Are You Expecting This from Mentor Graphics?

Mentor Graphics (Nasdaq: MENT  ) is expected to report Q1 earnings on May 23. Here's what Wall Street wants to see:

The 10-second takeaway
Comparing the upcoming quarter to the prior-year quarter, average analyst estimates predict Mentor Graphics's revenues will compress -9.2% and EPS will drop -83.3%.

The average estimate for revenue is $225.2 million. On the bottom line, the average EPS estimate is $0.05.

Revenue details
Last quarter, Mentor Graphics reported revenue of $331.2 million. GAAP reported sales were 3.4% higher than the prior-year quarter's $320.4 million.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
Last quarter, non-GAAP EPS came in at $0.58. GAAP EPS of $0.49 for Q4 were 3.9% lower than the prior-year quarter's $0.51 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Recent performance
For the preceding quarter, gross margin was 86.2%, 50 basis points worse than the prior-year quarter. Operating margin was 22.2%, 10 basis points worse than the prior-year quarter. Net margin was 18.6%, 60 basis points better than the prior-year quarter.

Looking ahead

The full year's average estimate for revenue is $1.16 billion. The average EPS estimate is $1.52.

Investor sentiment
The stock has a two-star rating (out of five) at Motley Fool CAPS, with 107 members out of 140 rating the stock outperform, and 33 members rating it underperform. Among 29 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 22 give Mentor Graphics a green thumbs-up, and seven give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Mentor Graphics is outperform, with an average price target of $20.29.

Software and computerized services are being consumed in radically different ways, on new and increasingly mobile devices. Many old leaders will be left behind. Whether or not Mentor Graphics makes the coming cut, you should check out the company that Motley Fool analysts expect to lead the pack in "The Next Trillion-dollar Revolution." Click here for instant access to this free report.

Add Mentor Graphics to My Watchlist.

Ford Is Finally Fixing This Huge Problem

Ford (NYSE: F  ) has done exceptionally well by most measures in recent years, at least here in North America. Sales are strong, factories are booming, profits are big, and the company's finances are in great shape.

But some things could be better, starting with the way Ford launches its cars. Launch snafus bogged down the debuts of the Focus, the Escape, and the Lincoln MKZ, all hugely important vehicles for Ford. In this video, Fool contributor John Rosevear looks at what Ford has learned from those hard experiences -- and at some of the changes it has already made to make its next launches go more smoothly.

Is Ford's stock still a buy?
If you're concerned that Ford's turnaround has run its course, relax -- there's good reason to think that the Blue Oval still has big growth opportunities ahead. We've outlined those opportunities in detail, in the Fool's premium Ford research service. If you're looking for some freshly updated guidance to Ford's prospects in coming years, you've come to the right place -- click here to get started now.

Why the Dow Is Lying to You Today

The Dow Jones Industrials (DJINDICES: ^DJI  ) usually do a pretty good job of tracking the movements of the overall stock market. But occasionally, its idiosyncrasies rear their heads and present a misleading picture of the general health of stocks. Today, that disparity couldn't be clearer: The Dow's 46-point decline as of 10:55 a.m. EDT suggests that this week's stock market losses are continuing in earnest. Yet broader-market measures like the S&P 500 are up on the day. What's behind these conflicting figures, and which measure is the right one to pay attention to?

The key to the Dow's drop today is IBM (NYSE: IBM  ) , which fell 7.5% after releasing a disappointing first-quarter earnings report. The company suffered from delays in completing major sales of mainframe computers and software packages, which contributed to a 5% decline in overall revenue. Although the company kept its full-year earnings guidance stable, analysts quickly swarmed in to downgrade the stock.

As important as IBM is, the Dow gives the tech giant far more weight than it deserves. With today's $15.50 share-price drop, IBM sliced almost 120 points off the Dow. In other words, without IBM's influence, the Dow would have posted sizable gains that would be more in line with the overall market's performance.

Still, IBM wasn't the only Dow stock suffering today. General Electric (NYSE: GE  ) also weighed in with earnings today, and its stock fell 4% as even as it announced a big rise in net income and beat expectations for revenue. The company cited weakness in Europe, but that should have come as no surprise to investors, suggesting that the big decline has more to do with worries about broader macroeconomic concerns for the future than with GE's past results.

Elsewhere, positive earnings news overwhelmed some of the gloom in the Dow. Chipotle Mexican Grill (NYSE: CMG  ) has soared more than 9% after posting strong results last night. Comparable-store sales rose just 1%, but overall revenue jumped 13% for a 22% rise in net income. Even as the company continues to face high food costs, the fact that the healthy-food vendor managed to beat expectations demonstrated Chipotle's ability to weather tough conditions without compromising on its core values.

Finally, Restoration Hardware (NYSE: RH  ) has soared almost 18% after beating estimates for earnings and revenue. With same-store sales gains of a whopping 26%, the home-furnishings retailer gave favorable earnings guidance for the coming year. For those who believe the recovery in housing will be a key part of the overall growth picture for the U.S. economy, Restoration Hardware's results bode well for the future.

Chipotle's results have helped it reverse some of its poor performance during 2012, when investors questioned whether its growth had come to an end. Fool analyst Jason Moser's new premium research report analyzes the burrito maker's situation and answers the question investors are asking: Can Chipotle still grow? If you own or are considering buying shares in Chipotle, you'll want to click here now and get started!

What Monetary Policy Means for Your Investments

For years, commentators have endlessly talked about the accommodative monetary policy that the Federal Reserve has provided to try to boost the U.S. economy. But for most investors, it's hard to figure out exactly what monetary policy is, let alone how it affects them and their money.

In order to understand monetary policy, the natural first place to get information is from the Federal Reserve itself. Using its resources, let's take a look at how the Fed uses various tools to implement and manage the role that money pays in the economy.

The Fed and you
For 100 years, the Federal Reserve has had the power to implement monetary policy. As it describes its role, the Fed traditionally uses three different tools to "influence the availability and cost of money and credit to help promote national economic goals." The discount rate that the Fed sets establishes terms under which banks can borrow funds on an overnight or in some cases seasonal basis, but because the rate is typically above prevailing market rates, banks tend to take advantage of the Fed's discount window only as a last resort. In addition, the Fed's reserve requirements force banks to keep a certain percentage of deposits and other liabilities on reserve at the Fed.

The Fed's most important monetary tool lately, however, has been its open market operations. Before the financial crisis, the Fed tended to buy and sell primarily short-term securities in an effort to maintain the supply and-demand dynamics that affect the federal funds rate. After setting a fed-funds target, the Fed typically used what's known as repurchase and reverse repurchase agreements to influence trading in the federal funds market to keep market conditions from disrupting its monetary policy and keep the actual fed funds rate near its target. These temporary open market operations fine-tuned rate levels effectively.

More recently, though, the Fed's open market operations have included massive asset purchases that have targeted longer-term rates. By spending hundreds of billions of dollars on purchasing long-term Treasury bonds and mortgage-backed securities, the Fed has tried to keep long-term rates low in order to spur businesses to make investments that boost economic activity and create jobs.

Does monetary policy help you or hurt you?
The impact of the Fed's rate policies largely depends on whether you're a net saver or a net borrower. Savers have seen the rates of safe investments like bank CDs and Treasury bonds plunge as a result of the Fed's actions, leading many of them to make more aggressive investments in riskier assets to generate income. But borrowers have been able to take advantage of favorable rates to lock in cheaper financing costs that increase profits.

For corporate borrowers, the impact of monetary policy has been huge. Last November, top-rated corporate issuer Microsoft (NASDAQ: MSFT  ) was able to borrow money for five years at less than 1%. More recently, Disney (NYSE: DIS  ) and Coca-Cola (NYSE: KO  ) were able to issue floating-rate debt at rates below those that financial institutions charge each other for overnight loans.

The biggest beneficiaries of low rates, though, have been big banks. As the two largest banks in the country, Bank of America (NYSE: BAC  ) and JPMorgan Chase (NYSE: JPM  ) have been aided by low rates. Not only have low rates directly affected the spreads between what those banks pay on deposits and what they get from loan income, they've also spurred greater mortgage refinancing activity that has increased banks' transaction-based income.

Watch the Fed
The Federal Reserve is often misunderstood, but its monetary policy is a vital part of the way the U.S. economy works. Understanding monetary policy is a critical element in assessing not just your own exposure to interest rates but also the effect those rates have on the other investments you make.

Due in part to the Fed's monetary policy, Bank of America's stock doubled in 2012. Are there more gains yet to come? With significant challenges still ahead, it's critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool's premium research report on B of A, analysts Anand Chokkavelu, CFA, and Matt Koppenheffer, Financials bureau chief, lift the veil on the bank's operations, including detailing three reasons to buy and three reasons to sell. Click here now to claim your copy.

US Steel: How Long Can Steel Prices Defy Gravity?

The bear case on steel stocks like US Steel (X) and AK Steel (AKS) has been that lower iron-ore prices would ultimately lead to lower steel prices. That hasn’t happened yet, but JPMorgan’s Michael Gambardella and team haven’t given up hope.

Agence France-Presse/Getty Images

They explain why they favor Steel Dynamics (STLD) and Nucor (NUE) over US Steel and AK Steel:

For the steel companies, we continue to believe that lower raw material costs and increased imports will pressure sheet prices lower. Given this cautious stance, we continue to prefer Nucor and Steel Dynamics (over AK Steel and US Steel) given their variable cost structures and significant leverage to an eventual recovery in non-residential construction.

Count Axiom Capital’s Gordon Johnson among those that agree it’s just a matter of time before steel prices fall and drag down US Steel’s stock with them:

…a very interesting American Metal Market (AMM) article from this morning suggests, in addition to the above, HRC volumes will be weak in C4Q14 (which would weigh negatively on US Steel's margins structure). We believe US Steel's stock is currently discounting HRC prices at ~$670/ton in 2014 & 2015. [The article says steel prices have fallen to $640 a ton. Ed.]

US Steel has dropped 0.9% to $33.33 at 1:35 p.m. today, while AK Steel has gained 1% to $6.36, Nucor has advanced 0.4% to $50.12 and Steel Dynamics is unchanged at $21.06.

Mortgage Rates Slip a Bit After Previous Week's Big Gain

Michael Dwyer/AP WASHINGTON --€" Average long-term U.S. mortgage rates declined slightly this week, after marking their largest one-week gain of the year the previous week. Mortgage company Freddie Mac said Thursday that the nationwide average for a 30-year loan eased to 4.20 percent from 4.23 percent last week. The average for a 15-year mortgage, a popular choice for people who are refinancing, slipped to 3.36 percent from 3.37 percent. At 4.20 percent, the rate on a 30-year mortgage is down from 4.53 percent at the start of the year. Rates have fallen even though the Federal Reserve has been trimming its monthly bond purchases, which are intended to keep long-term borrowing rates low. The purchases are set to end next month. Last week, the average rate on the 30-year loan jumped to 4.23 percent from 4.12 percent a week earlier, amid market speculation that the Fed might abandon its nearly 6-year-old policy of keeping short-term interest rates at record lows. But at their meeting that ended last Wednesday, Fed policymakers decided to keep the low rates, at least for a few more months. Fewer Americans bought homes in August, as investors retreated from real estate and first-time buyers remained scarce, data released Monday by the National Association of Realtors showed. By contrast, the Commerce Department reported Wednesday that sales of newly constructed homes surged in August, led by a wave of buying in the West and Northeast. It was the fastest sales pace since May 2008. It was seen as a clear sign of improvement for a real estate market that has been muddled in recent months, as the rebound in home sales that followed the housing bust began to slow.

Week's Winners and Losers: Drones Soar, Cupcakes Fall Flat

Ringo Chiu/Zuma Press/Alamy There were plenty of winners and losers this week, including a fast-growing pastry shop that ran out of dough and had to shut its stores, and a maker of unmanned aircraft vehicles soaring after a blowout quarterly report. Here's a rundown of the week's best and worst. Nikola Tesla -- Winner Funding for a Nikola Tesla museum was announced on Thursday with Telsa Motors (TSLA) CEO Elon Musk is contributing $1 million to build the homage to Tesla on the grounds of the inventor's lab in Long Island. Brainy humorist Matthew "The Oatmeal" Inman has been championing a museum to honor the underrated visionary, taking to Twitter a few months ago to appeal for Musk's financial contribution. It worked. The museum's getting built. Musk gets one step closer to becoming Tony "Iron Man" Stark incarnate. And Tesla Motors does the right thing by honoring the man that gave it its name. The Container Store (TCS) -- Loser Remember when retailers dismissed concerns about sloppy holiday showings because of the snowstorms that blanketed a lot of the country in December and January? Remember how those same retailers then blamed the Easter holiday shift -- from March last year to April this year -- as a reason for the slow traffic the following quarter? Well, it seems that many chains are still stumbling, and they're running out of excuses. "We thought our sluggish sales were all because of weather and calendar shifts that began last November and continued into the spring, but now we've come to realize it's more than weather and calendar," The Container Store's CEO said on Tuesday. Kip Tindell blamed his storage and housewares store's weakness on a "retail funk" that's going around. Symptoms include "traffic declines" a "tepid retail environment" and "challenging sales." The Container Store warned that it will fall short of its earlier profit and sales targets for this fiscal year. Comparable store sales declined during the quarter ending in May, and that may not get a whole lot better until a couple of quarters later. AeroVironment (AVAV) -- Winner Unmanned aerial vehicles have been growing in popularity, and not just from Amazon tantalizing the market several months ago with dreams of drone-delivered Internet orders. AeroVironment is a leader in this niche, and it wrapped up fiscal 2014 this week with another blowout quarterly report. AeroVironment saw revenue soar 36 percent to $73.5 million, well ahead of the $69.6 million that analysts were expecting. AeroVironment's profit of 36 cents a share blew away the 23 cents a share that the pros were targeting. It also boosted its guidance for the new fiscal year that began in May. Crumbs Bake Shop -- Loser That's the way the cupcake crumbles. On Monday, shortly after its stock was given its delisting notice from the Nasdaq exchange, Crumbs Bake Shop announced that it would close its 50 remaining bakeries. We probably should have seen this coming. The cupcake chain was posting widening losses, and it was in default on its debt. Some are saying that this is the end of the cupcake craze, but it's really more a cautionary tale about expanding too quickly as a leveraged company. Cupcakes aren't going away, but Crumbs Bake Shop might. Or it might not: Just two days after the company announced it was closing up shop, Marcus Lemonis went on CNBC and said he intended to lead an investor group that would bail out and acquire Crumbs. So, stay tuned: The cupcakes could rise again. Netflix (NFLX) -- Winner Emmy nominations were handed out on Thursday, and Netflix easily won "Most Improved" honors with 31 nods, up from 14 nominations a year earlier. Three shows and a documentary that premiered exclusively on Netflix made the cut, with "Orange Is the New Black" and "House of Cards" accounting for 25 nominations. Yes, Netflix was far behind industry leader Time Warner's (TWX) HBO with 99 nominations. But the important takeaway here is that Netflix continues to prove that studios can turn to Netflix's streaming service without feeling as if they are settling for less. . More from Rick Aristotle Munarriz
•What Google's Acquisition of Songza Really Means •Can Taco Bell Cook Its Way Out of Last Place? •Six Flags Investors Shrug Off Magic Mountain Coaster Accident

Stocks Going Ex-Dividend on Wednesday, June 18 (LTC, LVS, More)

Ex-dividend dates are very important to dividend investors, since you must purchase a stock prior to its ex-dividend date in order to receive its upcoming dividend payout. For more information, check out Everything Investors Need to Know About Ex-Dividend Dates.

Below we highlight eight big-name stocks going ex-dividend on Wednesday, June 18.

1. LTC Properties

LTC Properties (LTC) offers a dividend yield of 4.53% based on Monday’s closing price of $38.87 and the company's monthly dividend payout of 17 cents. The stock is up 10.24% year-to-date. Dividend.com currently rates LTC as “Neutral” with a DARS™ rating of 3.4 stars out of 5 stars.

2. Main Street Capital

Main Street Capital (MAIN) offers a dividend yield of 6.1% based on Monday’s closing price of $31.45 and the company's monthly dividend payout of 27.5 cents. The stock is down 2.54% year-to-date. Dividend.com currently rates MAIN as “Neutral” with a DARS™ rating of 3.4 stars out of 5 stars.

3. Las Vegas Sands

Las Vegas Sands (LVS) offers a dividend yield of 2.73% based on Monday’s closing price of $73.19 and the company's quarterly dividend payout of 50 cents. The stock is down 8.03% year-to-date. Dividend.com currently rates LVS as “Neutral” with a DARS™ ra

Takeover Time: Does Quiksilver’s Plunge Make It a Target?

Quiksilver (ZQK) sure didn’t catch that wave.

Mark Abramson

Shares of Quiksilver have dropped 42% to $3.36 at 11:35 a.m. today after the Huntington Beach, Calif.-based clothing company reported an adjusted loss of 15 cents a share, missing forecasts for a loss of two cents, on sales of $408.2 million, below the Street consensus for $449 million. Even worse: Quicksilver doesn’t expect sales to get much better.

Monness, Crespi, Hardt’s Jim Chartier explains why he downgraded Quiksilver after today’s plunge:

We are downgrading shares of Quiksilver to Neutral (from Buy) given limited visibility into the timing of the company's turnaround. We continue to see a meaningful margin opportunity for ZQK as the company transitions from a founder-led organization to a more efficient, global apparel and footwear company. However, the cyclical/secular industry headwinds in the wholesale channel have proven significantly more challenging that we anticipated. Accordingly, the timing of a potential turn in the wholesale channel appears to be pushed out six to twelve months and we prefer to see evidence that management's strategies are working before recommending the stock.

Citigroup’s Kate McShane and Corinna Van der Ghinst wonder if VFC (VFC) will buy Quiksilver:

[We] believe VFC is the most likely apparel company in our universe to make an acquisition in 2014. Our meetings with management have indicated that with the Timberland acquisition fully integrated & growth plans on track, and having returned the balance sheet to pre-TBL debt levels, they are actively seeking their next deal…

Following VFC's unsuccessful bid for Billabong LY, we think Quiksilver could be a consideration, based on: 1) a strong, authentic action sports brand; 2) a solid girls'/women's brand in Roxy, which we believe still has significant potential, esp given ongoing strength in kids' action/activewear, 3) DC Shoes, which would complement VFC's Vans; & 4) Quiksilver should also help alleviate some of VFC's 2H exposure, as it is more of a 1H brand.

McShane and Van der Ghinst believe Quiksilver could fetch $900 million to $1 billion.

VFC has dipped 0.2% to $63.27 today.

Giving the Best Financial Advice to Grandkids

The best thing you can do to ensure the financial security of your grandkids isn't to give them money or wealth, though that would be helpful to them. Sound advice based on the latest research and your experience is what the younger generations need more of, and they aren't likely to get that advice from their schools or accept it from their parents.

The population following the Baby Boomers is in bad financial shape, according to research by Pew Charitable Trusts. The first half of the Baby Boom generation looks to be the last group to retire with enough income and assets to maintain their lifestyles. The following generations so far have less savings and lost a higher percentage of their net worth in the crash following the financial crisis.

A key problem for those following the Boomers is that they are accumulating debt at a faster rate than their predecessors. Not long ago it was hard to believe that any generation could accumulate more debt than the early Boomers, but the younger generations are doing so, according to Pew. College loans are a key component of that debt, but not the only factor. The younger generations also have credit cards available to them at earlier ages and are users of them and other extended payment plans that weren't available to the earlier generations.

More importantly, younger generations aren't saving nearly enough money for the future. They lag behind previous generations in accumulating savings in their early years. That's doubly bad, because the post-Baby Boom generations likely will need to save money at a greater rate than previous generations.

The Baby Boomers benefited from the post-World War II global boom but especially the boom in the U.S. Extended bull markets in both stocks and bonds boosted the net worth of the Boomers, the early Boomers in particular, despite anemic savings rates. The housing bull market that lasted decades also helped the b! alance sheets of the Boomers.

The younger generations can't count on similar bull markets to offset low savings rates and high debt levels. Social Security and Medicare will still be available but they probably won't provide as many benefits to the younger generations. Employer benefits for retirees also are going to be far less generous in the future.

Saving money is vitally important to financial independence. In fact, other recent research indicates that savings rates are more important to financial security than earning high investment returns or a high income.

Investors with over $5 million in investable assets say that saving early and regularly was the key factor in their financial security, according to a survey by PNC Wealth Management.

Financial security requires a higher savings rate than many people realize. To have a high probability of saving enough to withstand most investment environments, young workers should save 16.62% of their salary for 30 years, according to research by economist Wade Pfau. He refers to this as the safe savings rate.

The optimum savings rate for someone can be determined only after the fact, knowing the investment environments during both the accumulation and the spending years as well as the investment choices made by an individual. Pfau's goal was to determine the savings rate that would provide security over most investment environments.

Pfau ran numbers for a number of different environments and several investment strategies. The optimum savings rate varied widely, but the 16.62% consistently provided enough money for retirement under the most circumstances.

Of course, the longer one waits to save, the higher the savings rate has to be. Pfau assumed a person saved for 30 years in order to have money to spend for at least 30 years. If someone waits to begin saving and saves for only 20 years, the safe savings rate jumps to over 30%. But beginning to save early and delaying retirement so that the savings period is 4! 0 years r! educes the safe savings rate to 8.77%.

Perhaps more importantly, a long, steady period of saving reduces the importance of investment markets in the years just before and after the retirement starting date. When people wait to save and accumulate just enough to meet their retirement goals, their financial security is very dependent on investment performance in the 10 years before retirement begins and the first 10 years of retirement. They depend on the last few years of investment performance before retirement to compound their modest nest egg into one that is big enough to sustain their retirement. That's a big risk and can be reduced by saving more money earlier. Not saving early enough is why we hear that so many people plan to delay retirement.

Also, the earlier you begin saving the more work the investment markets do for you. In the past I've discussed my "70% rule." Suppose a young person decides to save $3,000 annually for all his working years and earns 6% annually on that money. After 34 years of saving, investment returns will comprise over 70% of his retirement nest egg, while his contributions are less than 30%. Start saving early, and the markets will do most of the work for you through compounding. But wait to save, and sacrificing current consumption in those later years will bear most of the burden. Your contributions will make up a much higher percentage of the nest egg, and in many cases will dwarf the contribution of market returns.

Young savers also shouldn't try to earn the highest investment returns or seek the hottest investments. That's playing the lottery with your retirement savings. Instead, begin your savings plan with a balanced fund such as PIMCO All Asset All Authority, MainStay Marketfield, Vanguard Wellington, or FPA Crescent (currently closed to new investors). Or own several of these funds. It's important always to have a balanced portfolio so you earn steady solid returns and have a margin of safety for your financial security.

Yellen Says Extraordinary Support Needed for 'Some Time'

The Asahi Shimbun via Getty ImagesFederal Reserve Chair Janet Yellen Federal Reserve Chair Janet Yellen, easing investor concern that interest rates may rise earlier than previously forecast, said the world's biggest economy will need Fed stimulus for "some time." Yellen said Monday the Fed hasn't done enough to combat unemployment even after holding interest rates near zero for more than five years and pumping up its balance sheet to $4.23 trillion with bond purchases. "This extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policy makers," Yellen said at a community development conference in Chicago. "The scars from the Great Recession remain, and reaching our goals will take time." Yellen spotlighted as evidence "real people behind the statistics," describing how one person, Vicki Lira, lost two jobs, endured homelessness and now serves food samples part-time at a grocery store. Stocks rose as Yellen underscored the Fed's commitment to spur the economy and put 10.5 million unemployed Americans back to work. Share prices fell on March 19, when she said in a press conference that the Fed might start raising the benchmark interest rate above zero about six months after ending its bond purchase program. Yellen didn't mention a timetable Monday. "It is an indirect pushback," said Ward McCarthy, chief financial economist at Jefferies in New York. "I don't think she could directly contradict what she said at the press conference, so she did the next best thing, which was to paint a picture of a Fed that is going to be accommodative for a long, long time." Fed Policy The Standard & Poor's 500 index (^GPSC) rose 0.8 percent to 1,873.00 at 2:47 p.m. in New York. The yield on two-year Treasury notes, which are sensitive to changes in Fed policy, fell two basis points, or 0.02 percentage point, to 0.43 percent. Large numbers of partly unemployed workers, stagnant wages, lower labor-force participation and longer periods of joblessness show that "there remains considerable slack in the economy and the labor market," Yellen said. Monday's speech shows Yellen is inclined to press on with accommodation to boost employment because she focused on slack in the labor market and didn't mention economic growth or "more hawkish themes" such as the risks from record easing, said Thomas Costerg, an economist at Standard Chartered in New York. "It was dovish and Yellen-esque, but she didn't explicitly backpedal on the six months comment so that's a ghost that will stay in the background," Costerg said. "She didn't explicitly say 'Oh, I made a mistake,' she just stressed the other way, that we need accommodative policy for some time." Economic Performance At her press conference last month, Yellen emphasized that the timing for an increase in the main interest rate hinges on economic performance. The FOMC needs "to see where the labor market is," she said on March 19, adding that if inflation "is persistently below" the central bank's 2 percent goal, "that is a very good reason to hold the funds rate at its present range for longer." Inflation decelerated to a 0.9 percent 12-month pace in February from 1.2 percent in January and has been below the Fed's 2 percent target for almost two years. Yellen's speech Monday included references to "slack," a term also used recently by Bank of England Governor Mark Carney to underscore a pledge to keep interest rates at a record low. Spare Capacity The Fed, which this month dropped its link between low interest rates and a specific unemployment rate, followed a similar move by U.K. policy makers, who in February tied their outlook for borrowing costs to spare capacity in the labor market and other more qualitative measures. "There remains scope to absorb slack further" before raising rates, the BOE said in its quarterly Inflation Report. Yellen, 67, has focused on the labor market and the human cost of unemployment for much of her career as an academic and central bank official. Monday she described two other individuals from the Chicago area along with Lira, saying they "shared their personal stories with me." Dorine Poole lost a claims-processing job and struggled to find work after two years of unemployment, while Jermaine Brownlee, a plumber and construction worker, "scrambled for odd jobs and temporary work" and still makes less than before the recession, Yellen said. "They are a reminder that there are real people behind the statistics, struggling to get by and eager for the opportunity to build better lives," Yellen said. "Their experiences show some of the uniquely challenging and lasting effects of the Great Recession." Full Time Yellen was also clear about what labor-market indicators she is watching aside from the unemployment rate. She mentioned that 7 million people working part-time want to work full time, a share of the work force that is "very high historically." The Fed chief said low numbers of people are quitting jobs "because they worry that it will be hard to find another," adding that gains in labor compensation have been "very low." The FOMC has kept the benchmark interest rate near zero since December 2008 and sought to cut borrowing costs and fuel growth through bond buying that has more than quadrupled its assets to $4.23 trillion. While policy makers have slowed the pace of their monthly asset purchases over the past three gatherings to $55 billion from $85 billion, Yellen said the central bank's "commitment is strong" to helping sustain progress in the job market. Recent Progress "Recent steps by the Fed to reduce the rate of new securities purchases are not a lessening of this commitment, only a judgment that recent progress in the labor market means our aid for the recovery need not grow as quickly," she said. "Earlier this month, the Fed reiterated its overall commitment to maintain extraordinary support for the recovery for some time to come." The FOMC said in a policy statement this month that rates will likely remain low for a considerable time after the bond buying program ends. The committee said it will weigh a "wide range of information," including labor-market measures, in deciding when it will eventually begin raising rates. Unemployment was 6.7 percent in February, up from the 6.6 percent level in January that was the lowest since October 2008. The economy added 175,000 jobs in February, more than economists projected, following the weakest two-month hiring gain in more than a year in December and January.

CVS: Earnings Don’t Go Up In Smoke

CVS Caremark (CVS) has found the perfect prescription for stock market gains after reporting earnings results this morning.

Associated Press

For the quarter ended Dec. 31, CVS reported adjusted EPS of $1.12, up from 96 cents a year ago and ahead of analyst expectations of $1.11. Revenue rose to $32.8 billion from $31.4 a year prior and forecasts for sales of $32.6 billion. CVS also disclosed that it opened 60 new retail drugstores and closed one during the period.

Last week, CVS made headlines on the announcement that it would end tobacco sales and the market reacted accordingly. In a Barron's Take, Teresa Rivas wrote, "With the number of U.S. smokers on the decline and regulation on the rise, CVS will likely more than make up for lost sales with public goodwill and a boost to its health-care brand. It also gets first mover advantage on a ban that may eventually have been forced on it."

Raymond James analyst John Ransom notes that CVS has a healthy future:

First-quarter 2014 adjusted EPS guidance was actually raised to $1.03-$1.06 (up seven cents at the midpoint), suggesting better-than-expected near-term trends versus prior outlook. Net-net, fourth quarter capped another solid year out of CVS, with today's stock price reaction likely less tied to the report itself and more focused on the…tobacco headwind offsets as well as initial comments with regard to the 2015 selling season and the retail competitive landscape (promotional activity high?).

Shares of CVS have advanced 2.7% to $68.74 at 3:0 p.m., trailing Walgreen’s (WAG) 5.3% rise to $63.87 but besting Rite Aid’s (RAD) 1.5% gain to $5.72.

Economists: No Fed taper this week, but soon

The Federal Reserve is likely to keep the economy on a full dose of stimulus after this week's meeting but begin dialing it down by next month, say most economists surveyed by USA TODAY.

That would mark the Fed's first significant step in winding down the extraordinary easy-money programs it has put in place since the 2008 financial crisis and Great Recession, and signify that the economy should soon be strong enough to stand on its own.

The drama over whether the Fed will announce the tapering after a two-day meeting that concludes Wednesday has intensified recently, following a flurry of better-than-expected economic developments.

Just a handful of the 34 economists surveyed Dec. 12-13 predict the Fed this week will agree to pare its $85 billion in monthly bond purchases, but a slight majority say the tapering will begin by January. The purchases have held down interest rates and buoyed stocks, and trimming them is expected to gradually push up borrowing costs for consumers and businesses.

MORE: Five strategists and their five stock picks for 2014

Yet that may do little to slow an accelerating economy. Monthly job growth has averaged about 200,000 the past four months, despite the federal government shutdown, and the unemployment rate fell to 7% last month from 7.4% in July.

Meanwhile, the Commerce Department this month estimated that the economy grew at a solid 3.6% annual rate in the third quarter, and consumer spending in the current quarter has exceeded forecasts.

This week, the House of Representatives passed a two-year budget deal that now awaits Senate action. If passed, it would remove much of the uncertainty about federal tax and spending policy that has clouded the economy.

MORE: Economy grew 3.6% at annual rate in third quarte

"How long do you want to wait" before reducing the purchases? asks Paul Ashworth, chief U.S. economist of Capital Economics. He says the labor market's cumulative gains since the bond-buying began in September 2! 012 and recent momentum meet the Fed's standard of "substantial" improvement.

Ashworth adds that the risks of the bond-buying, such as eventual high inflation, are rising as the Fed continues to pump money into the economy.

Stuart Hoffman, chief economist of PNC Financial Services, generally agrees but says policymakers will wait until January to assess holiday retail sales and fourth-quarter economic growth. Like other economists, he thinks the Fed this week will signal that tapering is imminent by upgrading its economic outlook in its post-meeting statement.

But Barclays Capital economist Michael Gapen says the Fed will stand pat until March in part because much of the decline in unemployment has been due to Americans leaving the labor force, including some discouraged with job prospects. Also, about half of last quarter's economic growth was from business stockpiling that's likely temporary. And, he says, inflation remains well below the Fed's 2% target — the hallmark of a sluggish economy.

MORE: Apartment rents expected to keep rising in 2014

"It's better but not strong enough," Gapen says, noting that the Fed has repeatedly said it's seeking evidence that the economy's improvement will be sustained before tapering. He also thinks the Fed is unlikely to jolt financial markets that are expecting it to stay the course.

Still, "it's a fairly close call," Gapen says. "If they (taper) in December, I wouldn't be totally surprised."

Morgan Stanley Leads Banks Lower After Downgrade

NEW YORK (TheStreet) -- Morgan Stanley (MS) led large-cap bank stocks lower on Thursday, with shares sliding 3% to close at $30.21.

The broad indices all ended lower following a huge upward revision of third-quarter U.S. gross domestic product growth by the Bureau of Economic Statistics to an annual rate of 3.6% from the previous estimate of 2.8%.  Economists polled by Thomson Reuters on average had expected the second GDP growth rate estimate to come in at 3.0%. 

The GDP growth rate increased from 2.5% in the second quarter, however, the news was not all positive, as "Real personal consumption expenditures increased 1.4 percent in the third quarter, compared with an increase of 1.8 percent in the second," according to the Bureau of Economic Statistics.

Also on Thursday, the Department of Labor said initial U.S. unemployment claims for the week ended Nov. 30 declined by 23,000 from the previous week to 298,000.  Economists on average had expected jobless claims to total 329,000.

The KBW Bank Index (I:BKX) was down 1% to 66.47, with all but two of the 24 index components ending with declines.  In addition to Morgan Stanley, large-cap banks seeing significant share-price declines included JPMorgan Chase (JPM), which was down 2.4% to $55.80, and Citigroup (C), which gave up 1.9% to close at $51.06.

In the midst of a two-year bull run for the U.S. stock market, investors are skittish over the prospect of a significant increase in long-term interest rates when the Federal Reserve begins to curtail its "QE3" purchases of long-term U.S. Treasury bonds and agency mortgage-backed securities.  The bond purchases have been running at a net pace of $85 billion a month since September 2012. 

Most economists were surprised when the Federal Open Market Committee cited conflicting economic data when it decided in September not to begin "tapering" the bond purchases.  Since then, the partial shutdown of the federal government du! ring the first half of October and an increase in the U.S. unemployment rate to 7.3% in October from 7.2% in September seemed to make near-term tapering unlikely.  But the steady flow of positive data this week could be raising investors' fears that the a decline in central bank bond purchases could be announced after the FOMC next meets on Dec. 17-18. 

But the FOMC is likely to continue to see conflicting economic data, according to Sterne Agee chief economist Lindsey Piegza, who wrote in a note to clients on Thursday that because third-quarter GDP growth mainly reflected an increase in inventories, while consumer spending growth slowed, "overzealous production last quarter is likely to severely contract from the current quarter's growth."

"Given the fragile consumer sector and tepid business investment end of the year growth is unlikely to push above 2%," she wrote.

The continued reduction in unemployment claims, together with the report fon Wednesday rom Automated Data Processing that private U.S. employers added 215,000 jobs during November, shed light on the Federal Reserve's main policy tool.  This is not QE3, but rather the short-term federal funds rate, which has been stuck in a historically low target range of zero to 0.25% since late 2008.

While many investors fear the disruption of a rise in long-term rates and falling bond prices that are likely to follow a tapering of the Fed's bond purchases, most bankers are licking their chops when considering the parallel increase in interest rates that will occur when the federal funds rate finally begins to rise.

The FOMC has said its "highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens."  The committee had previously said it could be appropriate to raise the federal funds target rate when the unemployment rate falls below 6.5%, but Federal Reserve Chairman Ben Bernanke has said the rate target could remain unchanged for some time, even after that milestone is achieved.

"[O]ur bias is that short-term rates won't rise as soon as some expect-possibly until following the 2016 US elections," Deutsche Bank analyst Matt O'Connor wrote in a note to clients on Wednesday.

Morgan Stanley

Morgan Stanley's shares have staged a mighty recovery, rising 59% this year, following a 28% return during 2012.  The shares trade for 1.1 times their reported Sept. 30 tangible book value of $26.96, and for 11.9 times the consensus 2014 earnings estimate of $2.53 a share.  The consensus 2015 EPS estimate is $2.97. 

Please see TheStreet's earnings coverage for Antoine Gara's detailed coverage of the boost to Morgan Stanley's bottom line brought about by the company's assumption of 100% ownership of its former retail brokerage joint venture with Citigroup.

As part of his advice to investors to cut risk in advance of the QE3 tapering, and in light of continued headline risk from regulatory actions such as the finalization of the Volcker Rule expected next week, O'Connor on Wednesday cut his rating on Morgan Stanley to "hold" from "buy," while lowering his price target for the shares to $30 from $31.

O'Connor also cut his rating for Citigroup to "hold" from "buy," while lowering his price target for citi's shares to $56 from $61.

The following chart shows the year-to-date stock performance for Morgan Stanley and Citigroup, as well as the KBW Bank Index and the S&P 500 :

data by YCharts

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-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email. Follow @PhilipvanDoorn

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.