American stocks rebounded from a tumble that followed Standard & Poor’s warning about U.S. debt this week. The Standard & Poor’s 500 Index made another run at 1340 but remained in 1300-1340 range—where it has been in since early February. Strong earnings indicate the economy is still recovering, albeit at a slower than expected rate because of inflationary pressures and a smaller-than-expected gross domestic product reading. It is also no surprise that gasoline prices are still rising. Most companies in the S&P 500 have met or beaten expectations. The housing and job markets are still lagging. With the end of the Fed’s Quantitative Easing II program in sight, we are anticipating a rise in interest rates and are looking for the economy to continue growing through the year.
Real Estate
- New home sales are up 11% over February; however, prices are down 5% from last year.
- Case-Shiller 10-city composite is down 2.6% and the 20-city composite is down 3.3%, and
- Atlanta, Detroit and Chicago were among the worst markets and have hit their lowest price level since the beginning of the recession.
Economic News
- First Quarter Real GDP grew at an annualized rate of 1.75%, just missing the 2% estimate.
- Consumer spending and construction spending were weaker than expected because of the severe winter;
- Imports were stronger as a result of higher oil prices, lowering growth rate, and
- For the rest of the year, GDP is expected to grow at stronger rate.
- Gas prices are high.
- High oil price is driving gas prices higher, and
- Consumers spending more on fuel and less on discretionary items, which negatively affects GDP.
- Durable goods orders were up 2.5 % in March.
- Japan’s debt outlook was lowered by S&P from stable to negative.
- Japan was downgraded in January on budget deficit concerns from AA to AA-.
- Federal Reserve
- Interest rates fell despite a falling dollar, and
- Despite the S&P’s negative long-term outlook for U.S. debt, investors headed for the safety of U.S. treasurys.
Earnings
- Kimberly-Clark (NYSE: KMB) announced they would be raising prices as a result of material costs for the third time since March.
- KMB missed estimates by $.08 a share, and
- Sales grew in emerging markets of Latin America and Asia.
- The Coca-Cola Company (NYSE: KO) missed estimates by $.01 per share because of Japan’s earthquake and tsunami.
- More than 10% of their operating profit comes from Japan, and
- Global Sales were up 6%, with China up 14% and Mexico up 11%.
- United Parcel Service, Inc. (NYSE: UPS) beat estimates with a first-quarter profit of $1.4 billion and a global revenue increase of 7.3%
- Most of the gains were from international deliveries signaling strong global growth.
- The Boeing Company (NYSE: BA) beat expectations with a profit of $586 million.
- The first 787 Dreamliner is expected to be delivered in the third quarter.
- Aflac Inc.’s (NYSE: AFL) profit was down 38% in the first quarter because of investment losses, but after adjustments, they beat expectations.
- Exxon Mobil Corp.’s (NYSE: XOM) profit rose 69% because of higher crude oil prices, higher earnings in chemicals and its refining businesses.
- PepsiCo Inc. (NYSE: PEP) faced higher costs that weighed income down 20%.Next week, we have 14 holdings in the Traditional Recommended Portfolio reporting.
- Beverage and snack sales helped drive revenue higher, and
- Pepsi met analyst expectations for earnings per share.
Mergers & Acquisitions Activity
- Johnson & Johnson (NYSE: JNJ) is acquiring Swiss medical device company Synthes for $21.3 billion.
- This would give JNJ a rather hefty 28% market share in orthopedic devices
- Exelon Corporation (NYSE: EXC), the third largest operator of nuclear power plants, is looking to buy Constellation Energy Group, Inc. (NYSE: CEG) for $7.9 billion in stock.
- The deal needs approval from regulators in several states.