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CNN Money: Stocks: Worst day of the year for Dow, S&P 500

By Hibah Yousuf June 1, 2011: 4:34 PM ET

NEW YORK�(CNNMoney) — A triple dose of bad news sent stocks sharply lower Wednesday afternoon, with the Dow and S&P 500 posting their steepest losses in nearly a year.

The Dow Jones industrial average (INDU) fell 280 points, or 2.2%, with all of the blue chip index’s 30 components in the red. Caterpillar (CAT, Fortune 500), Alcoa (AA, Fortune 500) and Bank of America (BAC, Fortune 500) were the worst performing stocks on the blue-chip index, falling more than 4%.

The S&P 500 (SPX) lost 31 points, or 2.3%, and the Nasdaq Composite (COMP) slid 66 points, or 2.3%.

The declines were the worst since last August for the Dow and S&P, while the Nasdaq’s performance was the worst in nearly four months.

Stocks were under pressure right at the open following a dismal report on private sector employment, and the selling gained momentum after the U.S. manufacturing report was released.

The Institute for Supply Management’s manufacturing index for May fell to 53.5, falling short of economists forecast for a 57 reading.

“Weak economic data has started to snowball,” said Michael Sheldon, chief market strategist at RDM Financial. “Initially, we just had bad news from the weekly jobless claims data, but now we’re starting to see a broad-based economic slump.”

Late in the trading session, the slide in stocks got steeper as concerns about Europe’s debt problems resurfaced. Moody’s cut Greece’s bond rating by three notches to Caa1, which put the debt-ridden country’s debt even further in junk territory.

Markets’ mixed signals – StockTwits

Commodities followed stocks’ lead to trade lower. Oil prices slumped 2.4% to $100.29 a barrel, while copper slid 1.7% to $4.11 a pound.

Shares of Freeport McMoRan (FCX, Fortune 500), the world’s largest copper producer, tumbled 4%.

The daily gyrations stem from underlying worries about where the economy is headed.

Wall Street’s most widely cited measure of volatility and fear, the VIX (VIX), surged more than 18% Wednesday to 18.31. But it’s still far below 30 — the level that’s thought to indicate investor fear.

The signs of a stalling recovery have been building during the last several weeks, prompting stocks to deliver their worst monthly performance in May since August 2010.

But while it’s been a rough several weeks, stocks are still up about 5% for the year.

Home prices: ‘Double-dip’ confirmed

Market experts say stocks will likely struggle through June, as investors prepare for the end of the Federal Reserve’s $600 billion bond buying program, commonly known as QE2.

Economy: The first of this week’s jobs-related economic reports showed that the pace of planned job cuts edged higher in May, according to a report from outplacement consulting firm Challenger, Gray & Christmas.

A separate report by ADP showed private-sector payrolls added only 38,000 jobs in May. The number fell well below the 170,000 private sector jobs economists were expecting, according to an estimate from Briefing.com.

Both sets of data are typically used to forecast the government’s closely watched monthly jobs data due Friday.

A CNNMoney survey of 26 economists expect the government’s jobs report to show a total gain of 170,000 jobs, and a private sector gain of 190,000, with the unemployment rate edging down to 8.9%.

The Commerce Department said construction spending rose 0.4% in April, following a 0.1% rise the previous month. Economists were expecting spending to drop 1%.

5 stocks for cloud computing

Companies: Shares of Marathon Oil (MRO, Fortune 500) slipped 2.8% after the Houston-based company said it is buying oil and natural gas fields within the state’s Eagle Ford shale formation for $3.5 billion.

Telvent (TLVT)’s stock jumped more than 15% following news that the energy software company will be acquired by Schneider Electric for $1.4 billion.

Shares of JoS A. Bank Clothiers (JOSB) tumbled 13% after the men’s clothing retailer’s first-quarter profit failed to meet Wall Street’s expectations.

World markets: European stocks fell Wednesday. Britain’s FTSE 100, France’s CAC 40 and the DAX in Germany shaved more than 1%.

The United Kingdom’s manufacturing sector also signaled weakness. While the sector did continue to expand, it grew at the slowest rate since September of 2009.

And while China’s manufacturing sector continued to expand, the most recent data showed that it expanded at the slowest rate in 10-months.

Asian markets ended mixed. The Shanghai Composite finished the session flat, while the Hang Seng in Hong Kong lost 0.2% and Japan’s Nikkei ticked up 0.3%.

How a Greek farce could delight the dollar

Currencies and commodities: The dollar rose against the euro and the the British pound but slipped versus the Japanese yen.

Gold futures for August delivery rose $6.40 to settle at $1,543.20 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury rose, with the yield dipping below 3% for the first time since December.

Link: http://money.cnn.com/2011/06/01/markets/markets_newyork/?section=money_latest

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An important part of our Private Banking Services is the set-up of your unique Biltmore Capital vault and storage system designed to help you simplify and organize your life. With one password, this secure online system aggregates:

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Market Watch: Funds Use Options to Enhance Income

By Reshma Kapadia

At a time when investors are caught between meager interest rates on savings accounts and worries about whether the recent stock-market run-up can continue, funds using options to generate extra income or cushion against losses, or both, are gaining attention.

One of the most popular approaches involves “covered calls,” a strategy in which an investor—in this case a fund—generates extra income by selling to another investor the right to buy some of its stock holdings at a set price, if the shares rise above that price by a set date. In essence, the fund is getting more dollars today in exchange for giving up potential gains down the road. Other options may be used simultaneously to limit downside risk.

“We think the [stock] market has experienced most of the gain for the year already and is probably going to see more volatility, so this strategy makes a lot more sense at this point” than in some other environments, says Tyler Vernon , chief investment officer of Biltmore Capital Advisors, Princeton, N.J., which has $600 million under management.

The Chicago Board Options Exchange’s CBOE S&P 500 BuyWrite index, which tracks covered calls, outperformed the Standard & Poor’s 500-stock index over the decade through March, with annualized returns of 3.5% versus 3.4%. And the S&P 500 had 30% more volatility than the CBOE index.

“Covered-call writing is always less risky than outright stock ownership,” says Dick Cancelmo , manager of Bridgeway Managed Volatility /quotes/zigman/291455 BRBPX -0.26% , a fund that uses options. “How much less depends on how aggressive or conservative is the strategy.”

Possible Outcomes

A covered-call strategy typically works best when the market is rising gradually or relatively flat, so the income collected from the option sale exceeds any potential gains that may be forfeited.

If the stock against which a call is written doesn’t rise above the strike price by the agreed-upon date, the fund pockets the extra income from the option sale and gets to hang on to the shares, too. If the stock rises above the price within the agreed-upon time, the fund hands over the stock to the option buyer, forfeiting any future gains, but gets to keep the income from the option sale. Of course, if the stock plummets, the fund is left holding the stock—and the loss—although it is reduced somewhat by the income generated from the option sale.

The highest premiums from selling covered calls typically come from owning the most volatile stocks. “Because you have full exposure to the downside and are capping the upside, you have to be careful to buy high-quality businesses,” says Zeke Ashton , who manages Tilson Dividend /quotes/zigman/378692 TILDX -0.07% .

Options come with their share of risk, so analysts urge investors to stick with fund managers who have a good track record using them and caution against being wooed by high yields without digging deeper.

Not every fund manager uses the same options strategy. Some sell covered calls on a broad index, while others write them on individual stocks, which can be riskier. Others buy put options, or the right to sell, in conjunction with the covered calls to reduce the risk from a market decline.

Here is a look at some funds using covered calls:

Cautious Approach

Gateway /quotes/zigman/227304 GATEX -0.30% , which owns a basket of stocks that resembles the S&P 500, is one of the longest-running funds using covered calls to generate income and put options to cushion the downside. Gateway sticks with index calls and puts, rather than selling and buying options on individual stocks. At any given time, the managers may not be completely hedged on the downside if the puts, which essentially act as insurance, are too expensive. The fund has beaten the S&P 500 over the past decade, with less volatility. But Nadia Papagiannis , alternatives analyst at Morningstar Inc., says Gateway in the past year “has not shone as bright as in the past,” in part because it hasn’t excelled at capturing the market’s recent upside. Over the last three years, it has returned an average of 0.53% annually, putting it in the top half of its long-short category.

Bridgeway Managed Volatility uses its quantitative models to create a basket of stocks designed to mimic the S&P 500. Mr. Cancelmo, who has worked with options since the 1980s, uses them in this fund primarily to reduce risk. He sells covered calls or secured puts, another strategy to achieve the same goal, against the index-like portion of the fund. The fund holds at least a quarter of its assets in high-quality bonds, helping minimize volatility further. While Morningstar says Bridgeway’s quantitative models have been bumpy lately, Mr. Cancelmo says the fund has beaten the S&P 500 since its inception in 2001 with 55% less risk. Over the past three years, it averaged a 1.7% return annually, beating 70% of the long-short funds with which Morningstar groups it.

Seeking More Juice

Neiman Large Cap Value /quotes/zigman/346789 NEIMX -0.40% owns mostly dividend-paying stocks. It sells covered calls on the individual stocks, handing over the rights to the stock typically after the company pays at least one quarterly dividend. “On average, we are collecting about 2% annualized from the dividend and then we feel we can often double that rate of return with the option,” says fund manager Harvey Neiman . While Mr. Neiman sells covered calls on all of the fund’s stocks, he doesn’t necessarily sell the right to the full amount of any one holding. “If we get a raging bull market, you want some of the upside,” he says. The fund returned an average of 1.41% a year over the last three years, putting it in the top half of large-cap value funds.

Aston/M.D. Sass Enhanced Equity /quotes/zigman/496328 AMBEX -0.11% holds just 35 to 40 large-cap value companies and sells covered calls against every holding—often with expiration dates that are six months out, which is longer than the average one to two months. The fund’s manager, Ron Altman , says that typically enables him to pocket a larger share of the stock’s potential upside and help meet the fund’s objective of generating cash flow from the calls plus dividends of 10% or more a year. Mr. Altman says he will occasionally buy puts as “catastrophe insurance,” but only when they are cheap. Over the past three years, the fund has averaged a 2.84% return annually, putting it in the top quarter of long-short funds.

Tactical Strategies

Some funds take their cues from the market and don’t always opt for the insurance of put options.

Schooner Fund /quotes/zigman/523065 SCNAX -0.31% buys large-cap stocks and often sells covered calls against them. It also occasionally uses put options against an index like the S&P 500, but only when protection is cheap, which usually means buying puts when the market is flat or climbing. As much as half of the fund’s assets can be invested in fixed income. “Some funds may be bad at doing it tactically, but Schooner has done well so far,” Ms. Papagiannis says.

Tilson Dividend also takes a more tactical approach. The fund tries to combine decently paying dividend stocks with covered calls to generate income. Mr. Ashton, the fund manager, says he doesn’t sell covered calls on every stock in the portfolio and occasionally owns non-dividend-paying stocks for their upside potential.

In general, he says the covered-call strategy allows him to stick with strong high-quality companies to generate the income investors expect, rather than seek out higher-yielding firms with weaker balance sheets. Over the past three years, the fund has averaged a 13.74% return, putting it in the top 1% of the midcap blend category, according to Morningstar.

Link: http://www.marketwatch.com/story/funds-use-options-to-enhance-income-2011-04-03?pagenumber=2

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Market Watch: US Stocks Edge Higher On Strong Factory Data

By Brendan Conway

NEW YORK (MarketWatch) — U.S. stocks inched into positive territory, as a white-hot reading from mid-Atlantic manufacturers outweighed higher-than-expected jobless claims and a rise in U.S. consumer prices.

A day after investors pushed the Standard & Poor’s 500-stock index to twice its financial-crisis low, the Dow Jones Industrial Average rose 13 points, or 0.1%, to 12301 in afternoon trade, while the Standard & Poor’s 500-stock index rose 3 points, or 0.2%, to 1339 and the Nasdaq Composite gained 6 points to 2832. Energy and materials stocks led the S&P 500, while Coca-Cola and Intel led the Dow’s gainers.

Investors were keeping a close eye on tensions in Libya, Bahrain and fears of a standoff between Iran and Israel over the Suez Canal. But so far, those haven’t dominated the day’s trading.

“I don’t see long term these geopolitical issues affecting the corporate earnings story here in the U.S. market, so I’d be using it as a buying opportunity,” Tyler Vernon, chief investment officer of Princeton, N.J.-based Biltmore Capital Advisors said.

The Federal Reserve Bank of Philadelphia’s index of general business activity hit its highest level since January 2004, handily outstripping expectations as it jumped to 35.9 from 19.3 the month before. Even though factories represent a relatively small amount of total U.S. economic performance, they tend to serve as a leading indicator, and the strong reading was seen as a positive signal of the economy’s momentum.

Even so, the U.S. labor market remained sluggish, keeping the optimism in check. Initial jobless claims increased by 25,000 to 410,000 in the week ended Feb. 12, the Labor Department said in its weekly report. Economists surveyed by Dow Jones Newswires had expected claims would rise last week by 17,000 to 400,000. The previous week’s total was revised to 385,000 from 383,000.

Separately, the seasonally adjusted consumer price index last month increased by 0.4% from December, and underlying inflation, which excludes volatile energy and food prices, rose by 0.2%.

Neither the worse-than-expected reading on jobs nor the somewhat higher inflation figures were likely to change investors’ overall positive outlook, said Timothy Harder, chief investment officer at Peak Capital Investment Services. “They both signal that the economy is getting healthier in the bigger picture.”

The euro rose to $1.3593 from $1.3570 late Wednesday. Crude-oil prices neared $86 a barrel, and gold also rose.

Strategists warned that sentiment on simmering Middle East and North African tensions could change quickly.

“If it was just Iran sending ships, that’s one thing, but you’ve also got Libya and Bahrain in the news, plus Egypt,” Jay Suskind, senior vice president at Duncan Williams, said. “I do still think the average investor is more focused on the domestic economy. A geopolitical storm could have investors saying, “‘Let’s take some profits,’” he added.

Among stocks in focus, NetApp weighed on the technology sector, skidding 6.5% after a disappointing earnings report.

Chip maker Nvidia rose 6.8% after the company posted a 31% increase in fourth-quarter earnings and better-than-expected first-quarter guidance late Wednesday.

Skechers USA’s stock rose 1.9% after the shoe company’s fourth-quarter earnings showed better-than-expected top-line growth.

Natural-gas group Williams Cos.’ stock jumped 7.7% after the group’s board approved a plan to spin off its exploration and production business.

Cliffs Natural rose 6.8% after the coal and iron-ore producer reported fourth-quarter profit that more than tripled, with higher sales volume and prices.

Weight Watchers surged 42% and hit an all-time high as the company’s fourth-quarter profit more than doubled. While the activity took most investors in the stock market by surprise, analysts in the options market were abuzz over big, remarkably well-timed trades earlier in the week that set up some investors for huge profits.

“They made a ton of money on these, in a matter of days,” Interactive Brokers equity options analyst Caitlin Duffy said. Big trades Monday in Weight Watchers’ normally thinly traded February $45 call options jumped in price from about 85 cents Monday to near $19 Thursday, a huge windfall for any trader who held the option.

Link: http://www.marketwatch.com/story/us-stocks-edge-higher-on-strong-factory-data-2011-02-17

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CNN Money: Stocks end at fresh multi-year highs

By Blake Ellis, staff reporterFebruary 17, 2011: 5:29 PM ET

NEW YORK (CNNMoney) — U.S. stocks ended at fresh multi-year highs Thursday, as investors focused on an upbeat manufacturing report and looked past indications that inflation is heating up.

Dow Jones industrial average (INDU) edged up 30 points, or 0.2%, with 21 of the Dow’s 30 components heading higher. Shares of Intel (INTC, Fortune 500) led the advance, while American Express (AXP, Fortune 500) lagged.

The S&P 500 (SPX) rose 4 points, or 0.3%, with Sears Holding (SHLD, Fortune 500) leading the way. Meanwhile, the Nasdaq (COMP) ticked up 6 points, or 0.2%, with Research in Motion (RIMM) among the biggest gainers.

All three of the major indexes finished the session at their highest levels in more than two years for a second day on Thursday.

Investors have been in a bullish mood so far this year, as the outlook for the U.S. economy improves. While inflationary concerns are now creeping into the picture — with key readings on inflation this week showing that prices are rising more than expected — investors remain assured that the Federal Reserve remains willing to step in if conditions deteriorate.

“Inflation has been the story du jour lately, and there’s definitely a concern about the rising cost of commodities and how that’s going to affect the margins of companies,” said Tyler Vernon, CIO of Biltmore Capital.

“But at the same time, the Fed continues to be focused on the stock market and supporting the market. So at this point any news is good news, because investors are just thinking the Fed will step back in if things start slowing down,” he added.

While stocks may take a breather in coming weeks, the trend is likely to remain positive until the Fed pulls the plug on its quantitative easing policy, said Dean Barber, president of Barber Financial Group.

“We’re up significantly from where we were in September of last year, so I doubt it’s sustainable, but we’ll continue to be in a gradual, slightly upward trend at least through the summer,” he said.

Economy: The consumer price index for January rose 0.4% month-to-month seasonally adjusted, compared to expectations of a 0.3% increase. The core CPI — which excludes food and energy prices — rose 0.2% month-to-month, compared to an expected increase of 0.1%.

The report follows on the heels of the government’s Producer Price Index, a measure of wholesale inflation, which came out Wednesday. That index rose 0.8% in January, which was also larger than expected.

“Inflation is definitely out there, with both reports coming in hotter than expected,” said Vernon.

Because the Producer Price Index is rising at a faster pace than the consumer price index, this indicates that companies aren’t passing on the cost of raw materials to consumers, which Vernon said is a concern as companies’ margins start to shrink.

In fact, 25% of companies in the S&P 500 that have reported earnings this season had lower margins because of rising commodity costs, he added.

Not only do rising prices hurt companies’ margins, it means that the Federal Reserve may eventually be unable to continue propping up the economy with its policy of quantitative easing, he said.

“In the short term that’s good news for stocks as investors get out of fixed income and look for a home in stocks, but in the longer term it represents issues, because investors are looking at the fact that if we’re getting inflation, the Fed can’t continue its process of of supporting the market.”

Meanwhile, the government’s weekly report on the number of people filing for jobless benefits jumped to 410,000 for the week ended Feb. 12, which was close to expectations. The report was expected to show an uptick to 408,000, from 383,000 in the previous week.

The preliminary Philadelphia Fed index, a regional reading on manufacturing, surged to 35.9 in February from 19.3 in January. The index was forecast to rise modestly to 21.

Keith Springer, president of Springer Financial Advisors, said the balance of good news like the Philadelphia Fed Index and weaker news like the report on jobless claims provides “a Goldilocks environment where the economy is not growing too fast to make the Fed stop the easing but not slow enough to give us a double dip.” And this is what will help the momentum continue, he said.

Currencies and commodities: The dollar rose modestly against the Japanese yen, the British pound, and the euro.

Barber said the devaluing of the dollar through the Fed’s quantitative easing is not only boosting the stock market, but causing commodity prices to climb.

“Prices aren’t increasing because of increased demand — the Fed is pumping so much money into the system and purposely devaluing the dollar, and that’s where inflation is coming from,” said Barber. “People are buying gold, gold, gold, and things like wheat, corn and cotton have all been driven higher too.”

Gold futures for April delivery rose $10 to settle at $1,385.10 an ounce. Oil for March delivery gained $1.37 to settle at $86.36 a barrel.

The World Bank said in its latest report on the global food crisis that its price index jumped 15% between last October and last month, hovering just below its 2008 peak. Wheat, corn, sugar, fats and oils have led the price increases.

Companies: Redbox is planning a subscription movie streaming service to compete with Netflix (NFLX), according to news reports. Shares of Coinstar (CSTR), Redbox’s parent company, gained nearly 8%.

Shares of Timberland (TBL) surged 30% after the outdoor goods maker logged a jump in fourth-quarter profit that widely beat economists’ expectations.

Weight Watchers International (WTW) also reported a solid quarter, posting earnings per share that blew past expectations. Shares of the weight loss company soared more than 45%. The better-than-expected earnings also benefited NutriSystem (NTRI), with shares of the company rising more than 6%.

Shares of Dr. Pepper Snapple Group (DPS, Fortune 500) rose 6% after the soft drink company reported an 11% jump in earnings per share. The company’s net sales rose to more than $1.4 billion.

Shares of Williams Partners (WMB, Fortune 500) — a company focused on natural gas transportation, processing and storage — jumped 8% after the company said it would hike its dividend and split into two entities. The company also raised its guidance for 2011-2012.

The stock price for Cliffs Natural Resources (CLF) climbed more than 7% after the company reported that it doubled its full-year revenue to $4.7 billion.

World markets: European stocks finished little changed. Britain’s FTSE 100 was flat, the DAX in Germany edged lower by 0.1% and France’s CAC 40 was barely above breakeven.

Asian markets ended higher. The Shanghai Composite edged higher 0.1%, the Hang Seng in Hong Kong rose 0.6% and Japan’s Nikkei ticked up 0.3%.

Bonds: The price on the benchmark 10-year U.S. Treasury rose, pushing the yield down to 3.58% from 3.62% late Friday.

 Link: http://money.cnn.com/2011/02/17/markets/markets_newyork/

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As a private, independent SEC Registered Investment Advisor, Biltmore Capital Advisors provides high-level financial management solutions for affluent families nationwide.

Based on a deep understanding of the needs and problems that high net worth families and individuals face today, we have developed a comprehensive Family Office Approach that is customized to address the full range of services that your specific needs require.

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