Wednesday, January 18, 2017

Markets remain weak on worries of rate hikes

Dow was down 22, advancers barely ahead of decliners & NAZ gained 16.  The MLP index lost 2+ to 320 & the REIT index went up a fraction to the 343s.  Junk bond funds remained mixed & Treasuries continued weak.  Oil gave back more than 1 to 52 & gold dropped to 1205.

AMJ (Alerian MLP Index tracking fund)

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Live 24 hours gold chart [Kitco Inc.]

The US economy continued to expand modestly from late Nov thru the end of 2016 as a tightening labor market helped lift wages & prices more broadly, a Federal Reserve survey showed.  The Beige Book economic report, based on information collected by regional Fed banks on or before Jan 9, said firms & industries were optimistic about growth this year.  Employment gains were characterized as slight to moderate, with most of the Fed's 12 districts saying they expected the labor market to continue tightening.  “District reports cited widespread difficulties in finding workers for skilled positions; several also noted problems recruiting for less-skilled jobs,” according to the report.  “Most districts said wage pressures had increased.”  The report underscores the central bank's views that the economy is healthy enough to continue removing monetary stimulus.  Fed officials raised their benchmark interest rate by a qtr percentage point in Dec also increased the number of hikes they anticipate in 2017, to 3 from 2.  The Fed's outlook for the economy is clouded, however, by uncertainty surrounding the fiscal policies of the incoming administration.  While he promised spending increases & tax cuts in his campaign, Trump has provided few details on the concrete policy proposals he intends to bring to Congress.  Some Fed districts reported a rebound in confidence after the election, though the Cleveland Fed noted that it’s unclear how changes in regulations will impact investments.  The Fed also noted that pricing pressure has intensified, with 8 districts reporting modest inflation.  The Fed’s preferred measure of inflation, excluding food & energy, reached 1.6% in the 12 months thru Nov.  Average hourly earnings rose 2.9% in Dec from a year earlier, the biggest jump since 2009, adding to confidence that inflation will continue to edge toward the Fed's 2% target.  Labor markets across the country “were reported to be tight or tightening during the period,” the report said.  “A couple of districts mentioned layoffs, but even in those districts, as in other regions, most responding firms were said to have added employment, on net.”  The report made only a few references to the economic effects of the Trump administration’s fiscal & trade policies, some of which have unsettled currency markets.

Fed Says U.S. Growth Continues Modestly

Target, a Dividend Aristocrat, shares slid after the retailer cut its Q4 sales & profit guidance following weaker-than-expected holiday sales.  The company said same-store sales fell 1.3% in the Nov-Dec holiday period.  Total sales fell 4.9%, including the impact of the Dec 2015 sale of the company's pharmacy & clinic business.  "While we were pleased with Black Friday sales, December digital sales growth of more than 40 percent and continued strength in our signature categories, these results were offset by early season sales softness and disappointing traffic and sales trends in our stores," said CEO Brian Cornell.  The company is now expecting GAAP EPS from continuing operations of $1.45-1.55, down from prior guidance of $1.55-$1.75.  Full-year EPS is forecast at $4.57-4.67, compared with prior guidance of $4.67-4.87.  Same-store sales are expected to decline 1.5%-1.0% for the qtr.  The stock sank 4.09 (6%).  If you would like to learn more about TGT, click on this link:

Target Cuts Fourth-quarter Profit And Sales Outlook After Disappointing Holiday Sales

Exxon Bets Big on American Oil

Target (TGT)

Exxon Mobil, a Dow stock & Dividend Aristocrat, has joined a growing list of oil producers who are expanding in the Permian Basin of Texas, betting that America's shale boom is far from over.  The world’s largest publicly traded oil company inked a deal with the Bass family to double its footprint in the Permian.  XOM will pay up to $6.6B, mostly in stock, for approximately 275K acres of land.  250K of those acres are located in the Permian, the largest oil field in America.  The acquisition its most expensive move since its 2010 buyout of XTO Energy, which made XOM the nation's top natural-gas producer.  The deal is also the first under new CEO Darren Woods, who replaced Rex Tillerson after he was tapped as the for Secretary of State.  The stock fell 1.08.  If you would like to learn more about XOM, click on this link:

Exxon Bets Big on American Oil

Exxon Mobil (XOM)

The  Dow reached 19.9K on Dec 13 & since then it has trended sideways.  The advance was great for investors, but reality has been sinking in since then.  Bringing jobs back to America is a plus that has been missing for years.  But getting things done in DC won't be easy.  The Dems will fight just about all proposals & the Reps are not united on exactly what to do next.  Repealing Obamacare is first on the list & that has more than its share of problems.  Getting those nominees approved may require a little extra work.  Then there is the rate hike business for this year & it looks like the Fed has the courage to make those long delayed increases.  Stumbling along in a deeply divided DC & the prospects of more rate hikes are weighing on the stock market.  Those worries will be around for some time.  Now there are growing worries about a drab holiday retail shopping season.  Once again, 20K for the Dow looks to be a long way off,

Dow Jones Industrials


Markets fluctuate after CPI rises again

Dow was off 33, advancers slightly more than decliners & NAZ went up 12.  The MLP index gave back 2+ to 320 (still going sideways for months) & the REIT index was fractionally higher to the 34s.  Junk bond funds did little & Treasuries retreated.  Oil dropped 1 to the 52s (more below) & gold edged higher (above 1200).

AMJ (Alerian MLP Index tracking fund)

Crude Oil Mar 17

Gold Futures,Apr-2017

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The cost of living in the US climbed for a 5th month on the back of shelter & fuel prices, pushing inflation closer to the Fed's goal.  The consumer-price index rose 0.3% in Dec, matching the projection, after a 0.2% gain the previous month, Labor Dept figures showed.  Prices were up 2.1% from a year earlier, the most since Jun 2014.  Excluding volatile food & fuel, the core measure rose 0.2% from Nov.  With energy moving higher & rents & medical costs continuing to firm up, price pressures are gaining traction.  Steady demand would allow companies to regain pricing power, further boosting inflation & strengthening the case for the Fed to keep raising interest rates this year.  The year-over-year rise in the consumer price gauge followed a 1.7% advance the prior month.  The core CPI measure increased 2.2% from Dec 2015, after rising 2.1% in the prior 12-month period.  Both the monthly & year-over-year gain matched the forecasts.  The Fed's preferred gauge of inflation, the Commerce Dept personal consumption expenditures price measure, rose 1.4% in Nov from a year earlier; it hasn’t matched the central bank's 2% goal since Apr 2012.  Policy makers meet on Jan 31-Feb. 1.  Energy costs increased 1.5% from a month earlier, as gasoline rose 3%.  Food prices were unchanged for a 6th month.  Expenses for shelter climbed 0.3%, reflecting a similar gain in owners-equivalent rent, one of the categories designed to track rental prices.  Airfares increased 1.9%, the most since Jun 2015.  Americans paid 0.1% more for new automobiles, while used-car prices rose 0.5%, the biggest jump since Apr 2015.  Clothing prices declined 0.7%, the 2nd straight drop.

US industrial production rebounded in Dec due to the biggest jump in utilities since 1989 as temperatures cooled across the country.  The Federal Reserve said industrial output rose 0.8% last month after a downwardly revised 0.7% decline in Nov.  The forecast called for industrial production to rise 0.6%.  The central bank's measure of the industrial sector comprises manufacturing, mining, & electric & gas utilities.  Overall industrial production, however, fell at an annual rate of 0.6% in Q4.  The bulk of the Dec increase was due to the 6.6% rise in the utilities index, which had been hampered the previous month by unseasonably warm weather.  Manufacturing output edged up 0.2% & mining production was unchanged.  Overall manufacturing output rose at an annual rate of 0.7% in Q4 while the index for mining surged 11.9%.  With overall output increasing in Dec, the percentage of industrial capacity in use rose 0.6 percentage point in Dec to 75.5%, from a slightly downwardly revised 74.9% in Nov.  Fed officials look to capacity use as a signal for how much further the economy can accelerate before sparking higher inflation.

U.S. industrial output rises 0.8 percent as utilities surge

Interest rate hikes by the Fed may be influencing traders again.  Rising CPI is something the FOMC watches closely.  New data shows it around the 2% Fed target & that could give ammunition for more rate hikes.  After the increase last month, chances are great the rates will be left alone in 2 weeks.  But there will be more meetings this year & the guidance from the Fed could suggest more hikes are coming.  Meanwhile earnings season is beginning & there is a lot of nervousness from traders.  Dow is more than 200 away from the 20K target & prospects for setting new records are dimming.

Dow Jones Industrials

stock chart