36 (1.5%)

The delinquency rate for mortgages declined in Q1 to the lowest level since 2008 as an improving job market helped more borrowers pay their bills & tighter lending standards resulted in fewer defaults. The share of home loans at least 30 days late dropped to 7.4 % from 7.58% in Q4 according to the Mortgage Bankers Assoc.  The rate peaked at 10.1% in Q1 of 2010 & was last lower in Q3 of 2008 (Lehman collapse), when it was 6.99%.  “Delinquencies are clearly continuing to improve,” Michael Fratantoni, the group’s vice president of research and economics, said. “Newer delinquencies, loans one payment past due as of March 31, are down to the lowest level since the middle of 2007, indicating fewer new problems we will need to deal with in the future.”  Falling delinquencies may help limit foreclosures, important for a recovery in the housing market as low interest rates combine with decreased prices to stimulate demand.  Housing affordability reached a new high in Q1 & sales of previously owned homes rose 5.3% from a year earlier, according to the National Association of Realtors.  Housing starts increased 2.6% to an annual pace of 717K in Apr, beating estimates.  Rates for 30-year fixed loans declined to a record 3.83% in the current week, according to Freddie Mac.  Of course, increases are measured off depressed levels, but at least they show the market is trending in the right direction.

Mortgage Delinquency Rate in U.S. Fall to 2008 Levels


Target, a Dividend Aristocrat, raised its profit outlook after reporting better-than-expected Q1 results that were boosted by increased spending on food & cheap chic fashions.  TGT, which mixes stylish clothes & trendy decor under the same roof as toothpaste & cereal, recently has had success drawing customers into stores with 2 growth initiatives. It has been offering a larger selection of foods & a program it started in 2010 that gives shoppers a 5% discount when they pay with Target-branded credit & debit cards.  EPS rose to $1.04, above 99¢ a year earlier.  Excluding costs associated with its expansion into Canada next year, EPS would have been $1.11.  Revenue increased 5.9% to $16.9B.  These results beat EPS of $1.02 on revenue of $16.8B expected.  Revenue at stores opened at least a year rose 5.3%, the strongest performance in 6 years for that period.  The strong showing came despite a weak finish to the quarter.  To boost sales, the company has teamed up with unique specialty shops to offer limited edition merchandise, from dog biscuits to platform shoes.  The shops were launched earlier this month.  The discounter plans to create mini shops of Apple (AAPL) products in 25 of its stores this year.  The company also preparing to expand into Canada next year, its first expansion outside the US & will open the first of 125-135 stores in Canada at former Zellers locations.  Based on better-than-expected Q1 results, TGT raised its full-year profit guidance by 5¢ & now expects EPS to be $4.60-$4.80, better than the average forecast of $4.28.  CEO Gregg Steinhafel said that company officials remain "confident in our strategy" despite that they expect "the current economic recovery will continue to be slow and uneven."  On a tough day in the markets, the stock was up 24¢.

Target's 1Q profits up 1.2 percent AP

Target Corporation (TGT)

Photo:   Bloomberg

All retail news was not good.  JC Penney posted a Q1 loss & sales that fell more than expected.  Sales slumped 20% to $3.15B, trailing the $3.43B estimate.  The loss equaled 75¢ cents a share, compared with profit of 28¢ last year.  As a result, the div will be discontinued.  The $163M loss is a new challenge for CEO Ron Johnson, whose appointment in Jun caused the shares to surge amid buzz that he would bring some Apple (AAPL)- style magic to the ailing retailer.  He vowed to flip the traditional department-store strategy upside-down by turning stores into a collection of branded shops & simplifying pricing into three tiers to wean consumers off discounts.  “Sales and profitability have been tougher than anticipated during the first 13 weeks,” Johnson said.  “While we have work to do to educate the customer on our pricing strategy and to drive more traffic to our stores, we are confident in our vision to become America’s favorite store.”  The company said discontinuing div will result in cash savings of about $175M annually.  In Q1, the company incurred $76M in restructuring & management-transition charges.  Excluding those items, the EPS loss was 25¢, below the estimate for a loss of 8¢.  There will be additional restructuring charges throughout 2012.  Q1 same-store sales tumbled 18.9%.  The stock plunged $6.57 (20%) to $26.75.

J.C. Penney Reports First-Quarter Loss Amid Sales Slump

J.C. Penney Company, Inc. Holding Company (JCP)

Dow has fallen 615 from its close in Apr.  Today was a good example of good news can't get no respect.  One story after another was positive but the markets kept slipping & sliding.  Meanwhile Facebook (FB) is pumping the hype machine for a successful IPO on Fri.  Maybe the money raised from selling stocks will go into FB, but that should not be long lasting.  As bad as the Greek debt mess is, the Spanish debt mess keeps growing.  The effects of Euro uncertainties can be seen in bank stocks.  For example, Citi (C), which has had a nice recovery, is down $11 to $27 in 2 just months.  AAPL was down $12 today to the $541s ($102 below its highs last month).  The markets are hurting badly.

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Markets adrift after weak economic data

Dow was under water all day, but nothing serious.  Much of the early losses were recovered, giving it a net loss of only 10, decliners ahead of advancers 4-3 & NAZ had a gain of 9.  Bank stocks led the selling (not a good sign for the overall markets), bringing the Financial Index down 2 to under 208.

The MLP index fell a fraction tp 399 & the REIT was down a smidgen in the 262s (its high since 2008).  Junk bond funds were mixed & Treasuries higher (see below).  Oil fell after the Energy Dept reported that crude inventories surged to the highest level in more than 21 years & production along with imports climbed.  Gold slipped $8, still sloshing around the mid 1600s.

JPMorgan Chase Capital XVI (AMJ)

Click below for the latest market update:

Treasury yields:

U.S. 3-month	0.081%
U.S. 2-year	0.262%
U.S. 10-year	1.921%

CLM12.NYM

...Crude Oil Jun 12

....105.26

... 0.90

(0.9%)

Treasury 10-year yields approached the lowest level in almost 3 months as manufacturing contracted in Europe & private employers in the US added fewer workers than forecast, boosting demand for the safest assets.  The Treasury delayed decisions on whether to sell floating-rate securities & bills with negative yields at gov auctions for the first time. The Treasury will issue $32B in 3-year notes, $24B in 10-year debt & $16B in 30-year bonds beginning May 8 (the same amounts sold in each refunding month since Nov 2010).  The 10-year note yield fell 3 basis points to 1.92%.  The Treasury said it sees benefits in the issuance of floating-rate notes & a decision will be made “at a later date.”  While there are good reasons to have negative yields at Treasury auctions, an official said, no decision has been made & there are operational challenges.  Negative yields mean the holders will get less than the $1000 paid for each note at maturity.  A euro-region factory gauge based on a survey of purchasing managers slipped to a 34-month low of 45.9 from 47.7 in March (a reading below 50 indicates contraction).  German unemployment increased by 19K to 2.87, higher than the forecasted decline of 10K.  Weaker Euro data is increasing demand for Treasuries.  The concept of negative yields is eye-popping & a negative sign for stocks.

Treasury Yields Approach 3-Month Low on European Slowdown

Photo:   Bloomberg

A stronger box office slate, a new deal with Netflix (NFLX) & a better TV advertising climate contributed to growth at Time Warner in Q1.  Although earnings fell 11% because of restructuring charges, adjusted income beat expectations on the strengths of the company's movie studio & TV network businesses which offset weakness in the magazine division. EPS was 59¢ because there are fewer shares outstanding.  Excluding one-time factors, EPS was 67¢, better than the 64¢ expected.  The charges primarily related to shutting down a TV network in India & selling a school-fundraising business called QSP.  Adjusted EPS last year was 58¢.  Revenue grew 4% to $7B, ahead of expectations of $6.8B & $6.7B last year.  The cable TV networks revenue grew 3% to $3.6B.  Besides strong ad rates, the company benefited from better timing of March Madness basketball games & higher fees collected from US cable & satellite TV distributors.  That was offset partly by a decrease in content revenue.  TNT suffered from an NBA lockout, which delayed the start of the pro basketball season.  Although viewership has returned, the company hasn't been able to make as much money from NBA games this year along with higher expenses.  Warner Bros. studio had a 7% revenue increase to $2.8B, benefiting from higher licensing revenue of TV shows.  Revenue at the Time magazine division fell 3% to $773M as advertising & subscription revenue declined.  TWX reaffirmed its full-year outlook, saying adjusted EPS will grow by a low double-digit percentage from last year's $2.89.  The stock fell 63¢.

Time Warner Earnings Exceed Estimates on Gains in Television Advertising

Time Warner Inc. (TWX)

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Photo:   Yahoo

Target, a Dividend Aristocrat, will stop selling the Kindle from Amazon (AMZN), the latest in a series of brawls between the companies fueled by increasing competition of AMZN with brick & mortar retailers.  "Target is phasing out Amazon- and Kindle-branded products in the spring of 2012," a Target spokesperson said.  "We will continue to offer our guests a full assortment of e-readers and supporting accessories."  The decision includes the new Kindle Fire tablet, its range of Kindle e-readers & all accessories for the devices.  But TGT will still sell other e-readers& tablets.  Wal-Mart (WMT), a Dow stock & Dividend Aristocrat, will keep selling Kindles.  This move comes as TGT outfits some of its stores with special displays of Apple (AAPL) products, including the iPad, which competes with the Kindle Fire tablet.  Kindle Fire is tightly integrated with AMZN 's huge online retail store, which competes with TGT physical big-box outlets & its website.  TGT stock fell 3¢.

Target Will Stop Selling Amazon’s Kindle After Two Years

Target Corporation (TGT)

Dow had been down 80 in early trading, but buyers returned to limit the damage.  Its enormous rally since Oct remains intact although it has been sputtering in recent months.  Longer term, Dow has more than doubled off its lows just over 3 years ago, a mind boggling advance, with only a few minor setbacks.  For it to advance from here, the biggest question is the state of the US economy which may have run into a snag.  Once again, the jobs report on Fri will give clues about the economic recovery & be a big driver for the markets. 

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