Commodity collapse drags down stocks

Dow had its 2nd consecutive day of triple digit losses.  It dropped 139, decliners over advancers a relatively moderate 2-1 & NAZ fell 13.  Bank stocks keep slipping, noticeable even on the 1 year chart for the Financial Index.   

S&P 500 FINANCIALS INDEX

Value	217.97
Change	-2.48   (-1.1%)

The MLP had another terrible day, ranking with the worst ever.  The index went below 360 before late day buying limited the damage.  Meanwhile the REIT index fell only ½ in the 244s.  Junk bond funds edged higher at their multi year highs.

ALERIAN MLP INDEX

Value	363.90
Change	-6.19    (-1.7%)

Commodities dropped the most in almost 2 years, reducing YTD gains to 9.6%, on concern that economic growth will slow as central banks seek to cool inflation by raising borrowing costs. The Standard & Poor’s GSCI Index of 24 raw materials fell amost 7% to 681, the biggest decline in 2 years. Silver, oil & heating oil led the drop as the Dollar Index, a gauge against 6 counterparts, rose 1.4%, the most since Oct.  The European Central Bank (ECB) said the bank will monitor inflation risks “very closely,” suggesting it may wait until after Jun to raise interest rates again. The ECB raised interest rates on Apr, joining China, India, Poland & Sweden in seeking to control inflation. The cost of living in the US rose at its fastest pace since Dec 2009 in the year ended Mar, the same month when Chinese consumer prices rose by the most since 2008. Can you spell inflation?  Maybe this is not inflation, but the threat is making a lot of people VERY NERVOUS.  Oil had one of its worst days in history, dropping more than $10 to below the magic $100 resistance level.  Gold fell below $1500 & silver is $35 (after starting the week at $49!).

Commodities Decline the Most in Two Years on Concern Global Growth Slowing

CLM11.NYM

...Crude Oil Jun 11

...98.72

... 10.52  (9.6%)

The Treasury 30-year bond gained for a 6th day, the longest winning streak since Dec 2008.  Treasuries "safe haven qualities" are driving demand.  The benchmark 10 year Treasury yield has plunged from over 3.6% four weeks ago to under 3.2%, new 5 month lows.   And the 3 month bill yields just 0.01% (essentially zero!).  These are troubling times!

Treasury 30-Year Bonds Advance for Sixth Day as Commodities, Stocks Tumble
 

Treasury yields:

U.S. 3-month		0.01%
U.S. 2-year		0.57%
U.S. 10-year		3.16%%

30 Treasury (TYX) Stock Charts

The price for gas at the pump rose to $3.98½ yesterday.  $4 is a heartbeat away & it's just a matter of how many days before it sets a new record above $4.11.  This price rise will take a heavy toll on the economic recovery.

Source:   AAA

Stock & commodity markets are under severe selling pressure & this is not going away soon.  The jobs report should dominate the news tomorrow, but not the way things are going.  Chances are that it will feed into the negative thinking in the markets, whatever it says.  The buyers of 90 day Treasury notes are accepting virtually no interest, that takes us back to the ugliest days of the financial crisis.  OK, the financial markets have been repaired.   But there are a lot of nervous investors around the world (like then) & they are driving the selling.

Dow Industrials (INDU)

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Triple digit loss for the Dow after disappointing jobless data

Markets are having a bad week.  Dow fell 111, decliners over advancers 2-1 (not so bad all considered) & NAZ fell 7.  Bank stocks were weak along with the markets, dragging the Financial Index to a 2 week low.

S&P 500 FINANCIALS INDEX

Value	216.70
Change	-1.75  (-0.8%)

The MLP index is down another 6+ to the 363s.  The 5 day chart for the index fund would show it in the low 36s, making for a very ugly week.  The REIT index was down 1½ to the 243s. Junk bond funds were generally higher & Treasuries rose.  The yield on the 10 year Treasury bond is at 5 month lows.  Oil fell for a 4th day, the longest losing streak in 8 weeks, after US. jobless claims rose, bolstering concern that economic growth & fuel demand will decline.  Gold  & silver are having another bad day.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month		0.03%
U.S. 2-year		0.59%
U.S. 10-year		3.22%

CLM11.NYM

...Crude Oil Jun 11

..........105.25

3.99

(3.7%)

GCK11.CMX...

Gold May 11

.............1,507.10

7.80 (0.5%)

ZIK11.CBT

......Silver 5000 oz. May 11

...37.62

1.75

(4.5%)

Photo:   Bloomberg

The number filing for jobless benefits rose to an 8-month high last week & productivity growth slowed in Q1, clouding the outlook for a struggling economy.  Initial claims rose 43K to 474K, the highest since mid-Aug according to the Labor Dept.  Claims were pushed up by factors ranging from spring break layoffs to the introduction of an emergency benefits program.  Expectations had been for claims to fall to 410K.  A 2nd report from the dept showed nonfarm productivity increased at a 1.6% annual rate, below a 2.9% pace in Q1 (& above expectations for 1%).  The 4-week moving average increased 22K to 431K, the highest in 6 months.  A Labor Dept official attributed the surprise surge in claims last week to spring break layoffs in NY, which added 25K & the start of an emergency benefits program in Oregon, which brought in new claimants, including some already on the regular programs.  There were also additional claims from the auto sector& there could have been a small number of claims related to the tornadoes that struck parts of the country.  But the increases are beyond what seasonal factors expected & that caused claims to go up.  However, the step back in productivity was flagged by a sharp pull back in economic growth in Q1, it also suggested that businesses probably have little room to continue with their cost cutting strategies & may soon need to step up hiring.  Overall this was dreary news & the markets treated it as such.

Jobless Claims in U.S. Unexpectedly Jump Due to Anomalies

Photo:   Bloomberg


General Motors (GM) reported its highest quarterly profit in more than a decade, helped by demand for fuel-efficient cars & a big gain from selling its stake in its former auto parts business, as EPS was $1.77.  GM thrived by selling small cars like the new Chevrolet Cruze, & efficient crossover vehicles such as the Chevrolet Equinox & GMC Terrain. Revenue rose 15% to $36.2B, driven by a 25% jump in US auto sales & a 10% gain in China, (its biggest market).  GM's quarterly net income was more than triple the $865M it earned last year. The Treasury is still hoping profits will boosts the stock price so it can sell its stake & recoup more of the $50B bailout that saved GM.  But GM fell 1.24 to $31.80.  The latest results included a $1.6B gain from selling its stake in Delphi Automotive, its former parts division, as well as a $400M charge in Europe because of a change in accounting standards.

GM First-Quarter Net Income Triples as U.S. Sales Climb

General Motors Company (GM)

Dow is down 200 this week, the dismal chart is shown below.  There will be a lot riding on the jobs report tomorrow morning.  Expectations are fairly good, odds are reality will be disappointing for the markets.  Some retail sales figures were reported & they were good although helped by a later than usual Easter season.  MLPs are having a very tough time of it.  This may be from getting caught up in the wave of selling in commodities which is hurting all markets.

Dow Industrials (INDU)

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Markets sink on uninspiring economic data

Dow dropped 83, decliners over advancers better than 3-1 & NAZ fell 13.  Bank stocks had another bad day bringing the Financial Index further below 220.

S&P 500 FINANCIALS INDEX

Value	218.45
Change	-2.07    (-0.9%)

Buying came in to limit damage done for MLPS after the index had been down to 365 at midday.  But it was still another very bad day in a horrible week (last Fri, it was breathing on 392).  The REIT index was down only 1½ to the 245s (5 below its yearly high last Fri).  Junk bond funds were generally lower, but remained near multi year highs.  Treasuries rose, bringing lower yields.  Oil dropped after a report showed that supplies of petroleum products are growing as demand weakens in the US.  Gold had another bad day, following the lead of silver which has been selling off badly because of higher margin requirements,

ALERIAN MLP INDEX

Value	370.09
Change	-7.48    (-2.0%)

Treasury yields:

U.S. 3-month		0.02%
U.S. 2-year		0.59%
U.S. 10-year		3.22%

CLM11.NYM

...Crude Oil Jun 11...

109.30

... 1.75

(1.6%)

Service Industries in the US expanded last month at the slowest pace in 8 months as companies cut back in response to higher energy costs.  The Institute for Supply Managements (ISM) index of non-manufacturing companies declined to 52.8, from 57.3 in Mar.  Estimates ranged from 54.5 to 59. By way of comparison, the index averaged 56.1 in the 5 years prior to Dec 2007, when the last recession began.  The ISM measure of new orders at service providers decreased to 52.7 (the lowest since Dec 2009) from 64.1 in Mar, the biggest drop since record-keeping began in 1997. A gauge of business activity, which reflects sentiment among purchasers, also declined & the group’s employment gauge dropped to 51.9 from 53.7 a month earlier.  High gas prices are being felt in the US economy.

Services Expand at Slowest Pace in Eight Months


Walgreen, operator of the largest drugstore chain in the US, reported mediocre same store sales in Apr.  Sales at stores open at least a year rose 3.4% last month, below expectations of 3.6% by analysts.  Pharmacy revenue rose 1.8%, below an estimate of 2.4%.  Results were hurt by 1.9 percentage points because of a calendar shift & the move of the allergy drug Allegra from prescription to over-the-counter.  Those stores filled 2.3% more prescriptions than a year earlier.  Revenue from sales of nonpharmacy items (i.e. food & cosmetics) increased 6.5%, benefiting from this year's late Easter.  Overall, total revenue rose 5.5% to $5.99B from $5.68B, including a contribution of 0.7% from Duane Reade stores.  The stock slipped 34¢ after having a nice move up from the mid 20s last year.

Walgreen key April revenue metric rises AP

Walgreen Co. (WAG)

Gas at the pump went over $3.98 yesterday.  The record is $4.11 in 2008 & it looks like it will take that out shortly.  The first waves of reports about companies feeling effects of high priced gas are being reported already.  Not good!!

Source:   AAA


Stocks continue to plod along, the theme of trading this week.  The major exception is the MLP industry & that has been to the downside.  It's interesting that when the yield on the index reached a record low in Jul 2007, it was followed by a slump of 60 & was not able to return to new high territory for another 3 years. Life is different today, no indication of a looming financial meltdown.  But an interesting parallel, nonetheless.  This time selling could be motivated by worries about altering the preferred status of distributions.  The overall market will probably lumber along with a downward bias while waiting for the jobs report on Fri.

Dow Industrials (INDU)

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Lower markets on disappointing data

Dow slumped 122, decliners over advancers 3-1 & NAZ fell 28.  Bank stocks were weak, taking the Financial Index lower. 

S&P 500 FINANCIALS INDEX

Value	218.80
Change	-1.72   (-0.8%)

The Alerian MLP Index fell a whopping 11 to the 366s, down a massive 23 this week.  I haven't seen any new news, but there could be worries about changing the tax preferred status of MLPs.  This sell-off is the worst in the 15 year history of the index.  The chart below belows shows the fund tracking the index & it looks ugly.  Meanwhile the REIT index is down only 1 to the 245s.  Low priced junk bond funds were down a few pennies.  But Treasuries rose, taking their yields back down to near the lowest levels in months.  The yield for the 3 month bill is only 0.03%, a significant sign of market nervousness.  Oil is down from its recent highs in the 113s & gold is sinking in response to the 15% sell-of for silver this week.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month		0.03%
U.S. 2-year		0.59%
U.S. 10-year		3.22%

CLM11.NYM

...Crude Oil Jun 11

...109.70

... 1.35

(1.2%)

GCK11.CMX

....Gold May 11

.....1,532.70

... 7.40  (0.5%)

Photo:   Bloomberg

ADP, the payroll processing company, said private sector payrolls grew 179K last month, after an upwardly revised 207K increase in Mar. Expectations were for a gain of 200K private sector jobs.  Monthly gains over the last 4 months have been holding steady around 200K which is "consistent with only modest declines in the unemployment rate." according to ADP.  Smaller businesses led the charge in Apr. Medium-size businesses, 50-499 workers, & small businesses each added 84K jobs but large businesses added just 11K.
A separate report showed employers announced fewer planned job cuts in Apr, even as gov sector layoffs mounted.  The number of jobs cut fell 12% to 36K in Apr from 41K in Mar, according to outplacement consulting firm Challenger, Gray & Christmas. Year over year, job cuts dropped 5% from 38K in Apr 2010.  The job cut number is the lowest so far this year, & the 3rd lowest over the last 16 months. "The slow pace of downsizing suggests employers remain optimistic about business conditions going forward, despite higher energy costs, government deficits and slipping confidence among consumers," said John Challenger, CEO of Challenger, Gray & Christmas.  Despite the slow pace of layoffs in the economy at large, the gov & non-profit sector was hit hard by job losses.  Gov positions dominated planned job cuts, accounting for 10K job cuts last month, bringing the 4-month total to 52K.  Challenger said. "Most of cuts tracked this year were concentrated in the state & local agencies."  The important jobs report on Fri is expected to say the unemployment rate held steady at 8.8% while employers added 185K jobs in Apr. For the full year, 2.3M new jobs are expected, just under 200K per month & an unemployment rate of 8.4% by year end. More of the same kind of news, good, but not good enough to have a major impact on high unemployment.

ADP Estimates U.S. Companies Added 179,000 Jobs in April




Photo:   Yahoo

Kellogg Q1 net income fell 12% as K dealt with higher ingredient costs & spent more on marketing &new products.  EPS was $1, down from $1.09 last year & below forecasts of $1.04.  Revenue climbed 5% to $3.49B on sales increases in North America & overseas, surpassing $3.39B estimated by analysts.  K said results don't fully reflect price increases that have been made & raised full-year revenue outlook to an increase of 4%, expecting to benefit from higher prices.  K still expects full-year earnings to climb in the low single-digits, implying EPS of $3.33-3.40 with no foreign exchange impact while analysts expect $3.48.  The stock fell 95¢ after having a good run in 2011.

Kellogg 1Q net income falls on higher costs AP

Kellogg Company (K)

CBS had a strong Q1 performance & doubled its dividend, a sign that it has recovered from the latest advertising downturn.  Q1 gains were credited to overhauling unprofitable businesses. CBS also has been trying to lessen its dependence on advertising by taking advantage of growing demand for CBS content streamed over the Internet.  "We are clearly benefiting from the strategic actions we have taken to enhance and de-risk our business model, including diversifying our revenue streams and managing our cost structure," CEO Les Moonves said. He said selling shows in more profitable ways "positions CBS for success, not just for the rest of this year, but for many years to come." EPS was 29¢, compared with a loss of 4¢ last year (last year's EPS totaled 5¢ after excluding special items).  Sales were $3.51B.  Results beat expectations of 19¢ on revenue of $3.46B.  The quarterly div was boosted to 10¢ & the stock jumped 1.16 to the 26s. 

CBS Shares Gain Most in 21 Months on Doubling of Dividend, Earnings Growth

CBS Corporation (CBS)

This week has been a pause period for the markets but now it's getting more serious.  In the high yield sector, the performance of the MLPs is unnerving.  This is a low beta group. To see the index drop over 20 in 3 days brings back memories of the sudden sell-off in Jul 2007 when the index plunged off its (then) record high.  Bigger picture, the jobs data was OK but not inspiring with growing worries about the big jobs report on Fri.  Shaky markets may continue drifting lower..

Dow Industrials (INDU)

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