Weekly Wrap Up July 20, 2012
Europe finally took a backseat this week, as investors keyed in on Ben Bernanke’s testimony before Congress. The Fed chief didn’t offer any new insight about the economy or QE3, but company earnings reports gave investors more info to chew on. Second quarter earnings season is now in session. We’ve been seeing flags of caution from many of the blue chip bellwether stocks.
All eyes on Bernanke
- Tight credit conditions
- Uncertainty with the fiscal cliff of 2013 looming
- The European markets and economy remain under significant stress and could unravel at any moment
- Business spending “appears to have decelerated” and surveys “suggest further weakness ahead.”
Bernanke expects the economy to “pick up very gradually” and the Fed’s is prepared to take action. However, no hints were left that the Fed might be ready to pull the trigger on QE3 at the end of the month.
- Bernanke expressed deep concern about the economy, reviving talk the Fed would eventually embark on new stimulus.
- I believe Bernanke is waiting for a catastrophic event such as a full-blown European crisis before embarking on another round of easing. Especially when they have been able to keep the stock market propped up simply by speaking to the public.
Earnings Beat the Street but Revenues Disappoint
As of July 19th, 66% of companies that have reported earnings have topped Wall Street expectations, but only 42% have beat revenue goals. Economic challenges and stronger dollar have played a key role. Companies have been able to “cost-cut” their way to better earnings, but this will not produce higher revenues.
Consumers Still “Not Buying” this Recovery
Waning consumer confidence, weak employment growth, and slow income growth are all impacting the nation’s retailers as retail sales fell for the third straight month. Sales were off 0.5% in June and this marked the first time since 2008 where we have seen sales fall for three consecutive months. This will probably force economists to ratchet down their Q2 GDP forecasts. Remember, consumer spending makes up 70% of GDP!
The closely watched Philly Fed Business Activity Index held below zero for the third straight month, rising to -12.9 in July from -16.6 in June.
Also, weekly jobless claims jumped 34,000 in the latest week to 386,000.
Housing starts were up 6.9% in June, including a 4.7% rise in single-family starts. But existing-home sales slipped a worse-than-forecast 5.4% in June.
Lower Oil Prices Helped Improve the Inflation Picture (For Now)
CPI held steady at a year-over-year rate of 1.7% for June. The core rate of inflation, which pulls out food and energy, dropped slightly to 2.2%. With the economy slowing, inflation (other than food and energy) has not been much of a problem. However, oil is quite volatile and prices are rising again amid Mideast tensions. Oil had slipped as low as $77.72 per barrel back on June 28. But is now back above $90 a barrel. Since oil bottomed, the S&P Energy sector is the winner, up 6.5%. As far as food prices go, the drought and surging corn prices could soon show up in higher grocery bills.
Busy Week Next Week
Earnings are off to a fairly good start, but will the trend continue? We have a whole slew of reports this week including:
- Monday: Halliburton (NYSE: HAL), Eaton (NYSE: ETN), McDonalds (NYSE: MCD), and Texas Instruments (NYSE:TXN)
- Tuesday: Illinois Tool (NYSE: ITW), AT&T (NYSE: T), EMC (NYSE: EMC), UPS (NYSE: UPS), and Apple (NASDAQ: AAPL).
- Wednesday: Caterpillar (NYSE: CAT) and Ford (NYSE:F)
- Thursday: 3M (NYSE: MMM), Dow Chemical (NYSE: DOW), Exxon Mobil (NYSE: XOM), Facebook (NYSE: FB).
- Friday: Chevron (CHV)
The ones I will be watching closely include:
- Caterpillar—The construction maker typically offers plenty of economic commentary, both in the U.S. and around the globe.
- Eaton (NYSE: ETN) and Illinois Tool (NYSE: ITW): I want to see how a rising dollar is affecting some of the manufacturers’ earnings.
- Apple (NASDAQ: AAPL): How will earnings look? This company has been pretty immune from the economic downturn. Can the trend continue?
- Facebook (NYSE: FB): Will investors finally catch a break? Will Facebook provide some good news to make up for the disappointing stock performance?
10 P.A.C.E. Stocks Yielding 4% or better!
Precious Metals, Agriculture, Commodities, Energy (P.A.C.E). Here are 10 stocks to consider with strong dividends and good upside potential.
1.CVR Partners, LP (NYSE: UAN) with an 8.4% dividend, engages in the production, distribution, and marketing of nitrogen fertilizers in North America. Its nitrogen fertilizer products include ammonia and urea ammonium nitrate.
2.Rentech Nitrogen Partners, L.P. (NYSE: RNF) with a 7.9% dividend, engages in the production of natural gas-based nitrogen fertilizer and industrial products for agricultural uses.
3.Terra Nitrogen LP (NYSE: TNH) with a 7.12% dividend produces and distributes nitrogen fertilizer products. The company’s customers include farmers in the central and southern Plains regions of the United States. Most of the company’s products are based on urea ammonium nitrate solution, and others are based on ammonia and urea.
4.Brookfield Infrastructure Partners L.P. (NYSE: BIP) with a 4.5% dividend, engages in the utilities, transportation and energy, and timber businesses.
5.Southern Copper Corporation (NASDAQ: SCCO) with a 6.7% dividend, engages in mining, exploring, producing, smelting, and refining copper and other minerals in Peru, Mexico, and Chile.
6.Duke Energy Corporation (NYSE: DUK) paying 4.5% dividend is an energy company in the United States and Latin America.
7.Magellan Midstream Partners (NYSE: MMP) with a 4.26% dividend is a master limited partnership that operates pipelines and storage terminals in the Central and Eastern United States. The partnership’s assets handle refined petroleum products, crude oil, and ammonia and provide a very stable, largely fee-based stream of cash flows.
8.Linn Energy LLC (NASDAQ: LINE) with a 6.9% dividend is a master limited partnership that acquires, exploits, and produces from oil and natural gas properties in the United States. Its major properties are in the Mid-Continent, the Appalachian Basin, and in California.
9.BP Prudhoe Bay Royalty Trust (NYSE: BPT) with a 8.07% yield is a business trust that has been established by Standard Oil, BP Exploration (Alaska), and Bank of New York. BP Exploration and Standard Oil are subsidiaries of British Petroleum.
10. MV Oil Trust (NYSE:MVO) is yielding 10%. They are a trust that receives royalty payments from the oil and natural gas assets owned by MV Partners, which produces oil, natural gas and natural gas liquids. These payments are derived from the volume of oil and gas produced by MV Partners.