Tuesday, August 22, 2017

Markets shoot up on hopes for tax reform

Dow jumped 196 closing near the highs, advancers over decliners 5-2 & NAZ soared 84.  The MLP index advanced 4+ to 270 following recent selling & the REIT index was off pennies in the 349s.  Junk bond funds crawled higher & Treasuries were weak.  Oil went up in the 47s while gold retreated (more below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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A growing number of key congressional Reps are considering a controversial maneuver that would allow for about $450B of tax cuts without offsets, according to leakers.  Under the proposal, the GOP would not account for things like expiring tax breaks when gauging the budgetary impact of tax legislation, giving tax writers more room for cuts.  Senate budget & tax  panels are discussing the move to a “current policy” baseline, instead of the standard “current law” baseline. The chief House tax writer, Kevin Brady, also signaled openness to the approach last month, saying it would lead to deeper tax cuts.  The switch would risk a backlash from Dems & deficit hawks.  “This decision would represent a huge break in precedent, would weaken budget discipline to allow Congress to add over half a trillion dollars to the debt,” the nonpartisan Committee For a Responsible Federal Budget said in a letter earlier this month.

GOP Eyes Budget Maneuver to Allow $450 Billion More in Tax Cuts

Gold prices fell, as strength in the $ pressured the precious metal into giving back all of the previous session's gains & then some.  Traders also showed caution ahead of the Jackson Hole, Wyo. economic policy symposium that begins Thurs, where global central bankers may offer hints on changes to monetary policy.  Dec gold lost $5.70 (0.4%) to settle at $1291 an ounce after climbing about 0.4% yesterday, the lowest settlement since Wed.

Gold Falls Back To Lowest Level In Nearly a Week

Kohl's (KSS) is continuing to push toward smaller physical locations, as it plans to open 4 small format stores & a 5th e-commerce fulfillment center in Q3.  The fulfillment center will be a 937K-square-foot facility in Plainfield, Ind & will process online orders.  The 4-35K-square-foot stores will be in North Smithfield, RI; Blue Ash, Ohio; East Windsor, NJ & Montebello, Calif.  These will bring the total to 8 small format stores.  Overall, KSS plans to move close to ½ of its stores to smaller locations by the end of 2017.  In 2018, KSS will move its larger store in Greenfield, Wis. to a new 55K square-foot store nearby.  The store moves are calculated based on customer & inventory needs, & result in a more efficient store experience, KSS said.  The stock gained 83¢.  If you would like to learn more about KSS, click on this link:

Kohl's Plans To Open Four New Small Format Stores And E-commerce Center

Homebuilder Toll Brothers (TOL) had EPS of 87¢ in fiscal Q3, up from 61¢ in the year-earlier period.  Revenue rose to $1.5B from $1.27B. The estimates were for EPS of 69¢ on revenue of $1.51B.  Home deliveries rose 26% to 1899 units & the average price of homes delivered was $791K, compared to $842K a year ago, mostly due to an expected change in mix.  The company said it now expects to deliver 7-7.3K homes in fiscal 2017, up from earlier guidance of 6.95K to 7.45K units, at an average delivered price of $800-$825K a home.  The stock fell 98¢.  If you would like to learn more about TOL, click on this link:

Toll Brothers Profit Beats Estimates As Sales Fall Slightly Short

This was the best day for the Dow in nearly 4 months.  Nothing like hopes for tax reform to excite the bulls.  The Dow is about 300 way from its record highs.  Of course, the trick is to make it happen & in the confusing mess of DC nobody knows what will get done.

Dow Jones Industrials


Markets advance after Trump's speech

Dow recovered 123, advancers over decliners about 5-2 & NAZ gained 56.  The MLP index went up 1+ to the 267s & the REIT index was even in the 349s.  Junk bond funds did little & Treasuries retreated.  Oil advanced (more below) & gold pulled back 6 to 1291.

AMJ (Alerian MLP Index tracking fund)

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Treasury Sec Steve Mnuchin addressed the urgent need for lawmakers to raise the debt limit promptly when they return from recess during a speech yesterday, strongly communicating his proclivity for a “clean” bill passed without spending reforms attached.  “Come the end of September my magic, super Treasury powers will run out and we need to raise the debt limit,” Mnuchin said. “ And it is my strong preference that there is a clean raise of the debt limit.”  Unlike Mnuchin, some conservative Reps, including Office of Management & Budget Director Mick Mulvaney, a known deficit hawk, favor attaching spending reform riders to the debt limit increase as a way to move toward a balanced budget over time.  Mnuchin reiterated  that while he may be on board with those long-term goals, the debt limit is not the appropriate place to address them.

Mnuchin pushes clean debt ceiling increase in latest plea for 'prompt' Congressional action

Oil prices rose, lifted by indications that supply is gradually tightening, especially in the US.   US light, sweet crude was 30¢ higher at $47.67.  US commercial crude inventories have fallen by almost 13% from the Mar peaks, to 466M barrels.  OPEC & non-OPEC producers including Russia have pledged to hold back about 1.8M barrels per day (bpd) of output between Jan this year & Mar 2018 in order to tighten supplies and prop up prices.  Oil prices found extra support from news that Libya's Sharara oilfield, the country's largest, shut on today just hours after reopening following a 3-day pipeline blockade.  But oil production elsewhere has been rising.  US crude production has broken thru 9.5 M bpd, its highest since Jul 2015.  Some analysts say US oil output growth will slow as energy firms cut the number of rigs drilling for oil.  So far, however, the increase in US production has been relentless with increasing volumes from shale, particularly from the giant Permian basin in Texas & New Mexico.
Home prices in the US increased 6.6% in Q2 from a year earlier as buyers competed for a shrinking supply of listings.  Prices rose 1.6% on a seasonally adjusted basis from the previous 3 months, the Federal Housing Finance Agency said.  In Jun, prices climbed 0.1% from May, less than the 0.5% estimate.  The US has been starved for inventory, in part because builders slowed production after the last decade's property crash & many seniors are choosing to remain in their houses rather than downsize.  The supply of previously owned homes on the market at the end of Jun fell 7.1% from a year earlier, the 25th consecutive annual decline, according to the National Association of Realtors.  “U.S. house prices rose in most states during the second quarter,” William Doerner, senior economist at FHFA, said.  “New-home sales are climbing but, relative to the overall population, they still remain low from a historical perspective. The tight inventory is a major explanation for why house prices have been increasing every quarter over the last six years.”  The FHFA index measures transactions for single-family properties financed with mortgages owned or securitized by gov-sponsored Fannie Mae & Freddie Mac.  The national median price of an existing single-family home was $255K in Q2, up 6.2% from a year earlier, data from the Realtors group show.

Home Prices in U.S. Rose 6.6% in the Second Quarter, FHFA Says

The stock market is fairly quiet in this semi vacation period.  Many traders are away.  Trump's speech on Afghanistan was liked by the stock market, although it remains a very tough battle after all these years.  More comments from Mnuchin about raising the debt ceiling was also appreciated.  This along with adopting a new fed budget for next year & tax reform are critical for the stock market.  The Dow is hanging in 400 below its record.  The bulls are happy to see that, although gold remains hear its recent highs..

Dow Jones Industrials

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