US stocks finish mixed, with blue chips extending their winning streak, as the Fed downgrading its economic growth outlook weighs on Intel’s blowout earnings.
Dow rises for a seventh-straight day, narrowly edging up 4 to 10367, its longest wining streak since March. Nasdaq Comp gains 8 to 2250, but S&P 500 drops 0.2 to 1095.
Fed, which trims its forecast for first time in more than a year, now expects GDP growth of 3% to 3.5% and sees prospect of more monetary stimulus. Economic data also disappoint amid a bigger-than-expected decline in retail sales and smaller-than-predicted gain in business inventories.
But weak economic data have largely been overshadowed this week as earnings season has gotten off to a commanding kickoff.
Lots on deck for tomorrow. JPMorgan reports in the AM and Google’s posting earnings after the bell. PPI, industrial production as well as weekly jobless claims on the economic calendar. And China’s expected to report 2Q GDP.
Lots of chatter in the blogosphere about the Fed’s stance now that the crisis has passed, but the economic recovery remains tepid at best.
Naked capitalism blogger Yves Smith wonders if the Fed is actually pleased with the “crappy economy” that consists of high unemployment and weak job growth. She notes recent commentary from some Fed officials suggests a certain level of comfort with the pace of recovery.
That’s not a good sign, especially as the unemployment rate remains stubbornly high at 9.5% and the U-6, the broader unemployment rate, stands near 17%. “There will be no recovery without jobs, and there will be no net job creation if small businesses, especially startups, do not lead the way,” Michael Shedlock writes over at his blog.
But back to Smith’s point, a complacent Fed at the stage of the game isn’t a good sign. She’s no advocate of quantitative easing, and thinks monetary measures won’t have much impact if banks are reluctant to lend. “But the Fed’s body language has a big influence on policy discussions, so its lack of a sense of urgency undermines initiatives on other fronts,” Smith says.
Once again, any action depends on this economic recovery. As John pointed out earlier, this week’s earnings reports and economic data could offer further details regarding whether all the worries about the economy double-dipping back into recession are warranted or not. The economic calendar is chock full of data, including June retail sales, PPI, CPI, as well as several measures on manufacturing and July consumer sentiment.
- China better have right intentions regarding its pledge for a stronger yuan. “The probability of a disastrous trade war will skyrocket if Congress believes they have been the victim of a classic bait and switch,” Tim Duy writes.
- “Adjustment in China and America will be slow, but that’s not unexpected or entirely a bad thing,” Ryan Avent notes at The Economist’s Free Exchange blog. “And the best news of all is that America and China have managed to arrive at this point without a major diplomatic fall-out.”
- Obama administration’s housing market stabilization efforts are yielding mixed results. Calculated Risk has the details.
- Digital music is a tough business to profit from, but MediaMemo blogger Peter Kafka says it still makes perfect sense for Google (GOOG) to jump in. A music store would enhance Android as well as give GOOG an “owned and operated destination” for music traffic. “My suggestion: Start simple. Copy iTunes’ pay-per-song model.”
- The fact that the “normally bank-friendly” Fed is pressing big banks to move faster in curbing risky pay practices is a step in the right direction, Yves Smith writes at naked capitalism. “Given [the Fed's] track record, I would not be terribly optimistic, but then again, I am surprised it has gone even this far. It would be great if it surprised me again.”
- May existing home sales dropped 2.2% to a 5.66M annual rate, well below the 5% rise to a 6.06M rate that economists were expecting. “We see more evidence that the next leg down in housing has begun,” Barry Ritholtz writes at The Big Picture.
- Investor sentiment can be a funny thing. “You couldn’t find a bull two weeks and eight percent ago but voila, as soon as the 200-day was captured and S&P 1115 traded underfoot, the equity enthusiasm was palpable, as evidenced by the recent collapse in volatility,” Todd Harrison says at Minyanville. “That’s the fatal flaw of technical analysis, right? Financial assets are ‘better’ higher and ‘worse’ lower, which is why I use them as a risk context rather than a catalyst.”
- Business Insider blogger Henry Blodget goes a bit sensationalistic in a recent post entitled “The Odds Are Increasing That Microsoft’s Business Will Collapse.” But in reality, Microsoft (MSFT) faces a “simple and less flashy situation,” BoomTown blogger Kara Swisher says.
- Looking for the important aspects to today’s existing home sales report? “The key is the inventory and months-of-supply, and if these two measures increase later this year as I expect, then there will be additional downward pressure on house prices,” Calculated Risk says.
- The IPO market never really made a comeback from the tech bubble a decade ago, and it’s telling that Facebook, Twitter and LinkedIn — some of the most successful tech companies right now — keep pushing off filing an IPO as long as possible, Eric Schoenfeld writes at TechCrunch.
US stocks close higher, shrugging off another credit downgrade in Europe, as investors were happy to hear the Fed will keep short-term interest rates near zero for an “extended period.”
DJIA closes up 53 to 11045, after a brief foray under the 11000 mark. S&P 500 jumps 8 to 1191 and Nasdaq Comp rises 0.26 to 2472.
Stocks plunged yesterday on renewed contagion fears after S&P downgraded Greece and Portugal. But today the market took S&P’s downgrade of Spain in stride. Financials and energy were S&P 500′s biggest gainers; consumer discretionary the only sector to finish in the red.
After the closing bell, news broke that Palm finally found a buyer, although the acquirer comes as a bit of a surprise. Hewlett-Packard (HPQ) announces plans to acquire the embattled smartphone pioneer for nearly $1 billion.
H-P is paying $5.70 a share, a 23% premium to Wednesday’s closing price. Including debt, the deal is valued at $1.2 billion. Hewlett-Packard will be getting WebOS software, which can set it apart from the rest of the Google (GOOG) Android-using pack.
Palm shares soared 28% to $5.93 in after-hours trading, topping the offer price and suggesting investors may be looking for additional, higher bids. Palm garnered some interest from Asian technology companies, including Lenovo (LNVGY) and HTC (HTCXF), but it was never clear how legitimate their interest was.
For Main Street, there are still considerable uncertainties out there. Wages, sans government transfers, are stagnant. Good-paying jobs, the kind that aren’t temporary for example, remain scarce. Taxes are almost certainly going up – at some point and by some amount.
But for Wall Street and the investor class, the times couldn’t be better, University of Oregon economics professor Tim Duy says.
The economy’s sitting in a “sweet spot” right now as far as the Street’s concerned, as the recovery is moving “fast enough to push corporate profits upward, not fast enough to attract the attention of the Fed,” Duy says.
“The combination of steady, solid growth with low interest rate and no inflation is about as good as it can get for Wall Street — the sudden work ethic on the part of SEC officials notwithstanding,” he notes.
And with the Fed still holding to its “extended period” pledge so far as keeping interest rates pinned to the floor, investors are experiencing “considerable certainty” in the near-term, Duy adds. “And that certainty is a valuable commodity.”
Yes, he has a point that near-zero interest rates combined with solid growth and high unemployment creates a great environment for stocks to push higher. But, as the stock market keeps running up, we can’t forget the only thing certain about the market is its uncertain nature.
- Hulu not being shy about broadcasting the fact that it’s profitable. “Even if the number isn’t huge, a profit is well worth bragging about, because I can’t think of another Web video company that has claimed on so far,” including YouTube, MediaMemo blogger Peter Kafka says.
- Capital rules alone won’t keep banks honest. “The better solution is the ‘dumber’ one: avoid having banks that are too big (or too complex) to fail in the first place,” Baseline Scenario bloggers Simon Johnson and James Kwak say.
- Naked Capitalism blogger Yves Smith rips Jamie Dimon’s “self-serving” defense of big financial institutions. “One has to wonder whether anyone in a position of influence really believes what he is selling,” she says.
- “Businesses have dramatically tempered the rate of firing but still seem reluctant to aggressively add to their payrolls,” says Miller Tabak’s Peter Boockvar. “That process will seem more gradual in nature assuming the economy can sustain its healing and recovery in the face of reduced government stimulus and the growing likelihood of higher market interest rates.”
- Felix Salmon discusses the economics of Netflix (NFLX).
- “The Fed has a big problem. It acts in secret. That makes it an odd duck in a democracy,” Robert Reich says. “As long as it’s merely setting interest rates, its secrecy and political independence can be justified. But once it departs from that role and begins putting billions of dollars of taxpayer money at risk — choosing winners and losers in the capitalist system — its legitimacy is questionable.”
- Jeff Miller offers his March employment preview. Following the strong ISM manufacturing report, he estimates zero net job growth before factoring in the temporary census jobs, translating into a monthly gain of 130,000. That’s less than the 200,000 gain economists expect.
- 90% of stocks in S&P 500 are trading above their 50-day moving averages. “This is at the top end of the indicator’s range over the last year,” Bespoke says.
- Hedge fund manager pay soared last year. The top 25 earned a collective $25.3B. “We bet on the country’s revival,” says top-ranked David Tepper, who earned $4 billion. “Those who keep their heads while others are panicking usually do well.”
Newswires’ Kathleen Madigan and Madeleine Lim examine the ADP jobs report, Greece’s latest plan to tap global investment markets and the end of the Fed’s mortgage-backed securities purchase program. It’s Tomorrow’s News Today:
- Spiking interest rates shouldn’t be dismissed as an “irrelevant development,” especially if they continue rising at their recent pace, James Hamilton says.
- Short sellers deserve some vindication, especially for uncovering dishonest management, Barry Ritholtz says.
- Health-care reform sends out accounting ripples, FT Alphaville notes, as AT&T (T) as well as 3M (MMM), Deere (DE), Catepillar (CAT) and AK Steel (AKS) are all anticipating charges.
- Obama’s health-care victory has “breathed new life into his administration” and energized Democrats. His next “big thing” should be focusing on jobs, former labor secretary Robert Reich says.
- “Relative to every previous recession since 1948, the current hole in lost jobs is unusually deep,” James Picerno says. “In addition, the trend in job destruction this time suggests that repairing the damage will take longer compared with the past 60 years of economic recovery.”
- Trading in the weeks before and after Easter may not be as quiet as many think, Bespoke notes.
- “Against all the odds, a glimmer of hope for real financial reform begins to shine through,” former IMF chief economist Simon Johnson says.
-High income disparity leads to low savings rates, Yves Smith writes.
- “The problem is regulating shadow banking — non-depository banking,” Paul Krugman says. “So right from the beginning we have the problem of deciding what is a bank, and what liabilities need deposit-type guarantees.”
- “The Fed will take comfort in the inflation statistics even though the energy component in particular will reverse higher in March,” Miller Tabak’s Peter Boockvar says. “But income growth running higher by 2% y/o/y with spending up 3.4% y/o/y can only last for so long with access to credit not what it used to be.”
- Don’t blame the Fed for the jump in mortgage rates, Paul writes in today’s Ahead of the Tape column.
Treasury prices are pushed lower amid chatter that the Fed could hike discount rates again, traders say.
Short-dated Treasurys, whose yields are sensitive to changes in official rate outlook, lead the selling. While the Fed has taken pains to assure markets that a surprise hike last month in the discount rate won’t lead to tightening of broader consumer credits, market participants still jump on any speculations that would lead the central bank a step closer to tightening monetary policy.
The two-year note is 2/32 lower to yield 0.960%, the 10-year note is down 7/32 to yield 3.670%. The 30-year bond is 7/32 lower to yield 4.585%.
Dow industrials clinging to gains, up 10. S&P 500 off 3.4. Dollar also strengthened against both the euro and the yen. US Dollar Index – which tracks the greenback against a basket of six other currencies – gained 0.9%.
Fed declined to comment.
Keep in mind, though, that as markets are buzzing with rumors, this is purely speculation, at the moment. And if it does happen it does not actually mean much, as it won’t be a tightening of monetary policy. Instead, it would represent a further normalization of emergency policy, for a facility that is very little used right now.
J.P. Morgan reported some strong earnings today. But what this bloggers eye were some of the sub-numbers in the earnings report. The bank booked $1.8 billion in investment banking fees. But don’t be fooled – that wasn’t from big M&A advising. But $429 million was in advisory fees. Instead, that $1.3 billion + remaining fees […]
The bridge that collapsed on Interstate 5 bridge over the Skagit River in Washington was listed as “functionally obsolete” and “fracture critical,” which means the whole sha-bang could come tumbling down if one major part fails. Click here to read the details from USAToday. This sort of thing shouldn’t be happening in a modern, developed nation. Barry LePatn […]
