Friday, July 29, 2016

Markets drift lower on weak GDP data

Dow was down 35, advancers a little ahead of decliners & NAZ added 1.  The MLP index fell 2+ to the 312s & the REIT index rose 4 to the 376s.  Junk bond funds were flattish & Treasuries went up.  Oil has fallen to just above 40 & gold gained again.

AMJ (Alerian MLP Index tracking fund)s

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The US economy expanded less than forecast in Q2 after a weaker start to the year than previously estimated as companies slimmed down inventories & remained wary of investing amid shaky global demand.  GDP rose at a 1.2% annualized rate after a 0.8% advance the prior qtr, according to the Commerce Dept.  The forecast called for a 2.5% increase.  The report raises the risk to the outlook at a time Federal Reserve policy makers are looking for sustained improvement.  While consumers were resilient, businesses were cautious, cutting back on investment & aggressively reducing stockpiles amid weak global markets, heightened uncertainty and the lingering drag from a stronger dollar.
Private fixed investment, which includes residential & business spending, dropped at a 3.2%, the most in 7 years.  The Commerce Dept also issued its annual revisions.  The Q1 reading was revised from a previously reported 1.1% gain.  The new breakdown shows a more pronounced slowdown in the economy heading into 2016.  Year-over-year growth rate cooled from 3.3% in last year's Q1 to 1.9% in Q4-2015, rather than the previous downshift from 2.9% to 2%.  The easing in growth continued into H1 of this year.  The year-over-year pace for Q1-2016 was revised down to 1.6% from 2.1%.  That revised trajectory has implications for Fed officials, as they’re faced with an expansion that has been steadily losing steam.  The report also showed that in Q2, GDP expanded at a 1.2% rate from the same period a year earlier.
The growth estimate is the first of 3 for the qtr.

U.S. Economy Grew Less-Than-Forecast 1.2% in Second Quarter

Consumer confidence slid in Jul from the prior month on dimmer views of the US economy's prospects & lingering concerns among higher-income earners about global market conditions.  The University of Mich said that its final index of sentiment declined to 90 this month from 93.5 in Jun.  The projection was for a reading of 90.2 after the preliminary Jul figure of 89.5.  A record share of households with incomes in the top 1/3 mentioned the UK decision to leave the EU was weighing on outlooks. The gap between current views of the economy and expectations last month widened in Jul.  “While concerns about Brexit are likely to quickly recede, weaker prospects for the economy are likely to remain,” Richard Curtin, the survey’s director, said.  The sentiment survey's current conditions index, which measures Americans’ assessment of their personal finances, fell in Jul to 109 from 110.8 last month & the measure of expectations six months from now decreased to 77.8 from 82.4.  Americans anticipated an inflation rate of 2.7% in the next year, up from 2.6% in Jun.  They expect prices to rise 2.6% over the next 3-10 years, the same as in the previous month.  Despite the setback in sentiment this month, consumers have shown they’re more willing to spend than they were at the start of the year.

Consumer Sentiment Slips in July

The Institute for Supply Management’s gauge of factory activity in the Midwest region fell to 55.8 in Jul from 56.8 the month prior.  The forecast expected a larger decline to a reading of 54.0.  Readings above 50 point to expansion, while those below indicate contraction.

Midwest Manufacturing Continued to Expand in July

The economic news was not good while earnings are coming in varied.  The lack of strength in the economy makes the bulls feel better concerning extending low interest rates.  But this is not the behavior expected when popular stock averages are essentially at record highs.  This disconnect between economic performance & stocks prices is not new, but it still should be a cause for worry. 

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Thursday, July 28, 2016

Markets fluctuate on mixed earnings

Dow lost 15, advancers were slightly ahead of decliners & NAZ added 15.  The MLP index was off a fraction to the 314s & the REIT index went up 2+ to the 372s.  Junk bond funds were a little lower & Treasuries inched higher.  Oil sank for a 6th straight session & gold gained ground.

AMJ (Alerian MLP Index tracking fund)

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Crude Oil Sep 16

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Flattening US sales & Brexit's impact on the European market will likely weigh on H2, Ford CEO Mark Fields said.  He said consumer demand in the US, as well as China, has softened in 2016.  Ford is seeing lower pricing & higher incentives in both regions, while the retail side of the US market declined in Q2.  Q2 earnings fell 9% to $2B, as North American sales were flat even though the automaker increased spending on promotional discounts.  Ford booked a pretax profit of $2.7B in North America, down 5% year-over-year.  Financial results also weakened in Asia, where Ford recorded a pretax loss ($8M) for the first time in more than 3 years.  Although European operations provided a boost, Ford is preparing to deal with downside risks following the UK referendum to leave the EU.  Ford took a $60M hit in Q2 because of a weaker £, & Brexit could cost the company another $200M thru the rest of the year.  Ford projected an annual cost of $400-500M until the UK officially splits from the EU & forms a new trade pact.  Europe accounts for approximately 30% of sales.  Ford, which missed the forecast for quarterly earnings, still maintained its full-year outlook for pretax earnings of $10-11B.  In the US, Ford is warning that industry sales are beginning to plateau in the wake of a record-setting year in 2015.  Fields noted how retail demand sputtered in 2, despite relatively positive numbers on consumer confidence.  “On the car side, as you see consumers gravitate towards SUVs and trucks—and we’re doing very well in those segments—that’s causing a lot of pressure in the car segment. You have a number of manufacturers…that want to protect their market share,” he added.  “Our view for second half of the year is that the retail industry is going to be lower than last year,” he said.  Q3 will be especially challenging for Ford due to expenses related to the launch of new 2017 Super Duty pickup trucks.  Ford’s rollout of aluminum-bodied, heavy-duty pickup trucks follows the Dec 2014 launch of the current F-150 model, the first truck with an aluminum body.  The stock tumbled 1.13 (8%).  If you would like to learn more about Ford, click on this link:

Ford CEO: Sales Slowdown Will Dent Second Half

Ford (F)

Facebook beat expectations for profit & revenue yet again, pushing up its shares to a record high & allowing it to become the 5th biggest US company by market capitalization ($367B).  Analysts said its "video first" strategy would help drive the company's growth well into the future as more advertisers move money to mobile platforms.  FB, which now has more than 1.7B monthly users, said its ad revenue surged 63% in Q2, with mobile accounting for 84% of the total.  FB shows no sign of slowing down.  Its record quarterly profit & revenue trounced estimates as the company's mobile app & push into video helped it win new advertisers & encouraged existing ones to spend more.  FB has been beefing up its presence in the mobile video market && is also courting advertisers & content providers to experiment with Facebook Live, its new live video feature.  "We see a world that is video-first with video at the heart of all of our apps and services," CEO Mark Zuckerberg said.  The stock jumped up 1.66.  If you would like to learn more about FB, click on this link:

Facebook Shares Hit Record High as it Beats Estimates Again

Facebook (FB)

MasterCard reported a higher-than-expected 6.7% rise in quarterly profit as consumers spent more on cards using its network.  US consumer spending, which accounts for more than 2/3 of economic activity in the country, rose for a 2nd straight month in May on increased demand for automobiles & other goods.  Worldwide purchase volume rose 9% to $897B on a local currency basis in Q2.  EPS was 89¢, up from 81¢ a year earlier.  Excluding a charge, the company earned 96¢ & revenue jumped 12.7% to $2.69B.  Analysts had expected EPS of 90¢ on revenue of $2.59B.  The stock gained 2.26.  If you would like to learn more about MA, click on this link:

MasterCard Shares Rise as Profit Beats Estimates

Mastercard (MA)

Stocks are meandering, not knowing where to go.  Tech earnings have generally been good, but oil earnings are terrible.  The report from Ford is chilling, because its problems reverberate thru the economy.  The bulls have lost command of the stock market & bears have not been able to capitalize.

Dow Jones Industrials