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Pence Wealth Management Financial Markets Report

US FINANCIAL MARKET

  • U.S. stocks opened flat on Thursday in the wake of data showing initial jobless claims rose more than expected in the latest week, though investors continued to look ahead to data on the housing market.

o    The S&P 500 climbed 0.8 % yesterday, erasing the previous day’s declines, as Federal Reserve policy makers said continued stimulus doesn’t risk fueling a jump in the inflation rate.

  • Darden restaurants investor Starboard Value LP is starting a proxy battle to take over the board, seeking to block the company’s deal to sell the Red Lobster chain for $2.1 billion.

o    According to Starboard’s analysis, Darden is selling Red Lobster for just $100 million more than the value of the chain’s real estate, which could have been sold tax-free.

o    That implies Darden is “essentially giving away the Red Lobster operating business, an iconic brand with $2.5 billion in sales.”

  • Boeing wants to be more like Apple, CEO McNerney says. Boeing wanted to be more like Apple in the way it innovates, rather than doing a “moon shot” development every 25 years.

o    Apple has delivered a string of popular consumer electronic devices in the last decade, ranging from the MacBook notebook to the iPod Touch media player, the iPhone and the iPad tablet.

  • Best Buy expects comparable store sales to fall for two quarters. Rising grocery bills and higher fuel costs in the United States are weighing on consumers’ ability to spend on discretionary items such as electronic goods.

o    Total revenue fell 3.3 % to $9.04 billion, hurt by a 1.3 % fall in same-store sales in the US. Net income was $461 million in the first quarter, compared with a loss of $81 million a year earlier.

  • Sears loss widens as discounts fail to arrest fall in sales. Sears said it would close 80 stores or more in the year ending January.

o    Revenue declined 6.8 % to $7.88 billion, but came higher than the average analyst estimate of $7.71 billion. Net loss widened to $402 million from $279 million a year earlier.

  • Reynolds American and Lorillard in advanced merger talks. The proposed deal would unite the second- and third-largest U.S. tobacco companies that have a combined market value of nearly $55 billion, putting brands such as Reynolds’ Camel and Lorillard’s Newport under one roof.

o    The percentage of adult smokers in the United States fell to 19 % in 2011 from 22.8 % 10 years earlier.

  • Home-improvement retailers Home Depot and Lowe’s are sticking to forecasts for improved sales this year after demand cooled at the start of the year because of harsh weather.
  • J&J sees device growth through new products, emerging markets. The medical device and diagnostic division posted 2013 sales of $28.5 billion representing about 40 % of the company’s total business.
  • JD.com, the Chinese online retailer whose business model is similar to Amazon’s, raised $1.78 billion in its U.S. initial public offering (IPO) after pricing the shares above the marketed range.
  • The bankruptcies, mergers and jet-fuel shocks that rocked U.S. airlines during the last decade yielded a surprising result: the world’s most profitable carriers. U.S. airlines led by Delta now hold the top spots in the global industry by operating income and market value.

US ECONOMY & POLITICS

  • Gain in U.S. leading index points to second-quarter rebound.

o    The Conference Board’s index, a gauge of the outlook for the next three to six months, rose 0.4 %. The gain indicates the first-quarter slowdown was more the result of harsh weather than underlying weakness in the expansion.

o    The index of coincident indicators, a gauge of current economic activity, rose 0.1 % in April.

  • The Markit’s U.S. manufacturing index (PMI) increased to 56.2 in May from 55.4 a month earlier as output accelerated. The median forecast in a Bloomberg survey of 21 economists was 55.5.
  • Jobless claims rise; still close to pre-recession level. Initial claims for state unemployment benefits rose 28,000 to 326,000. Economists had forecast first-time applications for jobless aid ticking up to 310,000 last week.

o    The four-week average of claims fell to 322,500 last week from 323,500.

o    The number of people continuing to receive jobless benefits dropped by 13,000 to 2.65 million in the week ended May 10.

  • Existing home sales rebound, inventory increases. Existing home sales increased 1.3 % to an annual rate of 4.65 million units, marking the second increase in sales in nine months.

o    While that was a bit less than the 4.68-million unit pace that economists had expected, it was a hopeful sign for a sector that stumbled in the second half of 2013.

o    Sales of existing single-family homes increased 0.5 % to an annual rate of 4.06 million. Purchases of multifamily properties — including condominiums and townhouses — jumped 7.3 % to a 590,000 pace.

o    Sales are still down 15 % from a peak of 5.38 million units hit in July.

  • The inventory of unsold homes on the market increased 6.5 % from a year-ago and the median home price increased at its slowest pace since March 2012.

o    The number of previously owned homes on the market rose to 2.29 million. At the current sales pace, it would take 5.9 months to sell those houses, the highest since August 2012, compared with 5.1 months at the end of the prior month.

o    At the same time, investors accounted for 18 % of the home purchases last month, up from 17 % a month earlier. Seven of 10 investors paid cash. Those transactions accounted for about 32 %.

o    The median price of an existing home rose 5.2 % from April 2013 to $201,700.

o    First-time buyers represented 29 % of all transactions.

EUROPE & WORLD

  • Euro zone business stays strong, China mending.
  • Europe’s Markit’s Composite Purchasing Managers’ Index (PMI) edged down to 53.9 from a near three-year high of 54.0 in April, matching the consensus forecast in a Reuters poll of analysts.
  • HSBC/Markit’s Flash China Manufacturing PMI rose to 49.7 in May from April’s 48.1, reaching its highest since December and beating the median forecast of 48.1 in a Reuters poll.

o    The report showed rebounding output and orders, fueling optimism Chinese demand will be sustained after the government announced tax breaks and accelerated spending on railways to protect a 7.5 % annual growth target.

o    At the same time, a property slump and slowing investment and retail sales threaten the pace of expansion.

  • The Markit/JMMA flash Japan Manufacturing PMI rose to a seasonally adjusted 49.9 in May from April’s 49.4.
  • Turkey’s central bank unexpectedly cut its benchmark interest rate today because of a drop in the country’s “risk premium indicators.”
  • U.K. consumers were the driving force behind Britain’s economic growth at the start of the year, continuing a trend after they led the recovery in 2013. Consumer spending rose 0.8 % in the first quarter, a 10th straight increase, adding 0.5 percentage point to GDP.
  • Adidas sees boost to sales from World Cup. That increase represents a rise of 7-8 % from the 14.492 billion euros of sales Adidas recorded in 2013.
  • Siemens CEO vows to hold on to parts of rail business. Siemens wants to hold on to at least some parts of its rail business in any deal with French rival Alstom. Alstom has been in talks with GE over a 12.35 billion euro ($16.9 billion) bid for its power arm.
  • Sony CEO: Not thinking of selling or shutting TV business. Sony plans to turn its struggling TV business into a separate entity – Sony Visual Products – within a few months to boost transparency.
  • Unilever to sell sauce brands to Japanese food manufacturer Mizkan for $2.15 billion. The deal transfers Ragu, the best-selling U.S. pasta sauce that helped popularize Italian food in America, into the hands of a closely held Asian company founded 210 years ago.

o    Ragu is the best-selling sauce in the U.S., with 25 % of the market. Campbell Soup’s Prego brand is second with 17 %.

o    Mizkan unveiled a five-year plan in January, saying it needs to expand overseas as the Japanese population shrinks. The company was founded in 1804 to make vinegar from the leftovers of sake production.

TODAY in HISTORY

  • The first battle in the 30-year War of Roses took place at St. Albans (1455)
  • The first life insurance policy in the United States was issued in Philadelphia (1761)
  • Abraham Lincoln received patent number 6469 for his floating dry dock (1849)
  • Harry S. Truman’s Doctrine brought aid to Greece and Turkey to combat the spread of Communism (1947)
  • Richard Nixon arrived in Moscow, becoming the first U.S. president to visit the Soviet Union (1972)
  • Johnny Carson hosted the last episode of his Tonight Show (1992)

Sources: Reuters, Bloomberg.

This information has been prepared from sources believed to be reliable, but no representation is being made as to its accuracy or completeness. The information provided should be used only as general information and is not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth in the material may not develop as predicted. All indices, such as the S & P 500, are unmanaged and may not be invested into directly. Sources: Reuters, Bloomberg.

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