Tuesday, November 13, 2018

Lower markets again as crude plummets 7 percent

Dow fell another 100, decliners modestly ahead of advancers & NAZ recovered a penny after yesterday's big loss.  The MLP index lost another 4+ to the 247s & the REIT index fluctuated.  Junk bond funds were mixed & Treasuries remained in demand, bringing lower yields.  Oil is now down in the 55s, hard to believe, (much more below) & gold was off 2 to 1201.

AMJ (Alerian MLP Index tracking fund)


Live 24 hours gold chart [Kitco Inc.]




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Pres Trump's top economic advisor, Larry Kudlow, disavowed comments from White House trade advisor Peter Navarro, who last week lambasted Wall Street influence in US-China trade negotiations in comments that helped weaken the stock market.  “He was not speaking for the president, nor was he speaking for the administration,” Kudlow said.  “His remarks were way off base. They were not authorized by anybody. I actually think he did the president a great disservice.”  “I think Peter very badly misspoke,” added Kudlow, who took over as director of the National Economic Council earlier this year.  “He was freelancing and he’s not representing the president or the administration.”  Navarro, known for his hawkish economic views toward China, has encouraged Trump's tough talk with Beijing throughout an escalating trade war between the 2 countries.  He doubled down on his aggressive tone last week, saying any agreement between the 2 countries will be on Trump's terms & not subject to Wall Street intervention.  “If there is a deal — if and when there is a deal — it will be on President Donald J. Trump’s terms. Not Wall Street terms,” Navarro said Fri.  “If Wall Street is involved and continues to insinuate itself into these negotiations, there will be a stench around any deal that’s consummated because it will have the imprimatur of Goldman Sachs and Wall Street,” Navarro added.  Both economic powerhouses have imposed & threatened tariffs on B$s worth of each other's goods.  Gary Cohn, the former top national economic adviser, argued against imposing tariffs on China. Cohn was formerly CEO of Goldman Sachs.

White House economic advisors clash: Kudlow says Navarro's China comments are 'way off base'

Companies should try digging in their pockets if they're looking to find workers for unfilled jobs, Minneapolis Fed Pres Neel Kashkari said.  With the unemployment rate falling to its lowest level in 49 years, there are nearly 1M more job openings than available workers, according to the Labor Dept.  Even though payrolls have been growing at a solid clip, complaints persist from companies that they are having a hard time finding qualified workers to fill positions because of a skills gap.  Kashkari, though, said he doesn't completely buy the argument that there aren't enough bodies out there.  “I oftentimes hear businesses saying I just can’t find the workers that I need,” the central bank official said.  “Now, I’m not entirely sympathetic with that view, because I’ve been saying you should try paying more, and you may be able to attract more workers.”  “But nonetheless, the unemployment rate is going down, and there is a question about where the workforce is going to come from,” he added.  Immigration would be one answer to solving the issue, with low population & productivity growth, Kashkari said.  In talking to business contacts around his district, he said, “You realize that immigration does have a role to play in helping both those problems.”  Wage growth has been nudging higher lately, with average hourly earnings growth at 3.1% in Oct from the same period a year ago.  That has helped the Fed stay around its 2% inflation goal as central bank officials maintain that the unemployment rate is below the long-term normal level.  The Fed has been gradually raising short-term rates in an attempt to tamp down a future inflation threat.

Companies struggling to fill jobs 'should try paying more,' Fed's Kashkari says

The oil market is undergoing a stunning reversal as crude futures wipe out this year's gains after hitting their highest levels since 2014 just 6 weeks ago.  The slump reflects a fundamental change in the outlook for the oil prices.  A month ago, traders were concerned that a looming shortage of oil would push crude futures to $100 a barrel.  Now, supply is expected to swamp demand at the start of 2019.  As a result, oil prices have plunged more than $20 a barrel since the start of Oct, when Brent crude rose to nearly $87 a barrel & US crude traded just shy of $77.  Both benchmarks are now trading firmly in bear market territory, having fallen more than 20% from their 52-week highs.  Along the way, US crude has posted its longest losing streak since it began trading in NY more than 3 decades ago.  The contract has now fallen for 12 consecutive sessions, settling at $55.69 on today, its lowest closing price since Nov 16, 2017.  The roots of the pullback can be traced back to the most recent rally itself.  At the peak of the run-up, many energy analysts said oil prices never should have risen so far so fast.  Crude futures rose to 4-year highs on Oct 3 as the market braced for renewed US sanctions on Iran, OPEC's 3rd biggest producer.  Thru Sep, the threat of sanctions wiped about 800K barrels a day off the market, fueling speculation that some oil importers would struggle to find supplies.  That left oil prices vulnerable to a pullback just as the stock market was about to sell off.  One week after crude futures struck their highs, 2/3 of the stocks in the S&P 500 plunged into correction territory.  That kicked off a broad market rout that saw investors shed risk assets, including crude futures.  Oil & stocks do not always move in tandem, but the assets were closely correlated during last month’s sell-off.  Right around the same time that investors started dumping stocks & commodities, concerns about faltering oil demand sharpened.  In Oct, both OPEC & the Intl Energy Agency said oil consumption would grow less than previously forecast, pointing to signs of slowing global economic growth due to trade tensions, rising interest rates & weak emerging market currencies.  The $ has risen nearly 3% against a basket of currencies over the last 2 months.  That makes crude oil, which is sold in $s, more expensive to holders of other currencies.  Meanwhile, the world's top 3 oil producers are pumping at or near all-time highs & the 15-member OPEC cartel is in the middle of a coordinated production increase.  US output has topped 11M barrels per day in recent months, while Russia is pumping at post-Soviet era highs at roughly the same level.  Saudi Arabia has trailed just behind at 10.6M bpd in Oct.  The rising output & weakening demand outlook now has much of the market convinced that supply will outstrip the world's appetite for oil early next year.  The Trump administration's decision to allow 8 countries to continue importing Iranian crude for the next 6 months has also relieved downward pressure on oil prices.  With demand growth looking shaky & oil prices collapsing, OPEC & its allies are now considering a fresh round of output cuts.  The cartel, along with Russia & several other producers, began capping their output in Jan 2017 to drain a global crude glut & end a punishing oil price downturn.  However, they agreed to reverse course & hike output in Jun after cutting output more than they intended.  Last month, a committee representing the group said the alliance may have to once again throttle back output to prevent oversupply.  The group essentially reiterated that position at its latest meeting on Sun.  The following day, Saudi Arabia's energy minister said the group believes an output cut approaching 1M bpd may be in order.  Still, oil prices continued to move lower today, after Pres Trump urged OPEC & Saudi Arabia to stay the course & as Russia's energy minister continues to express skepticism about the wisdom of supply cuts.

Why oil prices went from four-year highs to bear market in just six weeks

Starbucks (SBUX) is planning to cut approximately 5% of its global corp workforce, according to a leaked memo.  About 350 employees in marketing, creative, product, technology & store development will be impacted.  The affected divisions will undergo “significant changes” as SBUX narrows its priorities & aims to become a more nimble company.  While the decisions were “incredibly difficult,” it said they were made after “very careful consideration.”  The memo said impacted roles were related to work that had been “eliminated” or “deprioritized.”  The news comes after SBUX said in Sep it would cut corp staff as it shuffles its organizational structure.  The company has been plagued with lagging US sales for several qtrs.  The coffee giant has scaled back on store growth & closed underperforming company-owned locations.  While the company still sees positive same-store sales, investors have been looking for a faster pace of sales growth.  As SBUX executes its plan, its results have improved.  COO Roz Brewer previously said that SBUX shifted a number of “remedial tasks” that baristas were doing during the day to after closing, giving them more time to work with customers.  By streamlining some of these operations, SBUX aims to encourage customers to spend more time in its locations.  In its fiscal Q4, sales in the US & Americas that had been open for at least a year grew 4%, topping expectations for growth of about 2.7%.  This was the company's strongest same-store-sales growth in the US in 5 qtrs.  SBUX said its loyalty program grew 15% year over year, hitting 15.3M members & Starbucks Rewards members drove nearly 40% of sales in the US.  The stock fell 50¢.
If you would like to learn more about SBUX, click on this link:
club.ino.com/trend/analysis/stock/SBUX?a_aid=CD3289&a_bid=6ae5b6f7

Starbucks to cut 5% of its corporate workforce

The US ran a $100B deficit in Oct,  the Treasury Dept reported, wider than the $63B deficit last year as spending rose 18% while receipts increased by 7%.  Adjusted for timing shifts, the deficit was nearly equal at $110B vs $111B in Oct 2017.  The US spent $353B during the month while it only took in $253B.  The US spent $84B on Social Security, $69B on defense & $53B on Medicare.  As Oct (the first month of the gov's fiscal year), it’s still very early to project whether the annual budget deficit will reach $1T after ending fiscal 2018 at $782B.  The Congressional Budget Office projects the deficit will come in just shy of $1T, at $981B, due to the impact from the Tax Cuts & Jobs Act & new spending.  The deficit more generally is expected to widen as the baby boomers age, boosting entitlement spending while cutting revenue.

U.S. budget deficit widens to $100 billion in October


After yesterday's market collapse, sellers returned today.  Bargain hunters returned in the last ½ hour, cutting losses for the Dow.  Market breadth near break even was a good sign, but this has been a tough 5 day period for stocks.  Oil has fallen for 12 straight session, very ugly.  The article above tells the story well.  The background story is about worries of slower global economic growth which would impact overall demand for oil.  The strength of the stock market looks gloomy.

Dow Jones Industrials









Lower markets as they struggle following yesterday's plunge

Dow dropped 96, advancers over decliners 5-4v& NAZ rebounded 37.  The MLP index
& the REIT index was little changed.  Junk bond funds did little & Treasuries were purchased after recent weakness in the stock market.  Oil sank 2+ to the 57s & gold was off 3 to 1200.

AMJ (Alerian MLP Index tracking fund)


CL=FCrude Oil58.33
-1.60 -2.7%

GC=FGold   1,201.50
-2.00 -0.2%






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Stocks were flat Tues, struggling to rebound following yesterday's drubbing, which saw the Dow lose more than 600.  A  handful of consumer-related stocks released results today.  Home Depot (HD), a Dow stock, lifted its earnings forecast after Q3 profit & revenue topped expectations, while US same-store sales rose 5.4%.  In commodities, oil continued its losing streak & was lower as an OPEC report showed combined output from the group & Russia offset losses from Iranian sanctions.  The Dow slid 602 (2.3%) in a volatile & light trading session due to the Veterans Day holiday.  The NAZ fell 206 (nearly 3%) while the S&P 500 lost 54 (nearly 2%).  10 of the sectors in the S&P 500 fell led by technology & consumer discretionary, utilities, which are viewed as defensive, lost the least.

Stocks flat after Monday's plunge

Dow component Home Depot reported a Q3 EPS of $2.51 per share, beating the estimate of $2.26.  Revenue was $26.3B versus the estimate for $26.26B.  Sales at US stores open for more than a year rose 5.4%, topping expectations of 4.38%.  The company said it now expects full-year sales to increase by about 7.2% & also expects that for the comparable 52-week period that same-store sales will increase by about 5.5% (the 2018 fiscal year has 53 weeks).  The company now expects EPS for the year to be $9.75.  In the year ago qtr, the home improvement retailer reported EPS of $1.87 on revenue of $25.03B.  In this year's Q2, EPS was $3.05, topping the estimate for $2.84 as the home improvement retailer benefited from a strong economy & increased consumer spending.  Q2 revenue was $30.5B, beating the expectation for $30.02B.  The stock dropped 4.81 (3%).
If you would like to lrn more about HD, click on this link:
club.ino.com/trend/analysis/stock/HD?a_aid=CD3289&a_bid=6ae5b6f7

Home Depot lifts outlook as 3Q profit beats

The strong US economy's continued success in the coming years will depend largely on infrastructure, Commerce Secretary Wilbur Ross said.  “Corporate earnings certainly have been very, very strong. there’s no question about that. And it’s also no question that market’s job is to look ahead,” Ross said.  “I think a lot will have to do with whether infrastructure gets the kind of treatment that it really deserves.”  Ross, speaking at a Markets Summit, was asked whether the prospect of diminished corp earnings in the near future will be a drag on the economy.  He added that the only real obstacle to passing an infrastructure bill is its funding.  “As you know, [the] president is very keen to have an infrastructure program, and the only real issue is how do you pay for it. How much does the federal government do, how much is done by [the] private sector,” Ross said.  The concept of an executive-level infrastructure push has itself become a bit of a laughing matter in DC.  In Feb, the president proposed spending $200B in a bid to coax $1.5T in infrastructure investing mainly from state & local govs, as well as private entities, but the plan went nowhere.

Commerce Secretary Wilbur Ross says the economy's success depends on infrastructure

A preliminary reading on consumer sentiment for Nov came in slightly above expectations.  The Univ of Mich consumer sentiment index hit 98.3.  The forecast called for a preliminary read to come in at 98, slightly below Oct at 98.6.  “Consumer sentiment remained virtually unchanged in early November from its October reading,” Richard Curtin, chief economist for the Surveys of Consumers, said.  “The stability of consumer sentiment at high levels acts to mask some important underlying shifts. Income expectations have improved and consumers anticipate continued robust growth in employment, but consumers also anticipate rising inflation and higher interest rates.”  The Federal Reserve kept interest rates unchanged at its meeting this week, but kept the door open for a rate hike in Dec.  The central bank has already raised rates 3 times this year.  Curtin added, however, that the virtually unchanged print kept the index on pace for its best year since 2000.  The latest look at consumer sentiment comes shortly after the US midterm elections when the Dems took control of the House, while Reps maintained a majority in the Senate.  This result was largely expected by experts.  Curtin noted that interviews leading up to the Fri release went thru Wed night, “there was only a one-day overlap after the mid-term election results were known by consumers.”

Consumer sentiment tops expectations in November, stays on pace for best year since 2000

The bulls did not return in force.  Bargain hunting is largely absent.  Oil was sold heavily & macro economic issues (along with HD earnings) did not inspire confidence.  The Dow is only 300 above the important technical floor of 300.

Dow Jones Industrials








Monday, November 12, 2018

Market plunge led by tech stocks

Dow sank a huge 602 (closing at the lows), decliners over advancers more than 5-2 & NAZ tumbled 206.  The MLP index fell 3+ to the 351s & the REIT index fluctuated.  Junk bond funds were lower & Treasuries continued steady.  Oil dropped to the 59s extending its bear market rout (more below) & gold lost 6, falling to 1202.

AMJ (Alerian MLP Index tracking fund)


Live 24 hours gold chart [Kitco Inc.]




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The Dow slid 400 in a volatile & light trading session due to the Veterans Day holiday.  Dow members Apple (AAPL), Goldman Sachs (GS) & Facebook (FB) paced the declines. AAPL supplier Lumentum (LIKE), which provides iPhone parts, cut is Q2 forecast which pressured the stock in early trading.  AAPL shares fell below the $200 per share level.  GS is on pace for the largest percent drop since Jun of 2016.  Oil saw modest gains after OPEC signaled it was mulling a production cut after oil entered a bear market last week, falling 20% from its high.  WTI crude is trading around the $60 level.  The bond market is closed for trading.  Stocks fell across the board Fri with 8 of the 10 S&P sectors down led by technology & consumer discretionary names.  The Dow dropped over 201 & the NAZ 123.  The S&P 500 fell 2525.  In Asian markets today,  China's Shanghai Composite rose 1.2% & Hong Kong's Hang Seng closed the day up 0.1%.  Japan's Nikkei ended the day up 0.1%.  In Europe, London's FTSE traded lower by 0.2%, Germany's DAX  fell 0.9% & France’s CAC declined 0.3%.

Apple, Facebook lead stock selloff, Dow falls 400 points


Chinese Premier Li Keqiang stressed the need for free trade today, as he drew similarities between his country & Singapore, a bustling regional hub.  "China and Singapore have a special cooperative relationship because there are profound cultural and people-to-people exchanges between us," Li said.  "We both safeguard multilateralism and free trade. We also keep the peace and stability in the South China Sea," he added.  Li is on an official visit to Singapore where he is to deliver a lecture on Singapore-China relations & regional development, & participate in a summit of the 10-member Association of Southeast Asian Nations.  China is locked in a simmering trade dispute with the US, which accuses it of violating its market-opening obligations & the 2 countries have imposed tariffs on B$s of each other's goods.  Singapore Prime Minister Lee Hsien Loong noted that exactly 40 years had passed since then Chinese leader Deng Xiaoping visited the city-state.  The countries have worked together on a string of projects since then, including the Suzhou Industrial Park & the Tianjin Eco-city, he said.  Lee added that China and ASEAN "share a common interest in upholding an open, rules-based multilateral order."  "Singapore & China are like-minded partners in many areas even though we have different circumstances and constraints," he added.  "But I believe we can continue to tap into our complementary strengths, deepen cooperation and make sure that our all-around cooperative partnership continues to progress with the times."  China & Singapore signed 11 memoranda of understanding today.  They upgraded a free trade agreement & stepped up cooperation in urban planning and development, among others.

Chinese premier urges guard of free trade on Singapore visit


Amazon (AMZN) shares dipped into bear market territory today as the e-commerce giant added to a 20% decline from all-time highs reached back in Sep.  At today's low of 1630, the stock had fallen 20.5% from an intraday high of 2050 per share, hit in early Sep.  AMZN, which had topped $1T in market cap is now worth $809B.  Almost 73% of the technology sector is in correction levels (10% off a security's 52-week high) or worse.  As the stock market resumes its sell-off, investors are taking profits on some of the most successful trades of the bull market.  26 of the 66 technology stocks in the S&P 500 are in bear market territory.  AMZN stock today finished down 75 to 1636.
If you would like to learn more about AMZN, click on this link:
club.ino.com/trend/analysis/stock/AMZN?a_aid=CD3289&a_bid=6ae5b6f7

Amazon falls into bear market a little more than two months after hitting $1 trillion market cap

Pres Trump Mon tweeted that he hopes OPEC does not cut oil output, the same day Saudi Arabia's energy minister said the cartel & its allies may need to throttle back production by about 1M barrels per day.  "Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!" he Twitted.  The tweet marks his latest attempt to influence OPEC policy on Twitter.  The pres has tweeted at the 15-nation producer group several times this year, blaming it for rising oil prices & ordering its members to take steps to tamp down the cost of crude.  Trump's latest broadside comes on the heels of a sharp pullback in oil prices that has seen US crude plunge into a bear market & post its longest losing streak in more 34 years.  Prices tumbled over the last 5 weeks as global equity markets sold-off, crude supplies rose & the outlook for growth in oil demand weakened.  The sudden reversal has forced OPEC & a group of crude exporters including Russia to rethink how they are managing the global oil market.  Yesterday, a committee representing the group said oil supply is growing faster than demand, suggesting the alliance may have to launch a fresh round of production cuts.  The same day, Saudi Energy Minister Khalid al Falih said the kingdom's oil shipment would fall by 500K bpd in Dec.  Today, Falih told an oil conference in Abu Dhabi that technical analysis suggests "there will need to be a reduction of supply from October levels approaching a million barrels" from the alliance.  The oil producers began capping their output in Jan 2017 in order to end a global crude glut, a policy that succeeded in draining stockpiles & boosting prices.  The group agreed in Jun to restore some of that output as prices rose to 3½-year highs as the market braced for the renewal of US sanctions on Iran.  Trump began tweeting at OPEC in Apr, 2 months before the group's Jun oil policy meeting.  His latest tweet comes just weeks before the alliance's next gathering.  The Trump administration is largely relying on Saudi Arabia to continue hiking output in order to offset the impact of its sanctions on Iran, OPEC's 3rd biggest producer.  The sanctions have wiped out about 1M bpd of Iranian crude exports.  Energy analysts widely attribute this year's oil price rally to the sanctions.  Oil prices hit nearly 4-year highs last month as the administration's deadline for oil importers to cut off purchase from Iran approached.

Trump warns OPEC against cutting oil production: 'Prices should be much lower based on supply'

Oil prices turned negative amid a sell-off in the US stock market today, with US crude posting an 11th straight day of losses, its longest longest losing streak on record.  Crude futures looked set to break the streak earlier today after Saudi energy minister Khalid al Falih said OPEC & its allies may need to cut crude production by about 1M barrels per day to prevent the market from swinging into oversupply.  Yesterday, Falih said the kingdom's shipments would fall by 500K bpd in Dec.  West Texas Intermediate crude settled 26¢ lower at $59.93, falling deeper into bear market territory.  The contract has never fallen for 11 straight days since it began trading in NY more than 3 decades ago.  Brent crude was up 22¢ at $70.40 a barrel.  The intl benchmark for oil prices settled at $70.18 on Fri, its weakest closing price in 7 months.  Crude futures have pulled back sharply during the last 5 weeks, as oil got swept up in a broader market sell-off that saw investors shed risk assets in Oct.  Rising oil supplies from the US, OPEC & Russia along with forecasts for weaker-than-expected demand growth have kept pressure on the market.  Compounding concerns about demand, the $ hit a 16-month peak today.  Currency weakness in emerging markets, including India, has significantly increased the cost of crude in those countries.  A stronger greenback makes $-denominated oil more expensive to holders of other currencies.

US crude falls for an 11th straight day, posting its longest losing streak on record

San Francisco Fed Pres Mary Daly today said she backs the "gradual normalization of monetary policy" but pointed out that in one key area, the US is not at full employment.   Daly said the US prime-age labor-force participation lags other industrial nations, notably Canada, which she says is due to a lack of gov subsidies for childcare & parental leave policies.  She said research due for release tomorrow will show that women account for ¾ in the prime-age differential between the US & Canada.  "The Fed can help by making sure that the economy continues to grow, creating work opportunities for wide swaths of the population," she added.  Daly doesn't get a vote on the Federal Open Market Committee until 2021.

San Francisco Fed's Daly backs 'gradual normalization' as U.S. not at full employment


This turned out to be an ugly day highlighted by selling in tech shares, including the most famous companies.  They have powered the rally since late Jan & now profit taking it putting many into bear market territory.  Oil market in its own bear market is making matters worse.  The chart below show much of the recent run-up for the Dow has been given back.  A close by the Dow below 25K (less than 400 above that level) will be a negative signal for stocks.

Dow Jones Industrials