Friday, October 21, 2016

Markets were little changed on earnings and rate hike concerns

Dow slid back 16, advancers & decliners were about even & NAZ added 15.  The MLP index lost 1+ to the 513s & the REIT index was fractionally lower to the 342s.  Junk bond funds were mixed & Treasuries were a tad higher.  Oil crawled higher & gold was flattish (more below).

Dow Jones Industrials

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Live 24 hours gold chart [Kitco Inc.]

Honeywell issued a downbeat earnings report it had forecast earlier this month, saying an unexpectedly weak Sep & lackluster performance in the aerospace segment hurt profit.   CEO Dave Cote said  at the time that sales had "failed to materialize" in Q3, the company reported results largely in line with those forecasts.  For the year, HON expects sales of $39.4-39.6B, with core organic sales, which excludes currency fluctuations & deals, falling between 1-2%.  Analysts had expected $39.63B in sales.  The conglomerate reported EPS was flat at $1.60.  When excluding restructuring & other costs, EPS was $1.67.  Revenue grew 2% to $9.8B as core organic sales fell 3%.  Analysts had expected EPS of $1.60 on $9.79B in sales.   In the aerospace segment, organic revenue & unadjusted revenue fell 6% due to the impact of sales incentives, lower volumes in business & aviation, weakness in commercial helicopters & the completion of space & intl defense programs.  For Q4, HON expects sales to fall 7-9% due to weakness in the business jets, defense & space areas.   The stock rose 82¢.  If you would like to learn more about HON, click on this  link:

Honeywell's Profit Falls as Organic Sales Decline

Honeywell (HON)

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Schlumberger remains pessimistic that oil & gas companies will experience a major recovery in the near future.  Oilfield services companies have seen their customers idle rigs & pull back spending amid weak crude prices.  Its business stabilized during the Q3, even though acquisition costs contributed to a sharp decline in earnings.  The company said oil supply & demand is now “more or less balanced” with inventory levels consistently dropping toward the end of the period. OPEC's potential production freeze & forecasts for stronger oil demand than expected lead SLB to believe that more inventory draws are coming.  Still, the industry’s rebound could be muted.  “We maintain that a broad-based V-shaped recovery is unlikely given the fragile financial state of the industry,” CEO Paal Kibsgaard said, “although we do see activity upside in 2017 in North America land, the Middle East and Russia markets.”  He said the outlook for investments in exploration & production next year remains unclear, adding that customers remain in the planning stage for 2017.   The stock gave up 2.52 (3%).  If you would like to learn more about SLB, click on this  link:

Schlumberger Doesn't Expect Major Energy Recovery

Schlumberger (SLB)

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The number of rigs exploring for oil & natural gas in the Us increased by 14 this week to 553.  A year ago, 787 rigs were active.  Depressed energy prices have sharply curtailed oil & gas exploration.  443 rigs sought oil & 108 explored for natural gas.  Among major oil- & gas-producing states, Texas gained 10 rigs, Wyoming increased by 3, New Mexico was up 2, & Alaska & Utah added one   Louisiana declined by2 rigs & Colorado was off by one.  The rig count peaked at 4530 in 1981 & bottomed out in May at 404.

US rig count up 14 this week to 553; Texas gains 10

Gold futures settled with a slight gain to tally a weekly climb of roughly 1%.  Uncertainty surrounding the US election & the timing of the Fed's next interest-rate hike helped to lift investment interest in the yellow metal despite some strength.  Dec gold rose pocket change for the session to settle at $1267 an ounce.

Gold Futures Post a Roughly 1% Gain For The Week

Not much going on today.  Oil is trying to figure where to go from here (as is safe haven gold).  Dow conitues its flat-lining trend, unable to reach new highs while staying above 18K support, which has held for months.

Dow Jones Industrials

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Markets fall on earnings reports as dollar hits 8 month high

Dow dropped 96, decliners over advancers 5-4 & NAZ went up 2.  The MLP index lost 1+ to the 313s & the REIT index was fractionally lower to 343.  Junk bond funds were little changed & Treasuries were flattish.  Oil crawled higher (still above 50) & gold hardly budged.

AMJ (Alerian MLP Index tracking fund)

Light Sweet Crude Oil Futures,D

Gold Dec 16

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China stocks traded sideways but managed to end the session slightly up, as strength in infrastructure shares offset concerns rooted in continuing yuan weakness.  The blue-chip CSI300 index rose 0.3% to  3327 while the Shanghai Composite Index gained 0.2% to 3091.  For the week, CSI300 was up 0.7% while SSEC gained 0.9%.  Infrastructure-related stocks rose sharply, after China issued rules for management of gov funds used in private-public partnership (PPP) projects, many of which are for infrastructure work.  The sector was also helped by improving ties between China & Philippines, which bodes well for Beijing's strategy to win construction work in other countries.  That helped offset drags from the real estate sector, as well as negative impact from a weakening yuan.  The yuan slipped against the $ to a fresh 6-year low, as strong $ purchases by companies continued piling pressure on the Chinese currency.

China Shares Edge Up Both for the Day and Week

General Electric, a Dow stock, reported a 6.7% rise in quarterly profit, helped by strength in its power & renewable energy businesses.  But slow economic growth, particularly in the oil & gas business, continued to weigh on revenue, prompting GE to lower its revenue growth target & narrow the range of its profit forecast for the year.  Organic revenue, which excludes growth from acquisitions, rose 1%, below GE's forecast of 2-4% for the full year.  Analysts had been looking for stronger revenue growth after a weak H1.  But oil & gas revenue fell 25% in the qtr.  GE trimmed its full-year revenue forecast to flat to 2% growth.  EPS from continuing operations rose to 23¢ from 19¢.  Total revenue grew 4.4% to $29.27B.  GE's adjusted EPS jumped 10% to 32¢, beating the 30¢ estimate.  GE also narrowed its 2016 profit forecast to $1.48-1.52, compared with the $1.45-1.55 it forecast at the end Q2.  Analysts had been targeting H2 growth of about 15% in GE's power business, GE's largest division.  In Q3, power revenue grew only 7%.  The stock fell 61¢.  If you would like to learn more about GE,click on this link:

GE Profit Up But Revenue Forecast Trimmed

General Electric (GE)

McDonald's, a Dow stock & Dividend Aristocrat, turnaround gained momentum in the latest qtr as sales growth at established restaurants beat estimates.  Same-restaurant sales in its US rose a better-than-expected 1.3%, helped by demand for its all-day breakfast, the "McPick 2 for $2" promotion & the introduction of Chicken McNuggets without artificial preservatives.  Analysts polled had expected a gain of 1.2%.  CEO Steve Easterbrook, has introduced all-day breakfasts, simplified sprawling menus & improved service to turn around its business amid intense competition   Global sales at restaurants open at least 13 months rose 3.5%, handily beating the 1.5% gain expected.  The world's fast-food chain reported EPS of $1.50, compared with $1.40 a year earlier.  The company had 87M fewer shares outstanding, compared with the year-earlier period.  Excluding items, the company EPS was $1.62, beating the estimate of $1.48.  Total revenue fell almost 3% to $6.42B, down for the 9th straight qtr, but beat the estimate of $6.28B.  The stock shot up $2.68.  If you would like to learn more about MCD,click on this link:

McDonald's 3Q Earnings Beat Expectations

McDonald's (MCD)

Earnings reports are not bringing out buyers.  The strong $ is not helping, but more importantly, sales growth is drab.  The chart below shows that the early reports are not being well received.

Dow Jones Industrials