Fed "Minutes" Smacked the Dow
Unless you're lucky enough to work at one of NYC's recently ranked "companies with the hottest employees" (hint: one chiseled bank made the list... shocking), then it was a tough day on Wall Street. After a positive morning, the Dow dropped 66 points Wednesday when details from the Fed's last meeting were released.
1. Fed minutes show stimulus party may end sooner
It's all in the details. Eagerly anticipated "minutes" from the Federal Reserve's eight-times-a-year policy-setting meeting last month revealed that more members of the Fed are open to cutting off stimulus sooner than you expected. Although the report also showed the U.S. recovery's "moderate pace" of growth was barely affected by the government shutdown, investors couldn't get their eyes off the stimulus headline (MarketWatch).
What exactly is the stim? It's the Fed's third round of "quantitative easing" (aka QE3) since the '08 financial collapse. Basically, the central bank buys $85 billion in long-term bonds every month to drive interest rates down and encourage borrowing. Taking out loans to build home additions inspired by the NFLers' houses you saw on HBO's Hard Knocks is good for the economy.
Investors were fidgety because they're big fans of stimulus that pumps cash into the economy -- it's what's driven the markets up in all of 2013. Chairman Ben Bernanke made clear earlier this year that his Fed would keep stimulus a-flowin' until the unemployment rate hits 6.5%, but now Wall Street has its doubts. And it let mother stock market know it on Wednesday.
The takeaway is that Big Bearded Ben is stepping down in early 2014 -- and Fed Vice Chair Janet Yellen is expected to replace him as long as she doesn't test positive for HGH in a urine sample (and gets approved by Congress). Yellen has voiced her support for maintaining the Fed's stimulus measures, so investors are interested to see how these "minutes" influence her future reign.
2. Green Mountain Coffee leaks cash to shareholders
If you have a job, you probably drink five daily cups of weak coffee from Green Mountain Coffee Roasters Keurig K-Cup machines. The Vermont-based coffee company famous for its single-cup coffee brewers reported quarterly earnings Wednesday afternoon up 38% from last year. It also said that next quarter's earnings would be $0.90 per share, less than the $0.95 per share analysts expected (ValueWalk).
Despite the poor forecast, the stock rose 3% in after-hours trading like it had been crushing Orange Mocha Frappuccinos. So what else do the maple syrup sniffers up in VT have up their sleeve? Dividends and share buybacks, baby. The quaint GMCR is finally maturing into a company that returns profits to investors. For the first time, it will give its profits to shareholders via a dividend every quarter, and that tastes refreshing to Wall Street.
Green Mountain is up more than 800% since '08 on its revolutionary Keurig coffee machine. But the expiration of that patent in 2012 opened the doors to new competition, which is slowing the company's growth. Despite the threat, investors are happy to see it enter a new phase through the dividend and share buyback plan. Its profit per share will rise, which boosted the stock's value like a high-speed gondola on the Stowe slopes.
3. J.C. Penney's surprisingly un-brutal earnings report
The retail store that even your aunt gave up on has some not-so-bad news. On the bad side, J.C. Penney reported Wednesday that its $2.78 billion in quarterly revenues were below analysts' expectations and the company won't likely return to profitability until JNCOs are back in style (Forbes).
So why'd the stock pop 8%? Wall Street has some low standards -- investors were impressed that sales overall rose 0.9% last quarter and online sales are up nearly 25% from this time last year. Penney has been promoting its holiday deals for shoppers aggressively over the last month, and like other retailers, the early work is paying off.
The takeaway is that it's all about the shake-up. Penney struggled for a year under iPad-obsessed CEO Ron Johnson before replacing him with Mike Ullman over the summer. The drama over that transition was deserving of a Bravo reality TV show -- but for a stock down more than 50% year to date, the positive signs hidden in its third-quarter earnings report were enough to get investors interested.
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As originally published on MarketSnacks.com.
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