John Jagerson
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How fragile are stock returns?
Earnings season seems to be off to a promising start. So far Alcoa (NYSE: AA) cut enough costs to get back into profitable territory and same-store retail sales are up collectively for the first time since last year. This sounds good and the major market indexes are up on the news reaching mid-September's resistance levels. A break here could turn into another extension of the rally. However, should investors be moving more heavily into stocks?
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Constellation Brands has reason to celebrate
Constellation Brands, Inc. (NYSE: STZ) manufactures a variety of alcoholic beverages for several prominent brands and has reason to celebrate a surprisingly good earnings report today. The firm's EPS of $.54 was much higher than the $.41 analysts expected. According to the company, much of the excess profitability was due to lower restructuring costs this quarter. Overall sales were down partially due to a stronger dollar and a trend amongst the drinking public to purchase lower priced products.
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Oil and gold drop fast as the dollar gains
Commodities in general and oil and gold specifically are considered a good hedge against inflation, a weak dollar and flat trending stocks. However, these markets can also be very volatile as oil and gold traders are finding out this week.Oil inventories are up (not good for prices) and demand from refineries is down, which has put some additional downside pressure on the commodity. A stronger dollar the last two days has compounded oil's problems and sent prices below $67 a barrel.
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High yield bond funds take a break
High yield is a nice way of saying "junk" when talking about bonds. These bonds are issued by firms who must pay a higher interest rate when raising capital than those companies that issue bonds that qualify as investment grade. Those higher interest rates are attractive to investors and lately demand for high yield bonds has led to a very nice rally in junk bond funds like the iShares High Yield Corporate Bond Fund (HYG).Today, HYG is finally pausing in its uptrend as investors take some profits off the table across the bond market. Investors are concerned about the fact that the Treasury plans to flood the $112 billion worth of new debt into the market next week. That will be a record auction amount and could put temporary downward pressure on bond prices.
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Retail sales rally on more than just autos
Retail sales numbers jumped more last month than they have in three years. It would be understandable to assume that this was due to the "cash for clunkers" program, which ran through August, but even excluding auto-sales retail numbers were higher than expected.Core retail sales (which excludes autos and gasoline) was up 1.1% in August, which was almost 300% higher than anticipated. The question at this point is whether that number would have been even better and ultimately more beneficial for the economy if the government had not siphoned so much spending into autos.
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Portfolio Alert: Watch out for a Fed ease-up on Treasury buying
The most recent data released from the Federal Reserve's Open Market Committee meetings show that the Fed remains relatively positive, albeit cautious, about an economic recovery in the U.S. This means that the Fed can start planning to wind down some of its debt buying programs including the its current program to purchase $300 billion in Treasury debt.While the data was just released on Wednesday, the meetings actually took place on August 11th and 12th. But the results still merit scrutiny, especially for investors who may wonder what this could mean for their portfolios. Let's take a look.
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Gold is up as investors seek shelter from the storm
Gold usually has an inverse relationship with the dollar. When the USD goes up, gold goes down, because theoretically a stronger dollar can buy more gold. Additionally, commodities in general tend to fall on a stronger dollar because it is often correlated with lower expectations for growth.
This week we saw a major correction in equities with banks leading the way. American International Group, Inc. (NYSE: AIG) was down more than 20% on Tuesday alone. This is a fear-driven decline, and we can see evidence of that in a positive correlation between gold and the dollar.
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Real estate sales and prices are up; is it time to invest in REITs?
Pending home sales were up again last month for a sixth month in a row. The housing market has been a significant drag on the economy and may be one of the root causes of the crises of the last two years, so good news continues to be very welcome.When you consider this week's pending home sales numbers in combination with the recent uptick in housing price indexes there seems to be reason for optimism. Homebuilding stocks are also up significantly since the bottom earlier this year and real estate in general seems like it may be turning into a profitable asset class again.
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S&P 500 option traders still bullish
The S&P 500 may be down slightly this Friday afternoon after a fairly flat week, but that does not mean that all traders are bearish. In fact, option traders still appear to be quite bullish. Investors buying call options still outnumber put option buyers by more than 2 to 1 in the S&P 500 SPDRs ETF (SPY) for the September at-the-money strike price.When a traders buys a call option they think the stock is going to go up, and when they buy puts they think the stock may go down. The ratio between calls and puts is often looked at as a reflection of underlying trader sentiment. Significant changes in this balance may indicate that sentiment is changing.
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Durable goods numbers may bode well for some stocks (SHLD, HD, AAPL)
Durable goods are products that should last more than 3 years. That usually includes things like appliances, furnishings, and heavy equipment. The Commerce Department tracks this data and the number of orders for these things popped up an extra 4.9% in July, which was a nice surprise.
Why do I care whether North Americans are buying a new fridge? This is actually a metric you should watch for insight into potential corporate profits. If durable goods (which tend to cost a lot) are being purchased at an increasing rate, it bodes well for the companies that produce and sell those products.
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Cash for Clunkers ends the rally in auto retailers
The U.S. Government's 'Cash for Clunkers' program ends today. It won't be clear for some time whether the program was successful or not in stimulating the auto industry but it was certainly popular with buyers. As the program ends, will the rally in auto retailing stocks also come to a close?Interestingly, although the program runs through the end of business on today, some dealers stopped using the rebate program on Friday the 21st. For example, AutoNation, Inc. (NYSE: AN) is a publicly owned auto retailer that stopped offering the program to buyers on Friday. Perhaps management has concerns about the government being willing to pay the rebates on time.
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Oil prices boost oil stocks at support (PTR, XOM, CVX)
They say you should buy low and sell high, which is easy to say but hard to do. How low is low and how high is high?
Sometimes technical support and resistance levels can be helpful in finding those highs and lows. Right now oil stocks like Exxon Mobil Corp. (NYSE: XOM), PetroChina Company Ltd. (NYSE: PTR) and Chevron Corp. (NYSE: CVX) are just bouncing off support that may be the "low" many traders are looking for.
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Is gold losing its luster?
Investors buy gold for a lot of reasons. One of the most popular reasons to hold gold is that it tends to be very defensive during periods of economic uncertainty. For example, gold is one of the few asset classes that is still priced pretty much where it was before the market panics of the last 14 months. However, I think gold bugs had better beware because trading volume in gold is dropping fast. For example, a popular way to buy gold is through the SPDR Gold Trust ETF (NYSE:GLD), which has dropped from average volume of 25 million shares a day during the liquidity crisis to 5 million shares a day this week. The SPDR Gold Trust ETF buys gold bullion and then sells shares to investors as a stock.
If you are interested in learning more about investing in commodity ETFs click here.
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Dropping the 'public option' could insure some stocks' health
Regardless of how you feel about a public health insurance option offered by the government, interest at the policy level seems to be waning recently. If Democrats drop the idea of a public option as a component of health care reform, health insurance companies could benefit. The way I see it, if the government starts offering health insurance as a public provider then new supply will have entered the market. According to my college Econ 101 text book, that new supply would have shifted the supply and demand curves towards lower prices and maybe lower profits.
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Will Rich Ross really have a positive impact on Disney's movie operations?
Consumers sick of recession, may spend extra on holidays
Corrections, seasonality and Santa Claus
