Has spring sprung for capital expenditures?

New orders for durable goods jumped 2.6% in March. That’s on top of a 2.1% increase in February. A key component, the nondefense capital goods excluding aircraft orders, bounced from -1.1% in February to 2.2% in March. It’s still early, and a few data points don’t make a trend, but it looks like businesses are slowly investing in capital equipment. Of course, that’s what I thought last year … and maybe the year before.

Businesses have a lot of liquid assets that we’d rather see disgorged to shareholders or reinvested in the company through hiring or spending on future growth. The fiscal cliff of 2012–2013 spurred many companies to shift dividend payments from 2013 to 2012 so the dividends could get better tax treatment. Going from 2013 to 2014, there was a little bump in capital expenditures, as businesses could take advantage of accelerated depreciation (which lowers the after-tax cost of investing) in 2013 that wasn’t (yet) available for 2014.

Now that the tax code doesn’t reward divesting of cash, there’s still a good reason why businesses should keep making capital expenditures: prospects for growth.

Business sentiment indicators, like the various Purchasing Managers’ Indexes (PMIs), are staying in expansionary territory (with a notable exception being the PMI readings in China). Consumer sentiment and confidence surveys are pointing to warmer and fuzzier feelings. Bank lending is also increasing, with commercial and industrial loans of U.S. banks at an all-time high.

Companies may continue to invest in capital equipment because failure to do so would mean missing out on future profits. The fear of falling behind competitors is a pretty strong motivation to invest for growth.

Be the first to comment

Microscope needed for the building materials of the future

Another report indicated the housing market is weakening before the crucial spring selling season. Following yesterday’s disappointing existing home sales report, new home sales fell more than expected in March. There was also concern about two big tech earnings reports after market close today—Apple’s and Facebook’s—and their effects on tech shares more broadly, which have pulled back in recent weeks after an extended run.

The Dow fell 12 points, with 18 of its 30 components retreating; the S&P 500 Index dropped 4; and the Nasdaq was off by 34. Decliners narrowly led advancers on the NYSE and led by more than two to one on the Nasdaq. The prices of Treasuries strengthened. Gold futures rose $3.50 to close at $1,284.60 an ounce, and the price of crude oil dropped 31 cents to settle at $101.44 a barrel.

In Earnings News:

Continue reading

Be the first to comment

Is this the end of housing’s contribution to growth?

Existing-home sales were flat in March, coming in at a 4.59 million seasonally adjusted annualized pace. The buying/selling pace of existing homes has fallen since mortgage rates popped up in 2013, but the pace looks to be stabilizing.

Prices are anything but stable, as the median home price in March increased 5.4%. These swings in median prices are mainly due to changes in the types of houses and the geographic distribution of sales. Early in the economic recovery, there were a lot of distressed sales, but many of those deals are gone. Year over year, sales in the price range of $0 to $100,000 dropped 17.6% in March.

I expect existing-home sales to stabilize in the 4.6 million range and then rise to 5.0 million by next year. That pace would be consistent with a slightly stronger economy with still very low mortgage interest rates.

For economic growth, we have to look at new-home sales, as those feed directly into calculating gross domestic product (GDP). The level of new-home sales has been running around 7% to 10% of the level of existing-home sales. That’s in stark contrast to the pre-financial crisis period when new-home sales were around 17% of the level of existing-home sales.

Continue reading

Be the first to comment

At this airport, it’s not only flights that are delayed

Existing-home sales in March were disappointing, but stocks extended their gains on more good earnings reports and a shakeup in the pharmaceutical industry.

The Dow rose 65 points, led by a 2.19% rise in Home Depot’s shares (HD) after an analyst upgrade; 19 of its 30 components advanced. The S&P 500 Index gained 7, and the Nasdaq was higher by 39. Advancers led decliners by 11 to 4 on the NYSE and 13 to 5 on the Nasdaq. The prices of Treasuries were mixed, with the 30-year strengthening and the 10-year weakening. Gold futures fell $7.40 to close at $1,281.10 an ounce, and the price of the most actively traded contract of crude oil dropped $1.90 to settle at $101.75 a barrel.

In Earnings News:

Continue reading

Be the first to comment

These properties might haunt you

With few major economic reports and European markets closed for the Easter holiday, stocks had a relatively steady day after a brief dip in the morning, moving moderately higher on better-than-expected earnings reports.

The Dow rose 40 points, with 17 of its 30 components gaining ground; the S&P 500 Index advanced for the fifth-straight session, up 7; and the Nasdaq gained 26. Advancers led decliners by eight to five on the NYSE and three to two on the Nasdaq. The prices of Treasuries weakened. Gold futures fell $5.40 to close at $1,288.50 an ounce, and the price of crude oil rose 28 cents to settle at $103.65 a barrel.

In Earnings News:

Continue reading

Be the first to comment

Stocks mixed on earnings

It was one of the busiest days of the earnings season, with 25 of the companies in the S&P 500 Index reporting. Results were mixed, but for the most part, the markets focused on the positive.

The Dow slipped 16 points, the S&P 500 Index gained 2, and the Nasdaq rose by 9. Nineteen of the Dow’s 30 components gained ground. Advancing issues outnumbered decliners by about four to three on the NYSE and nine to five on the Nasdaq. The prices of Treasuries weakened. Positive economic news drove the price of gold futures lower by 0.7% to $1,293.90 an ounce, a 1.9% loss for the week. The price of crude oil on the New York Mercantile Exchange rose 0.5% to $104.30 a barrel.

The markets are closed tomorrow for the Good Friday holiday, and the markets ended the week in positive territory. The Dow, the S&P 500 Index, and the Nasdaq each gained 2%.

In Earnings News:

Continue reading

Be the first to comment

Why the eyes are following you (on cereal boxes, at least)

Markets continued to rally, helped by decent housing-starts numbers and better-than-expected reports on U.S. industrial production and Chinese gross domestic product.

The Dow rose 162 points, with 26 of its 30 components gaining ground; the S&P 500 Index increased 19; and the Nasdaq gained 52, helped by surging shares of Yahoo after its quarterly earnings report. Advancers led decliners by 15 to 4 on the NYSE and 5 to 2 on the Nasdaq. The prices of Treasuries were mixed, with the 30-year strengthening and the 10-year weakening. Gold futures rose $3.20 to close at $1,303.50 an ounce, and the price of crude oil gained one penny to settle at $103.76 a barrel.

In Earnings News:

Continue reading

Be the first to comment

What’s bubbling up in bonds? (excerpt)

Jim Kochan: What’s bubbling up in bonds?

Jim Kochan

We’re talking Federal Reserve policy, the rally in municipal bonds, concerns in the high-yield corporate space, and how all this affects investment strategy with Jim Kochan, chief fixed-income strategist with Wells Fargo Funds Management, LLC, in this excerpt of On the Trading DeskSM from Friday, April 11, 2014.

Listen to the full interview.

The Federal Open Market Committee met in mid-March. As you sifted through the minutes of that meeting, what effect did you see it having on fixed-income markets?
From the point of view of a fixed-income strategist, I think these minutes were very bond-friendly. What I mean by that is that there were long discussions as to how the committee should express itself about the terms that they use and the forward guidance they give to convince investors and the marketplace that the federal funds rate is going to stay very low for an extended period of time. They had to change their forward guidance because they were unhappy with the reference to a 6.5% unemployment rate. They wanted something more general than that, and frankly, they had a great deal of difficulty coming up with a consensus. I don’t think they really did come up with a consensus as to what the new forward guidance language should be, but nevertheless, as one reads the minutes, one can’t help but be impressed by how important they feel that the markets understand that short-term interest rates are going to stay low for an extended period of time.

Continue reading

Tagged , , , , , , | Be the first to comment

Tax tips from ABBA

Mixed economic reports and continued pressure on tech shares made for another choppy session. Consumer inflation stayed tame in March and some much-watched earnings reports beat expectations, but a disappointing regional manufacturing report and sagging homebuilder confidence weighed on stocks in the afternoon. The major indexes managed to push solidly higher late in the session.

The Dow rose 89 points, with 23 of its 30 components advancing; the S&P 500 Index gained 12; and the Nasdaq recovered another rough day for tech stocks to close 11 points higher. Decliners led advancers by three to two on the NYSE and decliners narrowly led advancers on the Nasdaq. The prices of Treasuries strengthened. Gold futures dropped $27.20 to close at $1,300.30 an ounce, and the price of crude oil pulled back 30 cents to settle at $103.75 a barrel.

In Earnings News:

Continue reading

Be the first to comment

Extra-strength password pills

Retail sales were surprisingly robust in March, but despite the good news, stocks had a choppy session. The Dow and S&P 500 Index trimmed early gains and the Nasdaq dipped into the red, but all three accelerated toward strong gains at the close.

The Dow rose 146 points, with 27 of its 30 components advancing; the S&P 500 Index gained 14; and the Nasdaq moved 22 points higher. Advancers led decliners by nearly two to one on the NYSE and narrowly led on the Nasdaq. The prices of Treasuries weakened. Gold futures rose $8.50 to close at $1,327.50 an ounce, and the price of crude oil moved 31 cents higher to settle at $104.05 a barrel.

In Earnings News:

  • Citigroup’s first-quarter net income rose 3.5% to $3.94 billion, the company said today, ahead of consensus analyst estimates. Trading results were weak, led by an 18% drop in fixed-income trading revenue, but Citi made up for it on lower expenses and 20% lower provisions for bad loans. Revenue fell 0.6% to $20.12 billion, in line with estimates. Citi’s shares (C) gained 4.36%.

 

In Other Business News:

Continue reading

Be the first to comment