Falling prices oil brings higher stocks

Dow is up 165, advancers ahead of decliners 3-1 & NAZ is up 29. Nothing like lower oil prices to give stocks a boost. Oil fell to the 118s before recovering (Yahoo's current quote):

CLU08.NYM

Crude Oil Sep 08

119.74

1.67 (1.38%)

Traders worry that a weak economy in the US (not to mention the rest of the world) will reduce demand. We've been thru this before, but maybe this time reality will sink into the markets. For the 2 Dow stocks, Exxon Mobil (XOM) is up 70¢ while Chevron is even on these lower prices. Going along with lower prices, the Alerian MLP index is down one to the 261s, barley into new 52 week low territory.

The service sector did not do well in July, but that beat expectations. The reading was 49.5 up from 48.2 in the prior month & beat the 49 number forecasted, helping to bring out stock buyers today. However below 50 signifies contraction.

Procter & Gamble (PG), a Dow stock & very long time member of the S&P Dividend Aristocrat list, reported excellent earnings sending the stock up almost 2. They also raised their guidance for 2009 (beginning in July) slightly. Better than expected earnings were helped by raising prices & strong businesses especially in emerging countries. We hear a lot of that.

This rally could be a variation of "buy on the rumor & sell on the news." We'll see how it plays out in the PM after the FED meeting.

Asia & Australian markets a little lower

Markets are pulling back in Asia/Australia, maybe that's better than lower prices in the US. Australian stocks are down over 2% led by lower resource shares, hurt by lower oil & commodity prices. Resources commodities are down typically 5+%. Hong Kong stocks are down 1.7%. HSBC after large loan write-offs causing profits to decline 29% is leading stocks lower. Taiwan stocks are also down 1%. However, Tokyo stocks, at lunch break, are up ¼% & Shanghai stocks are up slightly. Oil is down 1 to 120.

Following up on my Exxon comments, below are earnings estimates (courtesy of Yahoo) for a 76.60 stock:

Exxon Mobil Corp. (XOM)

..............................2008........,,...2009
Avg. Estimate__________9.76________10.37
No. of Analysts__________17___________17
Low Estimate__________8.60_________8.25
High Estimate_________11.21________15.64
Year Ago EPS__________7.28__________9.76

The stock doubled in the last 5 years, a nice story followed by the sell-off in the last 3 months:

Oil stocks drag markets down

Dow fell 42, decliners over advancers 2-1 while NAZ pulled back 25. NYSE volume remains quiet at 1¼B indicating nothing was decided, bleeding will continue. Oil declined almost 4 to 121½, the lowest price in about 3 months. Largely overlooked, the slide in oil prices has dragged down oil stocks. Exxon Mobil (XOM), a Dow stock & as big as they come, is down about 20% from its high less than 3 months ago:





The energy index is down 20% from its high, signaling its bear market. Where oil goes, so goes the Alerian MLP index. As shown in my widget on the right, it fell 8 today, back to the important 262 support line. Some of the decline was attributable to ex-distributions (i.e. EEP & EEQ) but the bulk was due to old fashioned selling. Declining energy stocks tells me markets are thinking negative thoughts about economies going forward.

Tomorrow everybody is betting the FED will stand pat on interest rates, but their words will move markets. I've been having router problems all day, better post while I can!

Dreary Monday

The negative tone to Asian trading carried into the US. Dow is down 11 (recovering from down 80 when I first began writing), decliners ahead of advancers 5-2 and NAZ is down 14. There's just no way to hide the macro economic news is not pretty. Consumer spending fell 0.2% in June excluding inflation. Their measurement of inflation was 0.8%, highest since a 1% increase in Feb. This is the same news reported before, rebate tax checks went to pay for higher food & fuel prices. Commerce Dept reported factory orders increased 1.7% in June, best showing this year (from higher petroleum prices & military orders). Good news, but not really so good after thinking about it. Oil prices fell 1 to the 124s, had been in the 120s earlier, lowest in a couple of months. Once again, good news but 120 remains a painful price for the economy. The FED is widely expected to leave rates alone at their meeting this week after having to deal with various stagflation kind of forces.

HSBC (HSC), Europe's largest bank, reported sharply lower earnings for H1 (that's how they report), stock down 1.28. Their biggest problem was North America & in that area: Household Intl which lends to consumers. Speaking of earnings, Bloomberg TV had an analyst from S&P talking about earnings which are largely in. They tend to be very good or very, very bad, not much in the middle. Excluding banks/financials, earnings are up. Taking out GM & Ford, earnings gains are impressive. What he didn't mention is that on the margin, business outside the US probably is responsible for much of those gains.

Lower markets continue

Markets in Asia are down, following the US decline on Fri. All are lower, the Korean market, down 2+%, is the leader. Oil is up more than 1 on rising tensions from Iran. The 8th US bank to fail was mentioned. This is a small bank in FL, their insured deposits have been taken over by a larger bank.

July & stagflation

Stock markets have been thru a lot in recent months, June qualifies as an awful month. Even NAZ which has been doing well in recent times fell in June. Dow Jones Industrials & S&P 500 were clobbered dragging stocks to their lowest levels of the year.

July may have seen an end to the downward slide. Stocks continued falling until mid month. Then the FED put together a rescue package for Fannie Mae/Freddie Mac & some home owners with mortgages which brought a lot of encouragement to stock buyers. From the lows, the Dow rebounded (led by oversold financials) more than 600 followed by a pullback returning prices to near the start of the month. Financial stocks roared. Bank of America (BAC), rose 15 from a low of 18½ while marginal ones (like FNM/FRE) doubled from their lows. Now the bulls & bears will argue about who has the upper hand:





The Alerian MLP index had a bumpy ride, going sideways between 276 & their 52 week low of 262. Oil set records at 147 followed by a sudden 20 point pullback. MLPs this year have been following oil prices, but this time they were dragged down like oil stocks. In July, Exxon Mobil (XOM) dropped almost 10%, much of it in recent days after reporting record earnings. MLPs however are different, they are partnerships (not corps) generally with thousands & thousands of miles of boring of pipelines. At month's end & in early Aug many are/will be going ex-distribution, which can be 2%, a downward influence on the index.





Real estate stocks, REITs, have had a very rough year, not helped by the market down-draft in recent months. Many are selling at lows not seen in 10 years, even though divs have been trending up. In June they were pulled down by concerns over financials. They did not get significant relief in July, some falling to new multi year lows. Yields are 6-10%, some even higher. In personal accounts, many divs are partially non-taxable and/or have a portion taxed as capital gains. Those with excellent track records of raising divs are becoming attractive. They proved to be excellent buys 10 years ago when they were down in the dumps offering similar high yields.

Junk bond funds still can't get no respect, yielding 12% with NO mortgage exposure. Their yields have widened to 800 basis points above the Treasury yield, what has to be a record spread. The brave may start giving them some respect.

The stagflation word has been bandied about as a fear dragging down markets this year. Compared to the early 80's when inflation & unemployment rates were in double digits, this is mild. Growth declined then, today it's bumping along squeezing out small gains. I think this is a mild form of stagflation driving fears which drag down stocks.

Last night I saw the 2 fraidy cats. The older one, she's the mother, seemed to be her usual mellow self with me, relaxed. The younger one, Tom Cat (black cat), came out. He is the most afraid, but ventured out to visit with me for a few seconds, then ran under the futon. Maybe that's a sign the scariest days are behind us, even if the future looks gloomy with no shortage of fears.

Markets sink after job reports

Dow declined 51, advancers & decliners are about equal & NAZ dropped 15. NYSE volume remains quiet, just over 1B, as is typical on a summer Friday. Oil rose 1 to 125 on worries about an Israel - Iran conflict. AAA reported gas at the pump yesterday averaged 3.89 down about 20¢ from the high reached a couple of weeks ago. Car industry gloom spreads around the world. GM, BMW, Nissan, Toyota, etc. have been warning about problems going forward in their businesses. After reporting decent but not great earnings, oil stocks sold off. The Alerian MLP index dropped 1 to 270 remaining stuck under the 275 resistance level. REITs did OK today although First Industrial Realty Trust (FR), in my right column, dropped on an analyst downgrade. Junk bond funds continue offering 12% yields.

Macro economic issues are taking front stage. Analysts are talking about whether we are in a recession or drifting slightly above that level. The GDP & job numbers put them largely in the grim camp. The export sector is driving the economy aided by the weak dollar (making our products cheaper overseas). That had a slower growth rate in Q2, not good. Meanwhile stores are beginning their back to school season, very important. Since most tax rebate checks have been spent, they will have to rely on old fashioned marketing to boost sales. July sale numbers are due shortly, they should give a hint about their outlook in coming months.

Jobless rate hurts stocks

Dow was down 41, advancers & decliners were about equal & NAZ declined 14. The Labor Dept reported the jobless rate rose to 5.7%, highest in 4 years. July was the 7th straight month of job losses, total jobs lost this year were 463K. Losses were highest in housing & financial services. Manufacturing was flat in July, helped by strong exports. The reading was 50, down a smidgen from June but only at break even (the 50 number) which signals growth. Oil rose 3 to 127. Today's excuse for higher prices was a surprise spike in gasoline futures.

Chevron (CVX), a Dow stock, made $6B in Q2 which had little effect on the stock. EPS of 2.90 came in a little under estimates. General Motors (GM), another Dow stock, had a whopper loss of $15B, 3rd worst in history. Without special charges, GM lost "only" $6B. The stock fell 87¢. Grim!

In the last couple of days, sluggish, at best, GDP growth was reported followed by grim news on the unemployment front. No great surprises, but not the kind of news investors like to hear as deary news from housing, autos & mortgage/credit mess keeps dragging on.