Friday, April 24, 2015

Markets fluctuate while techs surge

Dow added 21, decliners just ahead of advancers & NAZ climbed 36.  The MLP index went up 2 to 448 & the REIT index climbed a fraction to 332.  Junk bond funds hardly budged & Treasuries advanced.  Oil was hit with profit taking & gold was weak.

AMJ (Alerian MLP Index tracking fund)

CLM15.NYM....Crude Oil Jun 15....57.06 Down ...0.68  (1.2%)

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Purchases of big-ticket manufactured goods picked up last month due to higher demand for airplanes & cars, but underlying data suggest companies continue to curtail investment.  Orders for durable goods, products such as refrigerators & cars designed to last at least 3 years, rose a seasonally adjusted 4% in Mar from a month earlier, according to the Commerce Dept.  The Feb decline of 1.4% was unrevised.  Overall orders were expected to climb 0.6%.  Last month's pickup reflected a surge in demand for autos & both defense & civilian aircraft, volatile categories that can obscure underlying strength in the economy.  Excluding transportation goods, orders dropped 0.2%, the 6th consecutive monthly decline.  Durable-goods estimates are rough & often revised.  Broader trends show weak demand.  So far this year, orders are up 0.1% compared to the same period in 2014.  Details within the report suggested businesses are reining in investment plans.  Orders for nondefense capital goods excluding aircraft, a proxy for company spending on equipment & software, fell 0.5% in Mar.  Such orders have declined 7 consecutive months.  The figures likely reflect cautious spending by companies in the face of numerous obstacles.  Depressed oil prices have caused energy firms to lay off workers & scale back investment starting late last year.  The strengthened dollar has made US products more expensive globally, hurting exports.  And some believe unusually cold weather, coupled with disruptions linked to a West Coast port strike, slowed the economy in Q1.  Many economists estimate that US GDP grew at a tepid annual rate of around 1% in Q1.  This report offered some hints of higher demand from consumers, with orders for computer products up 11% & autos up 5.4% from a month earlier.

Durable Orders Rise On Autos Demand

American Airlines Group Inc (AAL) reported Q1 profit above expectations & pleased investors with capacity cuts to match weakening intl demand.  EPS rose to $1.73 per diluted share excluding special items, compared with an estimate of $1.71.  With foreign travelers' spending power hurt by the strong dollar & in some cases lower oil prices, the company slashed more than 1K seats it had planned to add to intl routes by postponing the delivery of 4 aircraft to 2017 from 2016, with another delivery delayed until 2018.  It expects that will cut 2016 capacity by 0.6% & still forecasts 2015 capacity up about 2% compared with 2014, driven more by domestic than intl growth.  Pres Scott Kirby expects passenger revenue per available seat mile, a unit that measures a plane's carrying capacity, will fall 4-6% in Q2, with the largest impact in the Pacific & Latin America.  Cheap fuel has lowered airlines' expenses, although it has hurt demand from customers in oil-rich nations.  For the 2nd qtr, unhedged AAL forecast it will pay $1.84-$1.89 per gallon of jet fuel.  The stock rose 1.25.  If you would like to learn more about AAL, click on this link:

American Airlines 1Q Profit Tops Expectations 

American Airlines (AAL)

PepsiCo, a Dividend Aristocrat, will replace its current Diet Pepsi offerings in the US with those free of aspartame, an artificial sweetener that has come under scrutiny from health-conscious consumers.  Diet Pepsi, Caffeine-Free Diet Pepsi & Wild Cherry Diet Pepsi sweetened with a blend of sucralose & acesulfame potassium will begin replacing current offerings in Aug.  US sales of carbonated soft drinks have been declining for nearly a decade, with consumers shifting away from diet soda because of perceived health concerns about artificial sweeteners, specifically aspartame.  "Diet cola drinkers in the U.S. told us they wanted aspartame-free Diet Pepsi and we're delivering," Seth Kaufman, senior VP of the Pepsi & flavors portfolio within the company's North America beverages business.  Sales in PEP beverage business have been hurt by a long-term decline in soft drink sales in the US.  Aspartame, which is about 200 times sweeter than sugar, is widely used to sweeten diet sodas.  PEP reported a 3.2% fall in Q1 net revenue to $12.2B.  The stock fell 56¢.  If you would like to learn more about PEP, click on this link:

PepsiCo to Launch Aspartame-Free Diet Pepsi

Pepsico (PEP)

It may have taken 15 years, but tech stocks are back in demand, taking NAZ to record highs again.  Of course, that brings back memories of the crash with a whopper 80% decline that followed the record back in 2000.   One major difference is that many of the companies that propelled NAZ higher are long gone & new ones that didn't exist are responsible for this rise.  Meanwhile, the Greek situation is getting very serious & its euro partners are unforgiving about its past fiscal sins.  Dow is close to its record highs but the Greek debt mess along with GDP data next week will be felt in the markets next week.

Dow Jones Industrials

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Markets waffle but Nasdaq reaches a new record

Dow lost 9, advancers barely ahead of decliners & NAZ added 35 to a new record high.  The MLP index was up fractionally in the 446s & the REIT index rose 1+ to the 332s.  Junk bond funds did little & Treasuries gained, bringing lower yields.  Oil pulled back after its recent advance & gold slid lower in the 1100s.

AMJ (Alerian MLP Index tracking fund)

CLM15.NYM...Crude Oil Jun 15...56.88 Down ......0.86  (1.5%)

GCK15.CMX...Gold May 15...1,176.90 Down ...17.10  (1.4%)

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Euro-area finance ministers hurled abuse at Greek Finance Minister Varoufakis behind closed doors as they shut down his bid to find a shortcut to releasing financial aid.  The Dutch chairman of the euro-zone finance chiefs’ group categorically ruled out making a partial aid payment in exchange for a narrower program of reforms after a stormy meeting in Latvia, in which Varoufakis was heavily criticized by his euro-area colleagues over his failure to deliver economic reforms.  Euro-area finance chiefs said Varoufakis’s handling of the talks was irresponsible & accused him of being a time-waster, a gambler & an amateur, according to a leaker.  “It was a very critical discussion and it showed a great sense of urgency around the room,” the chairman said after the meeting.  Asked if there was any chance of a partial disbursement, he said, “The answer can be very short: No.”  Greece said it is aiming for a deal as soon as possible.  ECB pres Mario Draghi added to the pressure on the Greek finance chief warning that policy makers may review the conditions of the emergency funding keeping his country’s banks afloat.  Euro-area governors will “carefully monitor” the haircuts imposed on Greek banks’ collateral when borrowing from the Bank of Greece, Draghi said, to take into account the “change in the environment.”  The governing council is due to discuss the matter on May 6.  “The higher are the yields, the bigger is the volatility, the more collateral gets destroyed,” he said.  “Time is running out as the president of the Eurogroup said, and speed is of the essence.”  The 19-nation bloc’s finance ministers were riled after Greek Prime Minister Tsipras tried to bypass their veto on financial aid with an appeal to Angela Merkel yesterday.  Tsipras sought to circumvent the finance ministers’ authority, pleading his case with the German Chancellor & French President Francois Hollande on the sidelines of a summit on immigration in Brussels.  Under euro-area procedures, it’s the finance ministers who have to sign off on any aid disbursement and Merkel said last month she’s not prepared to override those controls.  “I would describe today’s meeting as a complete breakdown in communication with Greece,” Maltese Finance Minister Edward Scicluna said.

Greece's Varoufakis Takes Hammering From Riled EU Ministers

German business confidence jumped to a 10-month high in Apr in a sign that growth in Europe’s largest economy is set to pick up on the back of record stimulus & a favorable exchange rate.  The Ifo institutes’s business climate index rose for a 6th month to 108.6 from 107.9 in Mar.  The estimate was for an increase to 108.4.  Germany is important to the 19-nation euro area’s economic health because it accounts for nearly 29% of GDP.  While the Bundesbank has expressed confidence that economic growth this year will be “quite robust,” declines in investor sentiment & a gauge of manufacturing & services activity serve as a reminder that the country’s recovery isn’t immune to risks.  Ifo’s gauge of current conditions rose to 113.9 from 112.1 in Mar, while a measure of expectations slipped to 103.5 from 103.9.  The ECB, which is supporting the 19-nation economy with record-low interest rates & a €1.1T ($1.2T) asset-purchase plan, is urging all euro-area governments to make their economies more competitive & increase potential growth.

German Business Climate at 10-Month High as Stimulus Kicks In

Microsoft, a Dow stock, posted a 12% drop in Q3 earnings, although it topped estimates.  Profit fell to $4.99M from $5.66M a year earlier.  EPS fell 7¢ to 61¢ & revenue rose 6% to $21.73.  Analysts projected EPS of 51¢ on revenue of $21.06B.  The company, along with other multinationals, is facing a stronger US dollar that’s taking a bite out of earnings overseas.  MSFT said the dollar’s strength had a significant impact on its quarterly results.  For instance, revenue would have grown 9% excluding the effect of currency volatility.  Higher costs also weighed on the bottom line.  Fiscal Q3 earnings included $190M in restructuring expenses, equivalent to a penny for EPS.  The devices & consumer segment recorded sales growth of 8%, despite weaker sales for Windows software.  MSFT benefited from a larger subscriber base for Office 365 & Xbox Live.  Meanwhile, Surface tablet sales climbed 44% to $713M, driven by the Surface Pro.  Commercial sales were up 5% on higher cloud revenue.  Server products & services booked a stronger quarter as well.  The stock rose 3.11.  If you would like to learn more about MSFT, click on this link:

Microsoft Unveils Fiscal 3Q Earnings Beat

Microsoft (MSFT)

While many stocks are just kicking dirt, but tech shares are flying higher.  It took NAZ 15 years to reach a new record & that comes from stocks that didn't exist in 2000.  Besides MSFT, Google (GOOG) & Amazon (AMZN) reported earnings that were warmly greeted by investors.  However, earnings season is not a great success with most multi nationals hurt by the strong dollar & bland organic sales growth.  Then there is the Greek debt problem that is going from bad to worse.  Many euro partners have given up on the country & nobody knows what effect this disaster will have on the euro & global economies.  Dow is only about 200 away from setting a new record.

Dow Jones Industrials