Tuesday, July 22, 2014

Markets rise on earnings reports

Dow climbed 61 (just below the record high), advancers over decliners 2-1 & NAZ shot up 31.  The MLP index jumped 3+ to the 525s (inches from the record made on Jul 1) & the REIT index rose 1+ to the 308s.  Junk bond funds advanced & Treasuries went up, taking the yield on the 10 year Treasury to 2.47% (near a yearly low).  Oil & gold slid back.

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The cost of living in the US rose at a slower pace in Jun as the economy generated little price pressure when growth accelerated.  The CPI increased 0.3% after a 0.4% gain the prior month, according to the Labor Dept.  The data bolster Federal Reserve’s view that a recent pickup in inflation was temporary & that the economy would rebound from a Q1 slump so that the central bank can keep interest rates low well into 2015.  The increase in consumer prices last month matched the forecast.  Consumer prices rose 2.1% in the 12 months ended Jun, the same as in May.  Excluding food & fuel costs, the core measure increased 0.1% after rising 0.3% in May.  It was the smallest gain since Feb & fell short of the 0.2% forecast.  Core prices rose 1.9% from Jun 2013, after advancing 2% in the prior 12 months.  The rise in consumer prices was driven by a jump in gasoline that is now reversing.  Gasoline costs climbed 3.3%, the biggest gain since Jun 2013, accounting for 2/3 of the increase in total prices.  Falling fuel prices are now giving households some relief.  Food costs also showed signs of stabilizing after surging in prior months as a drought in the West & a hog virus pushed up prices for beef, pork & some vegetables & fruits.  Food prices increased 0.1% in Jun after surging a combined 1.7% in Feb-May, the biggest 4-month jump in 3 years.  The core rate was held back by declines in the cost of new cars & hotel rates, which both dropped by the most since Oct 2013.

Consumer Prices in U.S. Climb on Jump in Gasoline Costs


Mcdonald's, a Dow stock & Dividend Aristocrat, Q2 profit trailed estimates after a US sales slump lingered.  EPS was $1.40 versus $1.38 a year earlier.  The projection was for $1.44.  Revenue rose 1.4% to $7.18B, trailing the $7.29B estimate.  The US business faces a crowded field & last year it added many new items, slowing down its kitchens. Competitors are selling more new fare that’s attracting customers.  Same-store sales fell 1.5%, compared with a 1.7% decline in the previous Q2.  Analysts had estimated that the sales would be little changed.  While MCD has tried advertising free coffee, new bacon Clubhouse sandwiches & Happy Meals, the promotions have failed to boost same-store sales.  Jun comparable-store sales fell 3.5% in the US.  Same-store sales in the Asia-Pacific, Middle East & Africa region rose 1.1% in Q2, below the 1.5% projection.  They fell 1% in Europe, where MCD gets about 40% of revenue.  Analysts projected a 0.7% gain.  The chain has been selling value meals in Germany as well as family packs of McNuggets & onion rings in France to attract budget-conscious European diners.  Jul global same-store sales are expected to be negative, MCD said.  The stock lost 1.28, taking close to its lowest level in almost 5 months.  If you would like to learn more about MCD,
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McDonald’s Profit Trails Estimates as Sales Slump Persists

McDonald's (MCD)




Harley-Davidson sold off after saying it expects to ship about 9K fewer bikes this year.  Harley now forecasts shipments of 270-275K this year, compared with an earlier outlook of as many as 284K.  US dealers sold 16 fewer motorcycles (58,225) in Q2 compared with a year earlier, hurt by bad weather & low demand for the Sportster as buyers await the arrival of the sporty & lightweight new Street 500 & Street 750, which began to arrive at dealers late last month.  The company, which has sought to introduce lighter-weight Street bikes & win riders overseas, said worldwide sales of bikes rose by 25 to 90,218.  EPS rose to $1.62, compared with $1.21 a year earlier.  The estimate was for $1.47.  Revenue excluding financial services rose 12% to $1.83B from a year earlier & total sales climbed 12% to $2B.  Q2 gross margin widened to 39.5% of sales from 36.9%.  Operating margin from motorcycles & related products grew to 25.8% from 21.9%.  Harley reaffirmed its forecast for annual operating margin in the motorcycles segment of 17.5-18.5%.  The stock fell 3.62.  If you would like to learn more about HOG,
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Harley Sinks as Annual Shipment Outlook Cut on Slower U.S. Sales

Harley-Davidson (HOG)




Earnings were generally favorable today, notwithstanding KO, MCD, HOG & United Tech (UTX), another Dow stock, reporting disappointing earnings.  Verizon (VZ), a Dow stock, & Comcast (CMCSA) rose on favorable reports.  The flight disaster in Ukraine is haunting the markets even though it has not brought on selling.  Israel's push into Gaza shows no sign of ending soon.  Then there is the Iraq mess, which affects surrounding countries at a minimum, that is dragging on with the bad guys setting up a new country to sponsor terrorism.  But so-so earnings are carrying the day, at least today.
  
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Markets advance on housing sales data

Dow climbed 63, advancers over decliners almost 3-1 & NAZ gained 35.  The MLP index went up 1+ to the 523s (near its recent record) & the REIT index rose 1+ to the 308s (a more than 1 year high).  Junk bond funds saw buying & Treasuries pulled back .  Oil & gold slid lower.

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German Foreign Minister Frank-Walter Steinmeier
Photo:   Bloomberg

EU govs labored to identify more Russian businesspeople & companies to sanction pressed pres Putin to speed a probe into the downing of Malaysian Air flight MH17 or face isolation.  EU foreign ministers were debating how to deliver on the bloc’s commitment to expand a 72-person blacklist.  UK Foreign Secretary Philip Hammond said an arms embargo may be considered against Russia, which Ukraine said had massed as many as 41K troops on its border.  The jet’s downing of MH17 has galvanized sentiment against Russia in the EU, which had moved slower on sanctions than the US.  Already penalized for his decision to annex Crimea in Mar, Putin is trying to refute accusations from Ukraine & the US & EU allies that rebels shot down the aircraft over their territory & that it supplied the insurgents with the surface-to-air missile that they used.  The EU needs a twin-track policy of pursuing diplomacy & “to accompany this readiness with higher pressure, which means taking tougher measures,” German Foreign Minister Steinmeier said.  French President Hollande said last night that he’s prepared to cancel the sale of the 2nd of 2 helicopter carrier ships to Russia.  The first ship has been paid for & set for delivery in Oct, he said.

EU Works to Punish Russia Over MH17 as Putin Masses Army


Sales of previously owned US homes climbed in Jun to an 8-month high, a sign the housing market is making more headway.  Sales increased 2.6% to a 5.04M annual rate, led by gains in all 4 US regions, according to the National Association of Realtors.  The forecast projected sales would rise to a 4.99M rate.  Prices advanced at the slowest pace since Mar 2012 & inventories increased to an almost 2-year high.  Historically low interest rates & smaller price increases are helping bring homeownership within reach for more Americans.  A pickup in employment opportunities that lead to faster wage growth would provide an added spark for a residential real-estate market that began to soften in the middle of 2013.  Compared with a year earlier, purchases of previously owned properties decreased 2.3% on an adjusted basis & the median price of an existing home increased 4.3% to $223K from $214K a year before.  The number of properties on the market rose 6.5% to 2.3M from a month earlier, the most since Aug 2012.  At the current pace, it would take 5.5 months to sell those houses, the same as in May.  The median time a home was on the market decreased in June to 44 days from 47 days in the prior month.  Purchases of single-family homes increased 2.5% to an annual rate of 4.43M.  Cash transactions accounted for about 32% of all purchases & investors made up 16% of purchases.  Sales of distressed property, including foreclosures, accounted for 11% of the total last month, matching the lowest share since Oct 2008.  First-time buyers accounted for 28% of all purchases, up from 27% a month earlier.

Previously Owned U.S. Home Sales Rise to Eight-Month High


Coca-Cola Co. Chief Executive Officer Muhtar Kent
Photo:    Bloomberg

Coca-Cola, a Dow stock & Dividend Aristocrat, Q2 sales missed estimates amid sluggish demand for drinks such as juice & Diet Coke in North America.  Revenue fell 1.4% to $12.6B below the $12.8B estimate.  Global juice sales volume declined 1%, hurt by price increases in North America to offset higher ingredient costs.  CEO Muhtar Kent is cutting costs & overhauling marketing as he contends with a slowdown in the market for fizzy beverages.  The company also is increasingly relying on overseas markets to maintain growth.  Global sales volume rose 3%, matching the estimates.  Sales volumes in key Europe, Latin America & North America business units were little changed.  Brand Coca-Cola volume grew 1%, a sequential improvement.  Gross margin rose to 61.7% from 60.9% a year ago & above the 61.1% estimate.  The additional cash was largely spent to boost global marketing.  “We remain focused on the work required to return our business to the level of sustainable growth we and our shareowners expect,” Kent said.  EPS fell to 58¢ from 59¢ a year earlier,  Excluding some items, EPS was 64¢ a share, compared with a  63¢ estimate.  The stock dropped 1.34.  If you would like to learn more about KO, click on this link:
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Coca-Cola Misses Sales Estimates Amid Juice, Diet Coke Slide

Coca-Cola (KO)




Traders are feeling good & taking stocks higher.  Dow is flirting with setting a new record as buyers are not concerned with conflicts around the world.  KO's earnings were disappointing, but that is not related to macro economic issues.   But they are out there.  Consumer spending accounts for about 2/3 of the economy & it has not been growing very slowly since the recession.  That reflects sluggish growth in wages, not good for the companies.

Dow Jones Industrials