Friday, February 12, 2016

Markets end 5 day decline with a rally

Dow advanced 313 (closing at the highs & just under 16K), advancers over decliners almost 4-1 & NAZ shot up 70.  The MLP index recovered 11+ to the 215s & the REIT index added 3+ to the 292s,  Junk bond funds also bounced back & Treasuries were sold.  Oil jumped up to the 29s & gold had profit taking (still near 1 year highs).

AMJ (Alerian MLP Index tracking fund)








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CLH16.NYM....Crude Oil Mar 16....29.14 Up ...2.93 (11.2%)

Live 24 hours gold chart [Kitco Inc.]



Chatter that OPEC is closer to a production cut boosted oil prices, although the likelihood of a deal between the oil cartel & other nations remains uncertain.  United Arab Emirates Energy Minister said OPEC members are “ready to cooperate.”  The comments ignited a rally, as oil raced 10.4% higher to $28.94 a barrel.  News of a possible OPEC cut offered a glimmer of hope for investors who are searching for signs that the global oil glut will ease.  However, while talk of closing the spigots has heated up recently, the odds of OPEC taking action may be slim.  OPEC is unlikely to reduce its oil output unless it coordinates with non-member exporters, mainly Russia.  The UAE energy minister said other countries must be involved in a production cut.  Last month, Russia's energy minister said the nation would be willing to discuss a 5% cut during talks with OPEC in Feb, but OPEC hasn't announced if it plans to meet with Russian officials.  According to the Energy Information Administration, domestic crude inventories “remain near levels not seen for this time of year in at least the last 80 years.”

Chatter of OPEC Cut Gives Oil a Boost

Prices for imported goods fell sharply in Jan, the latest sign that a slumping global economy & plunging oil prices are weighing on inflation in the US.  Import prices fell 1.1% from Dec, matching the prior month's decline, according to the Labor Dept.  Prices have fallen for 7 consecutive months & were down 6.2% in Jan from a year earlier.  Economists expected import prices to fall 1.5% from Dec.  The index declined largely due to a sharp drop in oil prices, which have suffered under weak demand globally & a buildup in supplies.  The price of imported petroleum fell 13.4% from Dec, the biggest drop since Aug, & 35.3% from a year earlier.   Outside of petroleum, prices for all other imports fell 0.2% over the month & 3.1% over the year.  Prices for imported autos, food & consumer goods all picked up in Jan from Dec, while prices for so-called capital goods such as machinery continued to fall.  The index is one of several measures the Federal Reserve is closely watching as it gauges the heath of the economy.  Falling price growth typically signals weak demand for products as well as a strong $, a situation that could lead the Fed to hold off on raising rates.  The report also showed US exports continue to suffer amid the global economic slowdown.  Export prices fell 0.8% in Jan after dropping 1.1% in Dec.  They're down 5.7% over the past year.


Visa, a Dow stock, disclosed details of its nearly 5-year-old investment in Square, raising questions about its plans for its stake in the mobile-payment startup.  Visa would become Square's 2nd-largest holder of Class A stock.  SQ went public in Nov at $9 a share (below its expected range).  SQ got its start with a small piece of plastic that plugs into smartphones & lets anyone accept payment via credit or debit cards.  But its stock has been hurt by a weak market for IPOs & concerns about the sustainability of company growth, on top of global market turmoil.  Visa, meanwhile, has focused more on digital efforts lately as consumers increasingly migrate to electronic payments.  The company has launched Visa Digital Solutions, an initiative geared toward secure payments using mobile devices.  It also has supported Apple's Apple Pay service (AAPL).  Visa stock rose 1.95 & SQ jumped up 68¢ (3% above the IPO price).  If you would like to learn more about Visa, click on this link:
club.ino.com/trend/analysis/stock/V?a_aid=CD3289&a_bid=6ae5b6f7

If you would like to learn more about SQ, click on this link:
club.ino.com/trend/analysis/stock/SQ?a_aid=CD3289&a_bid=6ae5b6f7

Visa Takes 10% Stake in Payments Company Square

Visa (V)



Square (SQ)



Going into a long weekend, it's always tough to make sense out of price swings.  Traders who were short had an excellent week & may have decided to buy back to avoid risks of the unknown during the next 3 days.  Much of the enthusiasm today was based on a production cut for oil.  Russia, the largest producer, may be ready, although turning off wells in cold Siberia is difficult.  Then comes Saudi Arabia which has shown no sign of interest in a production cut.  On the practical side, with lower oil prices a production cut could reduce gov income from oil.  More importantly, any production will not solve macro problems of economies around the globe (including the US) which are under-performing.

Dow Jones Industials















 
 

Markets bounce back after 5 days of selling

Dow jumped up 164, advancers over decliners 3-1 & NAZ recovered 20.  The MLP index rebounded 4+ to the 207s (still a depressed level) & the  REIT index added 2+ to the 291s.  Junk bond funds were mixed to higher & Treasuries declined.  Oil recovered to the 27s & gold ran into profit taking after its recent run.

AMJ (Alerian MLP Index tracking fund)


CLH16.NYM...Crude Oil Mar 16...28.13 Up ...1.92 (7.3%)

GCG16.CMX...Gold Feb 16.....1,238.40 Down ...9.50  (0.8%)








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Consumer sentiment declined in Feb to a 4-month low as declining stock prices & weaker global conditions weighed on Americans' views of the economy.  The Univ of Michigan's preliminary index decreased to 90.7 from 92 in Jan, the  projection called for 92.3.  While sentiment cooled for a 2nd month, so did household long-term inflation expectations, which declined to the lowest in records to 1979.  A weakening of sentiment reflected the impact of the recent turmoil in equity markets, fueled by everything from declining oil prices to a dimmer global outlook.  At the same time, households were more upbeat about their financial prospects because they expect inflation to remain low.  The gauge of current conditions, which tracks Americans' perception of their personal finances, fell to a 3-month low of 105.8 from 106.4.  Even with the decline, the share of households reporting that their financial situation had improved rose to 45%, the highest in 6 months.  “When asked about expected income gains during the year ahead, an increase of 1.6 percent was anticipated across all households, twice last month’s low of 0.8 percent, and just above the median expected increase recorded on average during 2015,” the Michigan Survey said.  The gauge of expectations 6 months from now dropped to 81, the weakest since Sep, from 82.7.  Americans expected the inflation rate over the next 5-10 years to be 2.4%, down from 2.7% (the lowest since the late-1970s).

Consumer Sentiment in U.S. Fell in February to a Four-Month Low


Retail sales increased for a 3rd straight month in Jan as Americans kicked off 2016 by spending freely on cars, clothing & online merchandise.  The 0.2% gain matched the previous month's advance that was initially reported as a decline, according to the Commerce Dept.  The forecast called for a 0.1%.  Excluding cheaper gasoline, which depressed service-station receipts, purchases climbed 0.4%.  Greater job security, improving wage growth & falling gasoline prices may be persuading more consumers to loosen their purse strings after a Q4 slowdown.  A pickup in household purchases, which account for the lion's share of the economy, would help the US stave off the negative effects of a strengthening dollar, sluggish foreign demand & tumultuous financial markets.  Dec retail sales were revised up to a 0.2% advance, previously reported as down 0.1%.  The retail figures used to calculate GDP, which exclude categories such as food services, auto dealers, home-improvement stores & service stations, increased 0.6% in Jan, the most since May, after falling 0.3% the month before.
Economists are looking for a pickup in consumer spending to help buoy growth in Q1 after the expansion slowed to a crawl at the end of 2014.  GDP grew at a 0.7% annualized rate in Q4 as companies adjusted inventories & cut back on capital investment.  8 of 13 major categories showed increases in demand in Jan from the prior month.  Purchases made online climbed 1.6%, the most in 11 months & sales at general merchandise outlets rose 0.8%, the biggest advance since May.  Automobile dealer sales increased 0.6% after rising 0.5% the prior month.  Receipts at gasoline stations dropped 3.1% last month, the most since Sep.

U.S. Retail Sales Increased in January in Broad-Based Advance


The greatest threat currently facing US expansion is a major shock but the good news is that US households & banks are better able to absorb any adverse economic developments than they were when the last recession hit, said Federal Reserve Bank of NY pres William Dudley.  “Key sectors of the U.S. economy, such as the household sector, seem to be in good shape,” Dudley added.  “The financial system is also clearly much stronger, with the banking system much better capitalized and with much larger liquidity buffers than in the years preceding the financial crisis.”’  His comments follow a turbulent week in financial markets fanned by increasing concerns over the outlook for global growth.  “Expansions end either because a significant inflation risk emerges that requires a sharp tightening of monetary policy, or the economy is adversely impacted by a large shock that cannot be offset by monetary policy in a timely manner,” Dudley said.  “Since the possibility is low that a significant inflation risk would emerge over the near term, this means that the main danger facing the current expansion is the risk of large, adverse shocks.”  “Given that the labor market still appears to have some excess slack and inflation is below the Federal Reserve’s objective, monetary policy is appropriately still quite accommodative despite the advancing age of the expansion,” Dudley said. “While this limits to an extent the degree to which monetary policy can aggressively respond to any adverse events, the good news is that the economy is more resilient to any shocks.”

Dudley Says U.S. Households, Banks Well-Equipped to Face Shocks


Today's rally may not mean a lot, especially going into a long weekend.  Shorts have made a lot of money & may want to cash in.  Dow remains well below 16K & down 1.6K YTD, very depressing for the bulls.  Economic fundamental;s, starting with oil, continue to be weak.

Dow Jones Industrials