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The Other Shoe

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DOW + 49 = 18,053
SPX + 6 = 2100
NAS – 19 = 4940
10 Y + .01 = 1.78%
OIL + 1.30 = 41.08
GOLD + 17.80 = 1251.30

The Dow Industrial Average closed above 18,000 yesterday for the first time since last July and the rally continued today, although the Dow lost about half its early gains. The S&P 500 topped the psychologically key 2,100 level this morning. We’re not far from the record highs of last May; a couple of strong days and we’re there.

China looks stable, at least today. The Eurozone is preparing for more stimulus from the ECB in its battle against deflation. Oil prices are rising. Analysts are predicting earnings for the first quarter will decline anywhere from 8% to 10% and it appears that weak first quarter corporate earnings are almost fully discounted. Share prices are going up. This is when you should get nervous.

After the close Monday, IBM posted results that beat on both the top and bottom line. However, they did not raise full-year guidance. Netflix (NFLX) also disappointed with lower-than-expected subscriber growth for the second quarter. IBM was down 5% today, and Netflix lost almost 13%, which was a major drag on the Nasdaq.

Early morning reports include Goldman Sachs (GS) posting first-quarter earnings dropped 60 percent from a year ago, the fourth-straight quarter of profit declines. Still, earnings beat lowered expectations. Revenue dropped about 40 percent from the year ago period, missing estimates. Johnson & Johnson (JNJ), which posted quarterly earnings that beat, while revenue matched forecasts. The firm raised its full-year forecast. UnitedHealth (UNH) reported earnings that beat on both the top and bottom line, and raised its full-year forecast.

After the closing bell, Intel (INTC) said it would cut 12,000 jobs globally, or 11 percent of its workforce. The cuts will include “voluntary and involuntary departures” from its operations around the world. Most of the affected workers will be notified in the next 60 days. Intel said it had net income of $2 billion, or 42 cents a share, and revenue of $13.7 billion; a miss on both the top and bottom lines. PC sales are down; you knew that. Intel is trying to get into chips for smartphones, sensors, and cloud computing but they aren’t quite there yet.

A strike by oil workers in Kuwait has reduced output to 1.1 million barrels per day from 2.8 million. However, the gains may be short-lived. Russia’s Deputy Energy Minister said the country is considering raising its production this year. A deal to freeze oil output by OPEC and non-OPEC producers fell apart after Saudi Arabia demanded that Iran join in production cuts. Iran has repeatedly said it would prioritize regaining pre-sanctions crude output levels over discussing an output freeze.

New-home construction in the U.S. slumped more than projected in March. Residential starts decreased 8.8 percent to a 1.09 million annualized rate. Permits decreased 7.7 percent to a 1.09 million annualized rate, the fewest in a year. Construction of single-family houses dropped...