Morning advance pared with late day selling

Dow was up 53, advancers over decliners 2-1 & NAZ added 28 (helped by Apple).  The Financial Index settled back a little from AM gains with an advance of 1+ to the 218s.  The MLP index rose an enormous 4+ to the 404s (7 short of its record high earlier this year) & the REIT index was up a fraction to the 274s, another 2012 high.  Junk bond funds gained while Treasuries eased back & the 10 year Treasury yield skyrocketed 11 basis points to 1.87%.  Oil wants to go over 100 & gold had a small advance, digesting recent gains (shown below).

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Treasuriy yields:

U.S. 3-month	0.097%
U.S. 2-year	0.250%
U.S. 10-year	1.875%

CLV12.NYM

....Crude Oil Oct 12

....98.94

.... 0.63

(0.6%)

Photo:   Bloomberg

US retail sales increased in Aug by the most in 6 months, boosted by demand for automobiles along with higher gasoline prices that left consumers with less to spend on other goods.  The 0.9% gain followed a revised 0.6% advance in Jul that was smaller than initially reported, according to the Commerce Dept.  The forecast called for an increase of 0.8%.  Sales slowed at department stores, apparel retailers & electronics outlets.  Higher food & fuel costs along with smaller gains in payrolls & wages are squeezing household finances, posing a challenge for merchants.  Labor-market weakness prompted the Federal Reserve yesterday to take another step to spur the 3-year expansion.  Sales excluding automobiles & gasoline rose 0.1%, less than the 0.4% gain forecast.  7 of 13 major categories showed an increase last month.  Purchases increased 1.3% at automobile dealers, the most since Feb, after a 0.1% gain the prior month.  Retail purchases excluding autos climbed 0.8%, beating the projected gain of 0.7%.

Retail Sales in U.S. Rose 0.9% in August on Auto Demand

Photo:   Bloomberg

Apple rose to a record after the company said orders for the new iPhone from its online store won’t ship for 2 weeks, fueling speculation that the new model had sold out.  Based on the 2-week delivery estimate, the iPhone 5 would ship Sep 28.  When AAPLe unveiled the latest model iPhone earlier this week, the company said pre-orders in the US & 8 other countries would begin today & the product would be available on Sep 21.  As many as 58M units of the iPhone 5 may sell by the end of the year which could generate $36B in sales.  The stock shot up 7 to 690, yet another new record. 

Apple Stock Hits Record as IPhone 5 Seen Sold Out Online

Apple (AAPL)

Photo:   Bloomberg

Confidence among US consumers unexpectedly improved in Sep, providing an impetus for the household spending that makes up more than 70% of the economy.  The Thomson Reuters/University of Michigan preliminary index of consumer sentiment climbed to 79.2 from 74.3 in the prior month & above the projection of a fall to 74.  Rising share prices & home values are helping to shore up confidence in the face of higher gasoline costs.  But the Michigan survey’s index of current conditions, which reflects Americans’ perceptions of their financial situation & whether they consider it a good time to buy big-ticket items like cars, fell to 88.3 from 88.7 in the prior month.  The gauge of consumer expectations 6 months from now, which more closely projects the direction of consumer spending, increased to 73.4, the highest since May, from 65.1 in Aug.

Confidence of U.S. Consumers Unexpectedly Improves, Michigan Index Shows


Dow finished 70 below its high, but that was to be expected after its gains this week.  It still managed a weekly gain of 287, not bad.  The weekend will give everybody a chance to calm down & assess the stimulus move by the Federal Reserve.  There may be more news from the Mideast, which has the potential to be negative.  Already oil is close to its yearly highs.  Gas at the pump was $3.87 yesterday, just 6¢ below its yearly high & nearing its record set 4 years ago.

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The Bernanke rally continues

Dow added 63,advancers over decliners almost 4-1 & NAZ was up 33.  The Financial Index rose 2 to 219, a new yearly high.  The MLP index was up 1 to 401 (10 below its record high reached in early 2012) & the REIT index rose 2½ to the 276s, a new 4 year high.  Junk bond funds gained & Treasuries had one of their biggest sell offs in history with the yield on the 10 year Treasury soaring 13 basis points to 1.89%.  Oil rallied, getting close to $100 & gold was also higher.

AMJ (Alerian MLP Index tracking fund)

Treasury  yields:

U.S. 3-month	0.097%
U.S. 2-year	0.250%
U.S. 10-year	1.868%

CLV12.NYM

....Crude Oil Oct 12

...99.55

... 1.24

(1.3%)

GCU12.CMX

...Gold Sep 12

......1,774.50

... 5.40

(0.3%)

Get the latest daily market update below:

• 

Photo:   Yahoo

More expensive gas drove up consumer prices in Aug by the most in 3 years.  But outside energy, inflation was tame.  The Labor Dept said that consumer prices rose 0.6% last month, the first increase since Mar & higher gas prices accounted for 80% of the increase.  Food prices rose 0.2%.  Excluding the volatile food & energy categories, core prices edged up 0.1% for the 2nd straight month.  Rents, medical care & new cars got more expensive, while clothing, furniture & airline fares fell in price.  Lower inflation will allow the Federal Reserve (FED) to stick with programs announced aimed at lifting the economy.  In the past 12 months, prices have increased 1.7%, down from a peak of 3.9% in Sep% 2011 & below the FED inflation target of 2%.  Core consumer prices rose 1.9% in the past 12 months, the smallest annual increase in a year.  Aug prices rose largely because gas prices have jumped in recent weeks.  The average price for a gallon of gas nationwide was $3.87, up 16¢ in the past month.  The modest increase in food prices indicates the drought in the Midwest is not yet pushing up grocery prices.  That should happen in the comings months.

U.S. Consumer Price Index Increases by Most Since 2009

• 

Photo:   Yahoo

US industrial production fell in Aug by the largest amount in more than 3 years as factories produced fewer cars & other manufactured goods & Hurricane Isaac triggered shutdowns along the Gulf Coast.  Industrial production dropped 1.2% compared to Jul, according to the FED, the biggest setback since a 1.7% decline in Mar 2009 when the country was in recession.  Manufacturing output, the most important component, fell 0.7%, led by a 4% drop in output at auto plants.  Manufacturing helped lift the country out of the recession, but it slowed in the spring as consumers cut back on spending, businesses invested less in machinery & demand for US exports was hurt by a global weakness.  US factory activity shrank for a 3rd straight month in Aug, according to the Institute for Supply Management's survey of manufacturing conditions.  Growth slowed in Q2 to an annual rate of just 1.7%, down from 2% in Q1 & 4.1% in Q4 2011.  Weakness in manufacturing was widespread.  Production fell at factories making machinery, computers, airplanes & furniture.  Even with the Aug decline, output at manufacturing plants is still 20.7% above the recession low in Jun 2009.

U.S. Industrial Production Fell in August

European govs put off decisions on aid for Spain & a loosening of Greece's loan terms, counting on the ECB's bond-buying pledges to provide interim relief from market turmoil.  Finance ministers meeting in Cyprus looked to a fresh set of reforms to rebuild confidence in Spain’s economic management & said the fate of Greece’s €240B ($314B) rescue program won’t be decided until late Oct, possibly at a crisis summit of leaders.  The central bank, which helped drive the € to a 4- month high, warned that it has only bought time for govs to deliver the deficit-cutting & growth-boosting steps needed to stabilize the economy.  “The amount of time that we have -- it’s a very difficult question to answer,” ECB President Draghi told reporters after meeting the euro-region ministers in Cyprus.  “You have to ask the markets. If we continue going this way, then one has to be very optimistic.”  The € rose to $1.31, the highest since May 4.  Spain’s extra 10-year borrowing cost over German levels narrowed by 3 basis points to 404 basis points.

Europe Bides Time on Spain as ECB Relied Upon to Soothe Markets


Stocks are flying high as if there were no worries.  Dow hasn't been this high since early 2008.  But all is not well.  For starters, nobody is sure what good the mortgage program will do to help reduce high unemployment.  Mortgage rates are already at record lows.  The fiscal cliff keeps getting nearer & buying more mortgages will not cure that.  Europe still has enormous financial problems & China is growing an an unsatisfactory rate.  In addition, rising gas prices at the pump need to get more attention.  But I have to admit, high stock prices feel good when I like at mine.

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Markets rally after more stimulus announced

Dow jumped 206 (near the high), advancers ahead of decliners almost 4-1 & NAZ shot up 41.  The Financial Index surged 5+ to 217.  The MLP index rose 2+ to 400 (not seen in almost 6 months) & the REIT index shop 3+ to the 273s, a new 4 year high.  Junk bond funds gained & Treasuries inched higher.  Oil went up & gold had a surge (see chart below) after the big announcement.

Dow Jones Industrials

Click below for the latest market update:

Treasury yields:

U.S. 3-month	0.097%
U.S. 2-year	0.234%
U.S. 10-year	1.726%

CLV12.NYM

...Crude Oil Oct 12

...98.11

... 1.10

(1.1%)

Photo:   Bloomberg

Big Ben Bernanke said the Federal Reserve (FED) does not have a specific economic target for its new stimulus program & will keep buying bonds until it sees more jobs, lower unemployment & stronger growth.  "We are looking for on-going sustained improvement in the labor market," Bernanke said during a news conference.  "There's not a specific number in mind.  But what we've seen in the last six months isn't it."  The FED said that it will spend $40B a month to buy mortgage bonds for as long as it deems necessary.  It plans to keep short-term interest rates at record lows thru mid-2015 & it's ready to try other measures if hiring doesn't improve.  The FED said “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.” 

Fed Undertakes QE3 With $40 Billion MBS Purchases Per Month

Photo:   Bloomberg

FED officials said economic growth will improve faster than they had earlier projected as they embarked on a 3rd round of asset purchases aimed at spurring the expansion.  They upgraded the estimate for 2013 GDP growth to 2.5-3%, compared with 2 to 2.2% in Jun.  Estimates for 2014 are for 3-3.8% growth, versus 3-3½% previously estmated.  Officials forecasted today that unemployment will average 7.6-7.9% in Q4 2012, compared with 7.5- 8% at the Jun meeting.  13 of 19 officials said the first interest-rate increase would be warranted in 2015 or later.  The FED has kept the benchmark lending rate in a record-low range between zero & 0.25% since Dec 2008.

Fed Officials Upgrade Economic Growth Outlook in 2013, 2014

Photo:  Bloomberg

Protesters attempted to storm the US embassy in the Yemen capital Sana’a & one was reported to have been shot dead, while demonstrators rallied in Egypt & Iran against a film seen as insulting to Islam.  The spread of violence follows the killing of the American ambassador to Libya, & 3 colleagues during an attack on consular buildings in Benghazi 2 days ago.  Groups tied to al-Qaeda may have been involved & several people have been arrested in Libya for that attack.  Demonstrators in Sana’a today breached the embassy compound’s security perimeter & set 2 cars ablaze, as security personnel fired into the air to disperse the crowd.  In Egypt, at least 216 people were injured, most from tear- gas inhalation, in a 3rd day of clashes near the US Embassy in Cairo.  There were also demonstrations outside the Swiss mission in Tehran, which represents US interests in Iran.  Anti-American violence threatens US efforts to establish ties with the new govs that are emerging in the MidEast after last year’s wave of revolts.  These are negatives for all stock markets.  If nothing else, oil is heading higher.

U.S. Embassy in Yemen Stormed as Protests Over Film Spread


There were no shortage of buyers after Big Ben made his announcement.  He's committed to low rates that they will be extended even when the economy recovers.  Sounds good, but all is not well.  Violence in the MidEast is on the rise, threatening major oil suppliers.  Europe remains in a recession while the debt messes drag on.  While China is doing well, it's not good enough by its standards.  Then there is the US.  The fiscal cliff has not gone away.  It's approaching, only a few months away & nobody in DC is doing anything.  In addition, the stimulus by the FED has not done that much good since the last recession.  Nobody knows what good this stimulus will do.  But Dow feels great at its 4 years highs.  Once again, breadth is thin relative to the big gains for the averages.  Also rising gold prices are bets against this stimulus.

Dow Jones Industrials

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