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Financial Markets - 05.06.15

The Gilmer Free Press

U.S. stocks ended weaker on Wednesday after U.S. Federal Reserve Chair Janet Yellen warned of high valuations, adding to anxiety about future interest rates and a global bond rout.

The S&P 500 ended at a low not seen since early April after Yellen said high equity valuations could pose dangers, although she also said she does not see any bubbles forming.

Atlanta Federal Reserve bank president Dennis Lockhart said he still expects it will be appropriate to raise interest rates some time in the middle of the year, and that market expectations of a September increase were in “reasonable alignment” with the central bank’s likely path.

His and Yellen’s comments came as investors try to pinpoint when the Fed will begin raising interest rates for the first time since 2006. An April payroll report later this week may affect when the Fed will make its move.

Most of Wall Street’s top banks see the Federal Reserve holding off until at least September before raising interest rates.

A worldwide drop in government bond prices also spread unease to Wall Street.

Cutting losses of more than 1% in afternoon trade, the Dow Jones industrial average .DJI fell 86.22 points, or 0.48%, to 17,841.98, the S&P 500 .SPX lost 9.31 points, or 0.45%, to 2,080.15 and the NASDAQ Composite .IXIC dropped 19.68 points, or 0.4%, to 4,919.64.

Yellen’s comments stung investors already nervous about stock prices. The S&P 500 currently trades at 17 times forward earnings, higher than its 10-year median of 15.

With Wednesday’s loss, the Dow was up just 0.11% in 2015 while the S&P was up 1.03% and the NASDAQ 3.88% higher.

Apple (AAPL.O) was the biggest drag on the S&P 500 on Wednesday, down 0.63%.

MoneyGram (MGI.O) ended up 21.41% after Western Union (WU.N) said it was not in talks to buy the company. Western Union gained 4.29%.

Declining issues outnumbered advancing ones on the NYSE by 2,087 to 1,003, for a 2.08-to-1 ratio; on the NASDAQ, 1,455 issues fell and 1,285 advanced, for a 1.13-to-1 ratio favoring decliners.

The S&P 500 posted 7 new 52-week highs and 6 new lows; the NASDAQ Composite recorded 29 new highs and 73 new lows.

About 6.7 billion shares changed hands on U.S. exchanges, below the 7.1 billion daily average for the last five sessions, according to BATS Global Markets.

U.S. Factory Orders Rise in March for First Time in 8 Months

The Gilmer Free Press

WASHINGTON, D.C. — Orders to U.S. factories rose in March for the first time since last July, breaking a long stretch of weakness in manufacturing.

Orders increased 2.1% following seven monthly declines, the Commerce Department reported. And in further good news, orders in a key category that tracks business investment plans eked out a 0.1% rise. It was the first advance in this category since last August.

Economists are hoping that U.S. manufacturing is beginning to emerge from a long soft patch, bolstered by stronger domestic demand that will offset ongoing weakness in exports.

Orders for durable goods, which are items expected to last at least three years, rose 4.4% in March. Demand for non-durable goods such as chemicals and paper dropped 0.3%.

U.S. factories have been struggling with export sales, which have taken a hit from the rise in the value of the dollar in recent months. A stronger dollar makes U.S. exports more expensive and less competitive on overseas markets. It also lowers the cost of imported goods, making them more attractive to U.S. consumers.

The overall increase was the first positive number since a 10.5% increase last July. The strength in March was led by a surge in demand for computers and the volatile category of commercial aircraft.

The key category of non-defense capital goods excluding aircraft, which is viewed as a proxy for business investment plans, edged up 0.1% in March. It was the first advance in this area since last August.

The government reported last week that the overall economy, as measured by the gross domestic product, expanded by a meager 0.2% in the January-March quarter as a harsh winter, a rising trade deficit and weaker business investment all held back growth.

Economists believe growth will rebound in the April-June quarter, helped by stronger job growth that is expected to spur consumer spending. Auto sales rose in April, led by strong demand for small and midsize SUVs.

Economists are looking for the GDP, the country’s total output of goods and services, to grow at a 1.9% rate in the second quarter, a significant rebound from the first three months.

Other analysts are more optimistic.

As the weather returns to more seasonal norms, we anticipate a big rebound in consumption growth. Economists are forecasting 3.5% GDP growth in the second quarter.

1 IN 4 USE HALF THEIR INCOME TO PAY FOR RENT

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WASHINGTON, D.C. — More than one in four U.S. renters have to use at least half their family income to pay for housing and utilities.

That’s the finding of an analysis of Census data by Enterprise Community Partners, a nonprofit that helps finance affordable housing. The number of such households has jumped 26% to 11.25 million since 2007.

Since the end of 2010, rental prices have surged at nearly twice the pace of average hourly wages, according to data from the real estate firm Zillow and the Labor Department.

The crisis reflects one of the shortcomings of the recovery from the Great Recession: Income has failed to match rent increases. At the same time, construction has failed to keep pace with demand from renters. The recession pushed more millennials, former homeowners who faced foreclosure and low-wage workers into rental housing.

A result is that 2.3 million more families face pressures that leave them perilously close to homelessness. It’s a reality faced by Lisette Duarte, a 37-year-old living in a two-bedroom apartment with her family in northeast Los Angeles.

Duarte’s husband lost his job as an electrician more than three years ago. With both their son and daughter on the autistic spectrum and in need of care, he chose to stay at home while she worked a job requiring a 90-minute commute each way. The lost income forced them out of a three-bedroom house and eventually into a hotel, where vouchers over the course of five months helped them save for a security deposit for an apartment.

About a year ago, the family moved into a two-bedroom apartment in the Highland Park neighborhood where Duarte had grown up. Two-bedrooms in that gentrifying community rent for an average of about $1,600 a month, according to the online service Apartment List. The expense, along with utilities, consumes half of Duarte’s paycheck. The government defines housing costs in excess of 30% of income as burdensome.

The family relies on prepaid cellphones. They don’t dine out or go on vacations. Whatever extra income they have often goes for health care.

More than 30% of renters in California, Florida, New Jersey and New York state devote at least half their incomes to housing and utilities, according to the analysis. Other than Alaska, South Dakota and Wyoming, at least 20% of renters in every state face similarly high costs relative to income.

The analysis was developed for a “Make Room” awareness campaign sponsored by Enterprise Community Partners. As part of the campaign, pop stars such as Carly Rae Jepsen of “Call Me Maybe” fame, who sang for the Duartes, are performing concerts in the homes of financially distressed tenants.

Enterprise Community Partners’ analysis dovetails with findings from other organizations. The U.S. Department of Housing and Urban Development has estimated that 12 million renters and homeowners spend at least 50% of their income on housing.

And Harvard University’s Joint Center for Housing Studies found in a 2013 report that roughly 27% of renters were devoting half their incomes to rent. Those levels were “unimaginable just a decade ago,“ the report said.

Average hourly wages have risen just 2.1% in the past 12 months, according to the Labor Department, while rental prices have climbed 3.7%, Zillow said last week.

Many renters lack the income to pay the cost of maintaining and operating these buildings, said Barry Zigas, director of housing policy at the Consumer Federation of America and a trustee at the nonprofit Mercy Housing.

Mercy Housing has a portfolio of 12,000 units for low-income people and senior citizens. It costs an average of roughly $500 a month to manage each unit, Zigas said. A monthly rent of $500 would mean that anyone working full time for a minimum wage would devote more than a third of his or her income to housing.

Either the tenants must fork over a greater share of their pay each year or landlords may let buildings fall into disrepair.

Low-income renters are getting caught in a total squeeze play, as are the owners of the properties.

The Great Recession caused waves of foreclosures and layoffs that pushed more Americans into renting. More than 36% of people now rent, compared with 31% before the recession began in late 2007. The increased demand has yet to be matched by construction and renovations.

In March, the National Low Income Housing Coalition reported a shortage of 7.1 million apartments for low-income renters. The shortages are most pronounced in Nevada, California, Arizona, Oregon, Florida, Colorado and Utah.

Construction firms are building apartment complexes at an annual pace of roughly 321,333 this year, according to the Commerce Department. The rising rental prices suggest that construction hasn’t kept pace with demand, according to economists.

For renters such as Duarte, the plan is that her husband can eventually return to work as their children reach adulthood, easing some of their financial pressures.

U.S. stocks finished sharply lower on Tuesday after a surprisingly wide March U.S. trade deficit rai

The Gilmer Free Press

NEW YORK, NY —U.S. stocks finished sharply lower on Tuesday after a surprisingly wide March U.S. trade deficit raised concerns that the economy shrank in the first quarter.

The $51.4 billion March deficit was the highest in nearly 6-1/2 years and larger than the $45.2 billion the government assumed in its snapshot of first-quarter gross domestic product last week, suggesting the economy had contracted.

Long-term U.S. Treasury yields along with German Bunds rose on a host of factors including less pessimism about Europe, and easing downward pressure on U.S. and European inflation.

With corporate earnings season winding down, U.S. investors are bracing for an April payroll report due on Friday that could give a hint of when the U.S. Federal Reserve will begin raising interest rates.

All 10 major S&P sectors fell, with the utilities index .SPLRCU slumping 2.28% as investors dumped dividend stocks to take advantage of yields on benchmark 10-year Treasury notes US10YT=RR at nearly two-month highs.

Despite a rally of 2% in oil CLc1, energy stocks were stung for a second day by criticism of fracking companies by David Einhorn, the influential head of hedge fund Greenlight Capital. The energy sector .SPNY fell 1.10%.

Weighed down by a 2.25% decline in Apple (AAPL.O), technology stocks were the biggest drag on the three major indexes, erasing the NASDAQ’s gains of the past two days.

The Dow Jones industrial average .DJI fell 142.2 points, or 0.79%, to end at 17,927.2. The S&P 500 .SPX lost 25.03 points, or 1.18%, to 2,089.46 and the NASDAQ Composite .IXIC dropped 77.60 points, or 1.55%, to end the session at 4,939.33.

Kellogg (K.N) fell 1.48% to $63.18 after the world’s largest maker of breakfast cereals’ net sales fell 5%.

Cosmetics maker Estee Lauder (EL.N) rose 4.02% after better-than-expected profit.

After the bell, Groupon (GRPN.O) posted first-quarter revenue below expectations and its stock was down 2.2% in extended trade.

Tuesday’s decline in stocks is only the most recent of several volatile sessions. Over the two weeks through Friday, the S&P 500 moved an average of 17.79 points daily, wider than the 12.43 point range in early March.

Declining issues outnumbered advancing ones on the NYSE by 2,452 to 610, for a 4.02-to-1 ratio; on the NASDAQ, 2,084 issues fell and 676 advanced for a 3.08-to-1 ratio.

The benchmark S&P 500 posted 16 new 52-week highs and no new lows; the NASDAQ Composite recorded 39 new highs and 68 new lows.

About 7.3 billion shares changed hands on U.S. exchanges, above the 7.0 billion daily average for the last five sessions, according to BATS Global Markets.

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