Markets vacillate on weaker service industry growth

Dow inched up 1, advancers barely ahead of decliners  & NAZ gained 8.  Bank stocks were also little changed. 

S&P 500 FINANCIALS INDEX

Value	221.88
Change	-0.44   (-0.2%)

The MLP index fell 1 to 381, stlll looking to take out the old record high, while the REIT index was flat in the 237s.  Junk bond funds were mixed as were Treasuries.  The yield on the 10 year Treasury bond has remained close to 3.4% for over 3 months.  Oil prices held near 2-1/2 year highs as unrest in oil exporting countries in the MidEast & Africa outweighed China's 4th interest rate hike in 6 months.  Gold is still kicking around the 1430s, just under setting new records.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month		0.06%
U.S. 2-year		0.78%
U.S. 10-year		3.43%

CLK11.NYM

...Crude Oil May 11

...108.03

... 0.44

(0.4%)

GCJ11.CMX

....Gold Apr 11

.........1,433.70

... 1.50

(0.1%)

The service sector in the US expanded in Mar for the 16th straight month, although growth slowed from the previous month's pace (the fastest in more than 5 years).  The Institute for Supply Management index of service-sector activity dropped to 57.3 last month, from 59.7 in Feb, the first drop in 7 months. Still, any reading above 50 indicates expansion.  Estimates ranged from 57.7-61.  By way of comparison, the index plummeted to 37.6 in Nov 2008 at the height of the financial crisis.  The measure of new orders decreased to 64.1 from 64.4 in Feb, while the gauge of business activity fell to 59.7 from 66.9 & the employment gauge dropped to 53.7 from 55.6 a month earlier. The index of prices paid declined to 72.1 from 73.3.  Respondents expressed concern about rising fuel prices.

U.S. Service Industries Grew Less Than Forecast in March

Photo:   Bloomberg

Texas Instruments (TXN) is buying National Semiconductor (NSM) for $6.5B, paying a 78% premium to merge 2 of the industry's oldest firms into a dominant force in analog microchips used in products ranging from phones to cars. TXN will pay $25 for each NSM share, lifting NSM $10 to over $24.. The acquisition would extend TXN lead in the vast, fragmented market for analog chips.  The extravagant premium could be to seal a deal & thwart rival bidders. TXN said it was "comfortable" with the price & estimates $100 million in annual cost savings.  TXN rose 56¢.

Texas Instruments Bets It Can Stoke National Semi’s Growth

Texas Instruments Incorporated (TXN)

KB Home (KBH) widened its per share loss for the qtr ended Feb 28 to $1.49 from 71¢ a year earlier. Analysts predicted a loss of 30¢.  KBH has communities in some of the markets hardest-hit by foreclosures, including Las Vegas, Riverside County California & Phoenix.  The loss of $114.5M included an impairment charge of $53.7M & a loss on a loan guaranty of $22.8M.  Revenue declined 25% from a year earlier to $196.9M & net orders slid 32% to 1302. The company delivered 949 homes in the qtr, down 28% from the same period in 2010. The stock dropped 76¢ in what has been a dreary year. 

KB Home Reports Wider First-Quarter Loss as Revenue and Orders Plunged

KB Home (KBH)

A major buyout should have brought more buyers into the markets, but it didn't.  The economic data was mushy, but not terrible.  Problems around the globe are weighing on the markets & approaching earnings season is being viewed with caution. 

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Higher markets on late day buying

Stock averages were hugging break even all day.  Dow finished up 23 (eking out a new 2½ year high), advancers 15% ahead of decliners & NAZ slid pocket change   Bank stocks were mushy, ending a little lower.

S&P 500 FINANCIALS INDEX

Value	221.32
Change	-0.16   (-0.1%)

The Alerian MLP Index inched a fraction higher to 382 while the REIT slipped chump change in the 337s.  Junk bond funds crawled higher as did Treasuries, the yield on the 10 year Treasury remained flattish at 3.42%. The excitement in Treasuries was the 6 month bill rate which declined to a record low as the Treasury reduced sales of short-term securities while administration & Congress wrangle over budget cuts & raising the debt limit.  The rate dropped as low as 3 basis points to 0.1099%.  The prior record low of 0.1109% was set in Nov 2009.  Oil fluctuated near the highest level in 30 months ($108+) as Libyan rebels fought loyalists at the oil port of Brega.  Gold is closing in on its record highs above $1440.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month		0.04%
U.S. 2-year		0.76%
U.S. 10-year		3.42%

CLK11.NYM

...Crude Oil May 11

...108.49

... 0.55  (0.5%)

GCJ11.CMX

....Gold Apr 11

.........1,433.00

... 4.90

(0.3%)

Techs were weak following a report showing lower chip sales.  But NAZ was also hurt by Apple (AAPL) falling 3+ to 341.  The stock has been flat for almost 3 months even though most analysts have target prices of 400-450.  Competition may be nipping away at AAPL.  I saw the Dell (DELL) new tablet which combines a tablet in a netbook case.  It looks good & gives the user the function of a Win7 (with a 320GB hard drive) netbook along with the tablet platform.  Advantages of this combination are understood by some consumers.  AAPL has been skyrocketing on rapid sales growth & high profit margins which will suffer if competition grows in strength.

Apple Inc. (AAPL)

Prices at the pump keep climbing.  Yesterday they were $3.66, only 45¢ below the record set in 2008.  The summer driving season is still a couple of months away.

	Regular	Mid	Premium	Diesel	85	**E85 MPG/BTU adjusted price
Current Avg.	$3.662	$3.800	$3.927	$3.985	$3.089	$4.065
Yesterday Avg.	$3.645	$3.782	$3.912	$3.978	$3.074	$4.045
Week Ago Avg.	$3.584	$3.728	$3.857	$3.960	$3.033	$3.991
Month Ago Avg.	$3.493	$3.621	$3.750	$3.843	$2.913	$3.834
Year Ago Avg.	$2.826	$3.001	$3.109	$2.977	$2.331	$3.067

Source:   AAA


Trading was very light with traders waiting for earnings season.  Dow & the S&P 500 wavered near highs since 2008 while volume on the NYSE floor was a mere ¾B.  The MLP index could set a new record any day with a light blow from a following wind.  Seeking Alpha just published my article on Brown-Foreman, a Dividend Aristocrat with famous liquors (i.e. Jack Daniel's, Southern Comfort, etc.) & an outstanding growth record over its 140 year history.  After today's trading, some might seek comfort with its products.

http://seekingalpha.com/article/261706-brown-forman-a-growth-stock-to-drink-to

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Markets fluctuate near multi year highs

Dow rose 5, advancers ahead of decliners 4-3 & NAZ slipped 1.  Bank stocks were even on this uneventful day.

S&P 500 FINANCIALS INDEX

Value	222.47
Change	-0.01   (-0.0%)

MLPs remain hot taking the index up 0.62 to 382, breathing on the record high just 1+ away.  The REIT index was up a fraction to the 337s (4 short of a high since 2008).  Junk bond funds slipped a tad from their lofty levels & treasuries were a little higher.  The yield on the 10 year Treasury dropped 4 basis points to 3.42%.  Oil fell, erasing an earlier gain of 0.8% (over $108).  Gold was strong, nearing the record highs above $1440.

JPMorgan Chase Capital XVI (AMJ)

BONDS

U.S. 3-month		0.03%
U.S. 2-year		0.77%
U.S. 10-year		3.42%

CLK11.NYM

...Crude Oil May 11

...107.96

.... 0.02 (0.0%)

GCJ11.CMX

....Gold Apr 11

.........1,435.50

... 7.70

(0.5%)

 

Photo:   Bloomberg

Kohlberg Kravis Roberts agreed to buy Capsugel from Pfizer, a Dow stock, for $2.38B in cash & PFE will buy back additional shares with the proceeds.  Like many large pharmaceutical companies, PFE is facing generic competition on some of its biggest-selling drugs in coming years & has been adjusting its strategy accordingly.  PFE lowered its revenue forecast by $800M to $65.2B & said it will add to its previously announced plan to buy back $5B in shares this year. The company is evaluating additional business units to sell. The acquisition of Capsugel is KKR’s 2nd-largest deal in the past year after buying Del Monte Foods $5.3B including debt. The Capsugel unit made more than 180B hard capsules for drugs in 2010, with about $750M in sales.  Stockholders were not impressed, the stock was up 12¢.

Pfizer to Sell Capsugel Unit to KKR for $2.38 Billion

Pfizer, Inc. (PFE)

Photo:   Bloomberg

McDonald's (MCD), a Dow stock & Dividend Aristocrat, plans to hold its first national hiring day April 19 to fill 50K openings at its restaurants nationwide.  The company is making a concerted effort to add staff as its business improves & as more of its restaurants stay open 24 hours a day.  This translates to between 3-4 new hires per restaurant.  Turnover has slowed because of the weak economy.  MCD held a similar event in its Western region last year. More than 60K applied for the 13K positions.  Those who are interested can apply in stores or online & some restaurants will hold events & interviews that day. The stock rose 45¢.

• McDonald's wants to fill 50K jobs on hiring day- AP

McDonald's Corporation (MCD)

Market action today is like watching paint dry.  The many problems are being brushed aside by the markets, but they are waiting for earnings season to begin next Mon evening when Aloca (AA), a Dow stock, reports.

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Dow reaches a 2½ year high on March jobs report

Stocks started the new month higher but lost steam in the PM.  Dow gained 56 to near a 2011 high, advancers 2-1 ahead of decliners & NAZ gained 8. 

S&P 500 FINANCIALS INDEX

Value	222.48
Change	1.77  (0.8%)

The MLP index rose 1½ to the 381s while the REIT index was up a fraction in the 237s.  Junk bond funds were higher at their lofty levels.  I just wrote an article on junk bond funds for SeekingAlpha: 

http://seekingalpha.com/article/261385-high-yields-on-junk-bond-funds-still-attractive-in-low-yield-environment

Treasuries gained, pushing 2-year note yields down from the highest level in 10 months, after Bill Dudley, New York Federal Reserve Bank President said the economic recovery is “still tenuous,” easing speculation policy makers are poised to unwind stimulus measures.The yield on the 10 year Treasury eased, but more importantly the yield on the 2 year Treasury note is 0.79% (annualized), up from under 0.40% at its low last year.  This is a leading indicator for rising interest rates & needs to be watched.  Oil is up to $108 & on the move (upward) again.  Gold is rising as shown by the green line in the chart below.  Tensions from the Mideast (Libya, Syria, etc.) are high & higher oil prices are bringing more uncertainties to the global economic recover. 

ALERIAN MLP INDEX

Value	381.01
Change	1.19   (0.3%)

Treasury yields:

U.S. 3-month		0.06%
U.S. 2-year		0.80%
U.S. 10-year		3.44%

CLK11.NYM

...Crude Oil May 11

...107.93

... 1.21  (1.1%)

Ford SUVs
Photo:  Bloomberg

Last month, Ford (F) sold more new vehicles than General Motors (GM) in the US.  This was only the 2nd month Ford has outsold GM since 1998.  Ford sales rose 16% over last year. Among the strongest sellers was the new Explorer, which saw sales double over last Mar.  Buyers gravitated to smaller, more fuel-efficient cars & SUVs because of rising gas prices. The new Fiesta subcompact saw sales jump 56% from Feb.  Fusion sedan & Escape small SUV also saw big increases for the month.  Ford sold 212K cars & trucks 6K more than GM.

Toyota (TM) said deliveries of Toyota, Lexus & Scion models fell 5.7% to 176K vehicles.  Nissan, the 2nd-largest Japanese automaker, increased deliveries 27%. Honda, the 3rd-largest, said its sales in the US rose 23% last month to 133K Honda & Acura brand cars & light trucks.  Hyuandi, South Korea's largest automaker, said deliveries rose 32% to 61,K vehicles, a record for its US sales in Mar. Industrywide light-vehicle sales ran at a seasonally adjusted annual rate of 12.9M in Mar,.a decline from the 13.4M rate in Feb & would be the first sequential drop in 7 months.

Ford Outsells GM for First Time in a Year


Gas at the pump is at highs not seen since the ugly days in 2008.  Early news about auto sales in Mar are saying that high prices are being felt by consumers.

	Regular	Mid	Premium	Diesel	85	**E85 MPG/BTU adjusted price
Current Avg.	$3.619	$3.754	$3.885	$3.966	$3.059	$4.026
Yesterday Avg.	$3.606	$3.740	$3.872	$3.963	$3.049	$4.013
Week Ago Avg.	$3.561	$3.698	$3.829	$3.946	$3.021	$3.975
Month Ago Avg.	$3.387	$3.495	$3.633	$3.744	$2.859	$3.762
Year Ago Avg.	$2.803	$2.976	$3.083	$2.947	$2.329	$3.065

Source:   AAA


Big companies increased divs by a record amount in Q1.  117 companies in the S&P 500 index said they would raise or start paying divs. The value of the new & raised annual divs announced amounted to a record $16.6B. Just 78 companies raised their divs in the same period last year. Now that the economy is recovering, profits are rising & investors are demanding something for their patience.  JPMorgan (JPM), a Dow stock, is quintupling its annual div to $1, amounting to an increase of $3.1B. The value of the payout is a record for an S&P 500 company.  Cisco (CSCO), another Dow stock, will begin paying $1.3B in divs annually, a record amount for a first-time div payer in the S&P 500.

• Dividends come roaring back in 2011- Breakout

The good jobs news should have brought more buying in the markets.  Dow went over 12,391, the previous high in 2011, but ended 15 below.  The offer by NAZ to buy NYSE hit winds from the start.  Congress wants to get involved & it will need approval from gov agencies.  Then there's the whisper about higher interest rates in the wind, the QE2 program has less than 3 months to run.  Higher gas prices at the pump are being felt at retail with more increases ahead.  Next week is the last week before earnings season.

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Markets rise as the economy adds more jobs

Dow rose 83, advancers over decliners 3-1 & NAZ added 15.  Bank stocks also did well, coming off a drab month which was good for other stocks. 

S&P 500 FINANCIALS INDEX

Value	223.46
Change	2.75  (1.2%)

The Alerian MLP Index was up 1.70 to the 381s, only 2 short of a new record high while the REIT index was up 1+ to the 238s (4 short of reaching an interim high).  Junk bond funds edged higher but Treasuries fell.  Yields on 2-year notes earlier touched a 10-month high after a gov report showed employers added more jobs in Mar than forecasted & the unemployment rate fell.  Oil rose to a 30-month high as economic data from the US & China spurred hope of growing demand in the world’s 2 biggest oil users, while fighting in Libya fanned concern that output cuts may spread. But gold declined on speculation that monetary policy will tighten, curbing demand for the metal as an alternative investment.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month		0.09%
U.S. 2-year		0.85%
U.S. 10-year		3.48%

CLK11.NYM

...Crude Oil May 11

...106.76

.... 0.04

(0.0%)

GCJ11.CMX

....Gold Apr 11

.........1,421.00

... 17.90

(1.4%)

Photo:   Bloomberg

The unemployment rate fell to a 2 year low of 8.8% in Mar & companies added workers at the fastest 2 month pace since before the recession began.  The Labor Dept reported that the economy added 216K jobs last month, offsetting layoffs by local govs. Factories, retailers, education, health care & an array of professional & financial services expanded payrolls.  This was the 2nd straight month of brisk hiring.  Private employers drove nearly all of the gains by adding 230K, on top of 240K in Feb. It was the first time private-sector hiring topped 200K in back-to-back months since 2006.  The unemployment rate dipped from 8.9% in Feb to 8.8% in Mar & the rate has fallen a full percentage point over the last 4 months, the sharpest drop since 1983.  Predictions are that employers will add jobs at roughly the same pace for the rest of this year which would generate about 2.5M new positions. But that will make up only a small portion of the 7.5M jobs wiped out during the downturn.  One reason for the lower unemployment rate is that many people who stopped looking for a job during the recession still aren't looking for one, so they're not counted as unemployed. The proportion of people who either have a job or are looking for one is surprisingly low for this stage of the recovery.  If many of them start looking for work again, they will be counted as unemployed. The unemployment rate could go up, even if the economy adds jobs!  The number of unemployed dipped to 13.5M in Mar, still almost double since before the recession began in Dec 2007.  Including part-time workers who would rather be working full time, plus people who have given up looking altogether, the percentage of "underemployed" dropped to 15.7% in Mar (still very troubling for the economy).

U.S. Payrolls Grew 216,000 in March; Unemployment at 8.8%




Photo:   Yahoo

Builders started work on fewer homes, apartments & gov projects in Feb, pushing construction activity down to the lowest level in more than a decade.  Construction spending tumbled for a 3rd straight month, dropping 1.4% according to the Commerce Dept. The weakness pushed total activity down to a seasonally adjusted annual rate of $760.6B, the smallest total since 1999 & was below the previous recession low set back in Aug.  Activity at the Feb level is about half the $1.5T pace that would signal a healthy construction sector. It could take up to 4 years for construction to fully recover from the bursting of a housing bubble that pushed the country into a deep recession.  The weakness in this important sector of the economy means recovery in the unemployment rate will drag on. 

Construction Spending in U.S. Decreased More Than Estimated in February


The jobs report came in a little better than the optimistic expectations.  In addition.  Nazdaq is offering to buy the NYSE complex, an interesting turn of events. Corp buyouts, especially big ones, are bullish, sending signals that smart money is buying stocks.  Other sectors are doing well, highlighted by MLPs breathing on establishing a new record high.  Meanwhile, Dow has recovered a lot of lost ground & is back to where it was in the middle of 2008 (before the financial meltdown).  Alcoa (AA), a Dow stock, will kick off earnings season on Apr 11.  Reaction by the markets will tell us if the Q1 rally was justified.

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