Markets collapse in late day sell-off

Dow tumbled 208 with selling into the close, decliners over advancers 4-1 & NAZ lost 35.  The MLP index dropped another 5+ to the 444s & the REIT index was off 2+ to the 286s.  Junk bond funds pulled back 1-2% & Treasuries were also weak.  Oil dropped, heading for a 2nd monthly decline, as OPEC kept its output target unchanged for a 3rd consecutive time & US inventories climbed to the highest level in 82 years.  Gold plunged again, going below 1400. 

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month	0.03%
U.S. 2-year	0.31%
U.S. 10-year	2.19%

CLN13.NYM

...Crude Oil Jul 13

....92.18

...1.43

(1.5%)

OPEC kept its production target unchanged for a 3rd consecutive time, signaling that crude prices at about $100 a barrel are sufficient to buoy revenue as the global economy recovers.  It supplies about 40% of the world’s oil & maintained its ceiling of 30M barrels a day in Vienna.  The 12-nation group will next gather on Dec 4.  The producer group risks delaying an organized response to the challenge of its own burgeoning supply & that of non members.  Iraq, the biggest producer behind Saudi Arabia, is expanding production with the help of foreign companies, while a growing supply of US shale oil threatens to displace some of OPEC’s own crude sales.  OPEC kept the output target unchanged at its last meeting in Dec.  Actual production has fluctuated from 30.6M to 32.4M barrels a day since that target was introduced in Dec 2011.  The group pumped 31M this month, the most in 6 months, with Saudi Arabia producing 9.35M.

OPEC Keeps Output Target Unchanged as $100 Oil Satisfies National Budgets


Boeing, a Dow stock, will create new aircraft-design centers in Washington state, South Carolina & California.  The company portrayed the new centers as a way to increase its engineering & propulsion capacity as demand rises for new aircraft and services.  BA predicts that the world's airlines will need 34K new planes over the next 20 years, a potential $4.5T market.  The 3 new design centers will compete with each other on cost and engineering know-how.  "We fully expect them all to thrive," said Boeing spokesman Doug Alder. "There's a lot of work coming."  The company said that it would move most support for planes no longer in production away from Puget Sound in Washington to Long Beach, Calif., in the next 6-9 months.  The move affects work on planes such as older 737s & 757s.  BA fell 1.20.

Boeing announces changes for jet design centers AP


Samsung, the leading rival for Apple (AAPL), unveiled a smaller & less powerful version of its flagship Galaxy S4 handset as the world’s largest smartphone maker looks to widen its lead.  The Galaxy S4 mini features a 4.3" screen, 1.7 Gigahertz dual-core processor & 8-megapixel camera it said.  The Galaxy S4, which went on sale last month, has a 5" screen, 1.9Ghz quad-core processor & 13-megapixel camera.  Samsung’s new handset may help the company maintain momentum after selling 10M units of the S4 in half the time of the previous Galaxy model.  Samsung is also the world’s largest maker of flat-panel displays & memory chips.

Samsung Unveils Less Powerful Version of Flagship Galaxy S4 Smartphone


Even with the decline late in the month, Dow still gained an impressive 275 advance in May & is up over 2K YTD, hardly chump change.  Those big gains point to the forgotten fact that the markets are vastly overbought, with hardly a setback in the last year.  This could be the start of a correction which is long overdue.  Maybe the bulls started their weekends early & will return Mon PM to bid up stocks again.  But Dow plunged 200 in the last 2 hours, an ominous sign.  Enjoy the weekend & let's see what Jun brings for the markets next week.

Dow Jones Industrials

Markets drift lower on consumer spending data

Dow dropped 12, decliners over advancers 5-2 & NAZ fell 4.  The MLP index continues weak, losing 3 to 446, & the REIT index lost 2+ the 286s.  Junk bond funds fell & Treasuries were also lower, raising the yield on the 10 year Treasury to 2.16%.  Oil & gold also saw selling.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month	0.03%
U.S. 2-year	0.31%
U.S. 10-year	2.17%

CLN13.NYM

....Crude Oil Jul 13

...92.54

......1.07

(1.1%)

GCM13.CMX

...Gold Jun 13

.....1,393.30

...18.20

(1.3%)

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Greater optimism over the economic outlook & personal finances in the midst of record stock market prices pushed US consumer sentiment to its highest level in nearly 6 years in May.  While upper income households continued to set the pace, confidence also began to improve among middle & lower income households in the latter part of the month.  Wealthier households are more likely to be invested in equities & reap the benefits of this year's sharp stock market rally.  The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment rose to 84.5 from 76.4 in Apr, the highest level since Jul 2007.  Expectations called for a reading of  83.7 (May's preliminary figure).  The barometer of current economic conditions jumped to its highest level since Aug 2007 at 98.0 from 89.9, while the gauge of consumer expectations climbed to 75.8 from 67.8.  "The data clearly suggest a faster pace of growth in consumer spending during the year ahead than was anticipated even one month ago," survey director Richard Curtin said.  The index of buying conditions for durable goods rose to 147 from 137 as 58% said the economy had improved.

Consumer Sentiment Strongest in Nearly Six Years in May   Reuters

Photo:   Bloomberg

US consumer spending unexpectedly declined in Apr as incomes stagnated, putting the biggest part of the  US economy on shaky ground at the start of Q2.  Household purchases, which account for about 70% of the economy, dropped 0.2%, after a 0.1% rise the prior month that was smaller than previously estimated, according to the Commerce Dept.  The estimate was for no change.  The drop in spending was the first since May 2012.  The saving rate was unchanged at 2.5% even as spending dropped, reflected the lack of income growth.  Wages & salaries were also unchanged in Apr.  The price index tied to spending, the gauge tracked by the Federal Reserve, fell 0.3%, the biggest drop since Dec 2008, as fuel costs retreated.  The core price measure, which excludes food & fuel, was unchanged from the prior month & up 1.1% from Apr 2012, matching a record low.

Consumer Spending in U.S. Unexpectedly Declined in April


Dell will hold a shareholder vote on Jul 18 on a $24.4B leveraged buyout offer by founder Michael Dell & Silver Lake.  DELL recommended the offer be accepted after no better offer came during the “go-shop” period.  A majority of shareholders, excluding Michael Dell’s 15.6% stake, will have to approve the buyout for it to pass.  The vote will determine whether Michael Dell & Silver Lake will get the chance to run the world’s 3rd-largest PC maker as a private company.  As earnings & sales decline amid a shift in demand to smartphones & tablets, the buyers are seeking to accelerate the company’s shift toward selling more products & services for corp data centers.  The Silver Lake-led group offered $13.65 a share for DELL stock.  Billionaire financier Carl Icahn has proposed a competing offer that would pay investors $12 a share in cash or stock while letting them retain stakes in a public company.  Icahn, who along with Southeastern owns almost 13% of Dell shares, said this month that he would look to replace Michael Dell as CEO if he prevails.  Financing for Icahn’s proposal will come from existing cash at the PC maker & about $5.2B in new debt.  A special board committee is seeking more details about this proposal.  In the event that a special committee of Dell directors concludes that the new proposal isn’t superior, Icahn has said he plans a proxy battle to install his own slate of directors.  The stock was up 8¢.

Dell Sets July 18 Shareholder Vote on CEO’s $24.4 Billion Leveraged Buyout

Dell (DELL)

There is little going on in the markets although the momentum is negative.  Leading the way lower are the yield stocks.  The MLP index is down 22 from its high last week while the REIT index is off a huge 28 from its recent highs.  Investors are nervous about a change in the bond buying program by the Federal Reserve, although junk bond funds have held pretty well.  With no additional news in the PM, markets will probably drift lower in the PM on low volume.  Longer term, the markets are vulnerable. 

Dow Jones Industrials

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