Please note that this is an abbreviated Action Alerts
PLUS roundup due to the shortened week. Everyone have a
The market ended the week down as both the major averages
tried to weather the storm of events in Greece from last
weekend and throughout this week. Treasury yields were
volatile and finished lower, the dollar weakened slightly
against the euro, gold dipped, and West Texas
Intermediate (WTI) oil was sharply down, while Brent
crude was volatile and finished roughly flat.
Second-quarter equivalent earnings continued this week
and were strong, with 68.4% of companies surprising to
the upside. We did not have any portfolio companies
report quarterly earnings this week.
On the economic front, the National Association of
Realtors reported on Monday that the Pending Home Sales
Index rose 0.9% in May to 112.6, lower than estimates for
a 1.2% increase but up from the final reading of 111.6 in
April. The increase is the fifth straight for the index,
which is a forward-looking indicator for home sales based
on contract signings, and is the highest level since
April 2006. The index has increased on an annual basis
for nine consecutive months now, piggybacking off of last
week’s existing home sales report that showed year-to-
date sales rising 9.2% above last year. Pending home
sales advanced 6.3% in the Northeast and 2.2% in the West
but fell 0.6% in the Midwest and 0.8% in the South.
On Wednesday, ADP reported that the private sector added
237,000 jobs in June, higher than expectations of a
220,000 increase. More specifically, the ADP study noted
that small businesses added 120,000 new jobs, mid-sized
companies 86,000, and larger businesses 32,000.
Importantly, the results demonstrated that the headwinds
in manufacturing are perhaps easing as ADP noted that
manufacturers added 7,000 new positions in June compared
to May when the sector was forced to cut jobs. Moreover,
the ADP report, which attempts to forecast the private-
sector job results of the employment report conducted by
the U.S. Department of Labor, is a good sign for the
Also on Wednesday, the Institute of Supply Management
(ISM) reported that the latest reading on its
manufacturing index came in at 53.5, marking the highest
level for the year and beating expectations of 53.2. The
index was at 52.8 in May. Any index reading above 50
indicates economic expansion. Within the report, 11 out
of the 18 industries surveyed experienced growth. On top
of the 7,000 jobs reportedly added according to the ADP
job report, the positive ISM survey definitely
contributed toward an optimistic outlook heading into the
Labor Department's jobs report released Thursday.
On Thursday, the Labor Department reported that initial
jobless claims for the week ending June 27 were 281,000,
a 10,000 increase from the prior week's revised number
and above expectations of 270,000. The four-week moving
average for claims (which is used as a gauge to offset
volatility in the weekly numbers) rose 1,000 to 274,750 -
- a good sign for an economy that is continuing to add
jobs. Claims have now remained under 300,000 -- the
psychologically important threshold typically used to
determine whether an economy is experiencing robust
expansion -- for 17 straight weeks. Initial claims had
peaked in 2009 at 665,000 when unemployment reached
nearly 10%, but we have not seen anything close to those
levels in some time.
The Labor Department also reported that the economy added
223,000 jobs in June, slightly below consensus of a
228,000 increase. The nonfarm payroll employment
additions were also revised downward for previous months,
to 254,000 from 280,000 in May and to 187,000 from
221,000 for April. The unemployment rate ticked downward
to 5.3% vs. 5.5% in May and compared to expectations of
5.4%, marking the lowest rate since April 2008. This is a
deceiving figure, however, as the low rate is largely a
reflection of the weak participation rate (down to 62.6%
from 62.9% -- the lowest since 1977) as there were less
Americans searching for jobs. This marks the first month
since April 2014 where the labor force participation rate
dropped below 62.7%.
Employment increased largely in services areas as
retailers added 33,000 jobs, the health care sector added
40,000 and leisure and hospitality jobs increased by
22,000. Manufacturing jobs also grew a meager 4,000.
Average hourly earnings of private-sector workers
remained unchanged at $24.95 for June and are now up 2%
year over year.
The jobs figure is critical for the markets as it plays a
large role in the Federal Reserve's determination and
timing for a rate hike. Despite the solid increase in
jobs, the report delivered lackluster wage growth (which
remained stagnant) and unemployment numbers (which,
although low, were positively skewed due to the lower
participation rate), leaving the Fed without any
definitive direction forward. Along with the turmoil in
Greece and the debt scenario in Puerto Rico, there is
still uncertainty around when the Fed will feel
comfortable enough to raise rates.
On the commodity front, the Energy Information
Administration signaled this week that commercial crude
oil inventories increased by 2.39 million barrels last
week compared to the prior report where inventories fell
4.93 million barrels. The increase in crude inventories
breaks the streak of eight straight weeks of declines.
The overall number stands at 465.4 million barrels (as of
last week), up from 463 million barrels from the prior
report. Oil inventories are still at 80-year highs for
this time of year.
Crude oil (WTI) dipped sharply on Wednesday following the
report and broke through the bottom end of the $58-$62
range that it had been trading in for the past couple of
With respect to our portfolio, this week we initiated a
position in Marathon Oil (MRO:NYSE) and added to the name
later; increased our holdings in Schlumberger (SLB:NYSE),
Energy Transfer Partners (ETP:NYSE) and Occidental
Petroleum (OXY:NYSE); and trimmed our positions in
MasterCard (MA:NYSE) and Twitter (TWTR:NYSE).
With respect to Marathon, we believe its attractive shale
acreage and efficient drilling program should help drive
outsized growth while generating ample cash flow over the
coming years. The company's best-in-class management team
has displayed a disciplined spending approach, successful
cost-control, effective capital allocation and
willingness to divest non-core assets for cash (thereby
boosting its balance sheet). Lastly, Marathon appears
well positioned to grow production this year and
accelerate it if market conditions allow.
On ETP, the shares were down roughly 10% over the
previous week at the time of our trade, despite little
news, and we believe the elevated yield (about 7.8%)
assigns essentially no credit to ETP turning the corner,
delivering high-single-digit distribution growth and
capturing highly attractive organic projects (Bakken
Crude and Rover). In the current environment of
uncertainty for energy companies, ETP's fee-based cash
flow, visible growth and financial flexibility position
the partnership for outperformance.
We also decided to add to our position in Occidental on
Monday on extreme weakness, as the markets were down
sharply in response to events in Greece. The company
continues to build on its leading position in the
Permian, with strong legacy enhanced oil recovery (EOR)
cash flow generation coupled with an increasing focus on
high-growth unconventional plays.
We bolstered our stake in Schlumberger on Tuesday as the
stock had dipped over 5% since we last trimmed our
position on June 11, providing a great opportunity to add
back to our holdings. We have always remained bullish on
the company's long-term prospects and believe that it is
the best positioned among the international services
names to navigate the current downturn.
Lastly, we trimmed our MasterCard and Twitter positions
on Tuesday. For MasterCard, it was an opportune time to
take some more profits off the table as the shares were
roughly 10% above our cost basis and we see little
catalysts in the near term. On Twitter, we pounced on the
takeover chatter and sold half of our stake, as the stock
was trading up 5% on the day.
Second-quarter earnings season is beginning to ramp up.
For the completed first quarter, total earnings growth
was 0.7%; excluding financials, growth was -0.9% vs.
expectations at the beginning of the season for a 0.6%
increase. Revenues declined 3.10% vs. expectations at the
beginning of the season for a 3.30% decline. The results
were solid across the board, with 62.7% beating
expectations, 33.7% missing the mark and 3.6% in line
with consensus. The health care, consumer staples,
energy, and utilities sectors led the strong performance.
Materials, financials, industrials and consumer
discretionary names posted the worst first-quarter
results in the S&P 500.
Next week, 0.8% of the S&P 500 is set to report earnings.
Key reports are: A. Schulman (SHLM:Nasdaq), MSC
Industrial (MSM:NYSE), The Container Store (TCS:NYSE),
Alcoa (AA:NYSE), WD-40 (WDFC:Nasdaq), PepsiCo (PEP:NYSE),
Synergy Resources (SYRG:NYSE), Walgreens Boots Alliance
(WBA:Nasdaq) -- an Action Alerts PLUS holding, Barracuda
Networks (CUDA:NYSE), and PriceSmart (PSMT:Nasdaq).
Economic Data (*all times EDT)
Markit US Composite PMI (9:45):
Markit US Services PMI (9:45):
ISM Non-Manf. Composite (10:00): 56.0 expected
Trade Balance (8:30): -42.00bn expected
MBA Mortgage Applications (07:00):
Initial Jobless Claims (8:30):
Continuing Claims (8:30):
Bloomberg Consumer Comfort (9:45):
Wholesale Inventories MoM (10:00): 0.2% expected
Germany Factory Orders MoM (2:00):
Germany Factory Orders YoY (2:00):
Germany Industrial Production MoM (2:00):
Germany Industrial Production YoY (2:00):
UK Industrial Production MoM (4:30):
UK Industrial Production YoY (4:30):
UK Manufacturing Production MoM (4:30):
UK Manufacturing Production YoY (4:30):
Japan BoP Current Account Balance (19:50):
Japan Trade Balance BoP Basis (19:50):
Japan Eco Watchers Survey Current (1:00):
UK RICS House Price Balance (19:01):
Japan Machine Orders MoM (19:50):
Japan Machine Orders YoY (19:50):
Japan Money Stock M2 YoY (19:50):
Japan Money Stock M3 YoY (19:50):
China CPI YoY (21:30): 1.4% expected
China PPI YoY (21:30): -4.6% expected
Germany Trade Balance (2:00):
Germany Exports MoM (2:00):
Japan Machine Tool Orders YoY (2:00):
UK BOE Asset Purchase Target (7:00): 375bn expected
UK BOE Bank Rate (7:00): 0.5% expected
Japan PPI YoY (19:50):
UK Trade Balance (4:30):
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Here's the quick guide to the rating system, too: Ones
are stocks we would buy right now, Twos are stocks that
we'd buy on a pullback, Threes are stocks we would sell
on strength and Fours are stocks we want to unload as
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Jim Cramer, Portfolio Manager & Jack Mohr, Director of
Research - Action Alerts PLUS
DISCLOSURE: At the time of publication, Action Alerts
was long AGN, AAPL, CSCO, DOW, EOG, ETN, ETP, ESRX, FB,
GM, GOOGL, HON, HOT, HYH, JNJ, MA, MMM, MRO, MS, OXY,
SBUX, SLB, TGT, TMO, TWTR, WBA, WFC and WWAV.
We'll add back some shares of the oil services firm after a recent sale.
Today's rumor-driven rally provides an opportunity to protect ourselves from further downside.
Stock has exceeded our cost basis.
This week, we bolstered our energy sector positions as the market reacted to fluid events in Greece.
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