MIxed markets as traders watch Europe

After starting the day lower, stocks rallied but Dow was unable to finish in the black.  Dow dropped 6, decliners ahead of advancers 2-1 & NAZ was up 6 (helped by Apple's rise).  Bank stocks were weak all day, taking the Financial Index down 2 to the 188s (still near its interim highs of 191 reached last week). 

MLPs & REITs fell but junk bond funds were mixed.  Risk averse money went into Treasuries, taking the yield on the 10 year Treasury near its record lows of 1¾%.  Oil declined as European leaders sparred with Greece over a 2nd rescue program & US consumer spending stalled.  While bouncing around in the last 2 days, gold ended little changed.

JPMorgan Chase Capital XVI

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Treasury yields:

U.S. 3-month	0.046%
U.S. 2-year	0.211%
U.S. 10-year	1.839%

CLH12.NYM

Crude Oil Mar 12

98.82

0.74 (0.7%)

• 

Photo:    Yahoo

European leaders are struggling to reconcile austerity with growth at a summit that approved a permanent rescue fund for the euro zone & was trying to put finishing touches to a German-driven pact for stricter budget discipline.  But disputes over the limits of austerity, & Greece's unfinished debt restructuring negotiations, hampered efforts to send a more optimistic message that Europe is getting on top of its debt crisis.  Leaders agreed that a €500B euro European Stability Mechanism will enter into force in Jul, a year earlier than planned, to back heavily indebted states.  Europe is already under pressure from the US, China, the IMF & some of its own members to increase the size of the financial firewall.  The risk premium on southern European gov bonds rose while the € fell on concerns about a lack of tangible progress in the Greek debt talks & gloom about Europe's economic outlook.  Highlighting those fears, Spain's economy contracted in Q4 for the first time in 2 years & looks set to slip into a long recession.  France halved its 2012 growth forecast to a mere 0.5%, another potentially ominous sign for President Sarkozy's troubled bid for re-election in May.

EU Leaders Struggle to Reconcile Austerity, Growth Reuters

Photo:   Bloomberg

French Prime Minister Fillon said that the country is slashing its forecast for economic growth this year from 1% to 0.5%.  The move enables the gov to "take into account the deteriorating economic environment" before revising the budget with a last-minute package of measures that are to go before the Cabinet next week.  Last week the IMF said it forecasts the French economy to grow only 0.2% this year.  The lower growth figure will have an approximately €5B impact, Fillon said, but he added that this "can be reabsorbed" because of past efforts and a prudent budget.  France is the eurozone's 2nd-largest economy, after Germany, & its lagging finances could weigh on efforts to bail out weaker eurozone countries.  The updated budget is expected to include higher consumption taxes & other measures to cut debts & boost growth.  With presidential elections in Apr & May, the measures must be rushed through a parliament, about to close down ahead of the voting.  One of the measures is to impose a 0.1% tax on financial transactions starting in Aug.  Markets don't like added taxes.

Sarkozy to Levy Transaction Tax Opposed by Finance Industry, Central Bank


Morgan Stanley (MS) & Citi (C) are making some of the biggest cuts in compensation for investment bankers, averaging as much as 30%, as they grapple with lower revenue.  MS, owner of the largest brokerage firm, will also cap cash awards & defer more payouts while Credit Suisse (CS) plans to give a portion of senior employees’ bonuses in bonds backed by derivatives.  Citi may cut some bonuses in the securities & banking unit as much as 70 %.  Curbing pay & changing formulas are done to limit expenses, with some giving more stock & less cash.  Revenue shrank last year as mergers & trading slowed.  Bank of America (BAC), a Dow stock, plans compensation cuts averaging 25%, with some cash bonuses capped at $150K & some base salaries frozen.  Goldman Sachs (GS) cut discretionary compensation “significantly more” than the its 26% drop in revenue, CFO David Viniar said on Jan 18.  Times are tough everywhere & these cuts will result in lower taxes paid by the top 1%.

Morgan Stanley, Citigroup Lead Pay Cuts


The markets behaved fairly well considering the negative news from Europe & a dismal report on consumer spending.  Negotiations about refinancing the Greek debt are touchy.  A bigger than expected 50% haircut for the bondholders could trigger a default rating by the credit agencies.  This is new to everybody & nobody knows where it will lead.  Unfortunately the bias is strongly on the negative side.  One prominent stock has been immune from the selling of late, Apple (AAPL).  It jumped 5 to 453, yet a another record after reporting a blowout qtr.  Facebook's IPO sounds like it's around the corner, maybe this week.  If so, the market's reception will give a strong indication about its market's appetite for risk.  Treasuries have been surging in the last week, risk averse thoughts are alive & well.

Dow Industrials

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Markets retreat on weaker economic data

Dow dropped 37, decliners ahead of advancers 3-2 & NAZ was fell 3.  The Financial Index was fractionally lower to 187, but still only about 3 away from its highs in late Oct.

The MLP index was off a tad in the 387s & the REIT index fell 2+ to the 232.  Junk bond funds were mixed & Treasuries were a little lower.  Oil is back at a 7 month high & gold is continuing on its winning ways, casting doubts on the rally by stocks.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month	0.015%
U.S. 2-year	0.229%
U.S. 10-year	1.919%

CLG12.NYM

...Crude Oil Feb 12

...102.25

...... 1.38  (1.4%)

GCF12.CMX

...Gold Jan 12

.........1,653.30...

14.10

(0.9%)

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Today's 50 Top Trending Stocks below:

Photo:   Bloomberg

Consumers pulled back on their spending in Dec despite the holiday shopping season.  A Commerce Dept report showed that overall retail sales rose only 0.1% compared to Nov, short of forecasts of a 0.4% rise.  Excluding auto sales, which were relatively strong, sales fell 0.2% which compares with forecasts of a 0.3% rise.  Part of the reduced spending came from lower prices trimming spending at gas stations by 1.6%.  Spending at grocery stores also declined 0.2% amid reports of some lower food prices.  There were also declines in some retail categories that typically get a lift from holiday shoppers. The biggest was a 3.9% drop at electronic & appliance stores.  Dept store sales fell 0.2%, leading to a 0.8% drop in general merchandise stores.  Even non-store retailers, typically online retailers, suffered a 0.4% drop.  Bucking the trend were clothing retailers, which enjoyed a 0.7% rise & a 1.6% rise at building material & garden equipment retailers.

Retail Sales in U.S. Rose Less Than Forecast

Photo:   Bloomberg

Unemployment claims jumped 24K to 399K in the first week of 2012, the highest in 6 weeks & up from an upwardly revised 375K in the prior week.  The 4 week average marched higher to 381K from 374K.  The seasonal-adjustment projected a 12% increase in claims during the first week of Jan.  Instead, unadjusted applications climbed by 19%.  The unemployment rate has fallen sharply in recent months & was 8.5% Dec, but some worry the drop has been due in part to discouraged workers dropping out of the labor force.  The number continuing to receive jobless benefits rose 19K to 3.63M.  Those who’ve used up their traditional benefits & are now collecting emergency & extended payments decreased by 48K to 3.45M.  

U.S. Jobless Claims Rise More Than Forecast

Photo:   Bloomberg

JPMorgan (JPM), a Dow stock, is likely to continue as the most profitable US bank when it reports earnings, but Wells Fargo (WFC) is closing in.  JPM is projected to report a record $18.5B in 2011 earnings (when adjusted for one-time items), a 6% increase.  Profit at WFC is estimated to have jumped more than 4 times as much, to an all-time high of $15.3B.  By focusing on the US & eschewing traditional Wall Street businesses, WFC surpassed earnings at Goldman Sachs (GS) & Citigroup (C). for 6 consecutive qtrs.  WFC, with $1.3T in assets is the 4th-largest UB bank, also has higher valuations than its bigger peers.  It will be interesting to see how the markets react to earnings releases from the banks.

JPMorgan Set to Post Record 2011 Profit as Wells Fargo Closes Earnings Gap

Wells Fargo & Company (WFC)

While not a lot is happening in the markets, the bias switched to negative.  Everybody is waiting for earnings reports.  The article above indicates bank earnings might be mixed.  Earnings should be fairly good, but there will be more to their stories in the details.  An indication of more layoffs will also cast a cloud over a healthy image.  Concerns about the European debt mess are easing today, but they are subject to wide swings.  Dow has not been surging, but is holding well above the 11.2K level & is up YTD, a good sign for the bulls.

Dow Industrials

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Stocks struggle to advance

Popular averages rebounded a little after initial selling. Dow was off 33, decliners over advancers almost 2-1 & NAZ was down 10. Buying in the PM can still take the Dow to another yearly high. After getting a lot of attention, banks are selling off. The Financial Index can't get away from sideways pattern near 200 which has lasted for 3 months.

S&P 500 FINANCIALS INDEX

Value 197.49

Change -1.59

% Change -0.8%

The Alerian MLP Index rose pennies in the 263s, still aiming for a 2009 high into the 266s. But the Dow Jones REIT Index dropped 2 & junk bond funds were mixed. The yield on the 10-year Treasury bond fell 2 basis points to 3.34%.


Alerian MLP Index --- 2 weeks



Dow Jones REIT Index --- 2 weeks





Oil keeps waffling in the 75-80 range while gold charges higher to new records.

CLF10.NYM

...Crude Oil Jan 10

...76.15

1.41 .......(1.8%)

GCX09.CMX

...Gold Nov 09

...1,169.80

... 5.50 ........(0.5%)

Banks earned $2.8B in Q3, but loan balances plummeted & the fund that insures their deposits was $8.2B in the red. Souring loans continued to hurt bank balance sheets, but they were buoyed by higher operating revenues & a revived market for securities according to the FDIC. The number of banks on the FDIC's "problem list" rose to 552 in Q3 from 416 in Q2, the highest level in 16 years. 50 banks failed during the qtr, the largest number since 1990. Bank failures this year through 2013 are expected to cost the fund $100B, mostly in 2009 & 2010. This dreary assessment of bank results helps explains why the Financial Index has not risen in 3 months.

‘Problem’ Banks at 16-Year High in Third Quarter, FDIC Says



Confidence in the economy improved slightly in Nov but shoppers remain gloomy heading into the holiday shopping season amid a weak job market. The Conference Board said that its Consumer Confidence Index edged up to 49.5 from a revised reading of 48.7 in Oct. The index had hit a historic low of 25.3 in Feb. A reading above 90 means the economy is on solid footing, above 100 signals strong growth. Depressed spending is likely to persist for several years amid stubbornly high unemployment. Shoppers' assessment of the job market remains weak. Those claiming jobs are "hard to get" increased to 49.8% from 49.4%, while those claiming jobs are "plentiful" decreased to 3.2% from 3.5%.

Consumer Confidence in U.S. Unexpectedly Increased

Jobs are plentiful (%) - 1 year

Jobs are hard to get (%) - 1 year





This is another sleepy day on low volume during a holiday week. Retailers are getting ready for the all important holiday selling season in Q4 (when a large portion if not all yearly profits are earned at retailers). They are worried, but it's just another major worry for investors. Sluggishness in banking stocks is negatively impacting stock markets today.

Dow Jones Industrials --- 2 weeks

Markets advance despite Chrysler woes

All news is good news which is driving stocks higher! Stocks shot out of the gate with Dow gaining more than 100, but the gusto is subsiding. Dow is up 82, advancers over decliners almost 4-1 & NAS gained 32. Banks are leading the charge.

S&P 500 FINANCIALS INDEX

Value 148.95

Change 2.37

% Change 1.6%

.name.....price......change....% change........volume

BAC		8.99	0.31	3.57%	104,079,939
C		3.19	0.07	2.24%	90,520,034
JPM		34.74	0.26	0.75%	21,087,383
WFC		20.37	0.40	2.00%	26,413,848

The Alerian MLP Index rose .65 to the 214s, another yearly high. REITs & junk bonds were up, giving very nice gains for Apr while the VIX fell to 34.75, lowest level for the year. Oil is little changed despite bullish feelings in the stock markets.


Chrysler is expected to throw in the towel & file for Chapter 11. Then they hope to be able to combine with Fiat. It's not absolutely final, but they only have a few more hours to come up with a rescue package.

•Chrysler to File for Bankruptcy After Some Creditors Balk, Obama Aide Says


The number of newly filed unemployment claims fell to 631K last week, down from 645K in the prior week. The four-week moving average, which smooths out volatility, dropped to 637K, the lowest level since late Feb & a decrease of 20K from the high in early Apr. Goldman Sachs economists said a decline of 30-40K in the four-week average is needed to signal a peak. However the number continuing to draw unemployment benefits jumped to almost 6.3M, the highest on records dating back to 1967 & steeper than predicted.

US Initial Jobless Claims Fell to 631,000 Last Week


Consumer spending fell 0.2% in Mar, first decline in 3 months. Consumer incomes dropped 0.3%, worse than expected. Continued massive waves of layoffs are taking their toll. The drop in spending was the first decline after two consecutive increases & the negative number in Mar is a worrisome sign about future economic prospects.

•U.S. Consumer Spending Declines More Than Forecast as Job Losses Take Toll


Dow has had probably the best 2 months in history. Even with sideways trading, it will be up almost 600 in Apr if it can hold at the present level. However dreary reality including: continuing (& probably growing) high unemployment, banks stress test results, massive gov spending & borrowing, Chrysler & probable GM bankruptcies, etc. should not be ignored.


Dow Jones Industrials --- 2 months