Monday, September 16, 2013

Rising markets loose steam after Obama's speech

Dow jumped 118 (off the highs), advancers over decliners 2-1 & NAZ lost 4.  The MLP index slipped 3+ to the 432s in this up market & the REIT index rose 2+ to 270.  Junk bond funds were mixed & Treasuries had modest gains.  Oil & gold pulled back while stocks rallied.

AMJ (Alerian MLP Index tracking fund)

stock chart

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CLV13.NYM...Crude Oil Oct 13...106.37 Down ...1.84  (1.7%)

Live 24 hours gold chart [Kitco Inc.]

Obama Says He Won't Negotiate Over Debt Ceiling

Photo:   Bloomberg

Obama accused Reps of ignoring what needs to be done to ensure broad-based prosperity & focusing instead on slashing gov spending even while the deficit is narrowing.  “Congress’s most fundamental job is passing a budget,” Obama said in remarks to mark the 5-year anniversary of the collapse of Lehman.  “And Congress needs to get it done without triggering another crisis, without shutting down our government, or worse, threatening not to pay this country’s bills.”  With a military strike against Syria on hold, Obama is turning his attention to the economy, the budget & raising the federal debt ceiling, issues that will dominate agendas the next few months.  Obama aimed directly at Reps, calling on them to abolish the automatic, across-the-board budget cuts known as sequestration (by the way, his idea).  Those cuts hurt the economy by delaying needed spending on infrastructure, research and education, he said.  “I’m still hoping that a light bulb goes off here,” he said, adding that refusal to compromise on a budget, which could lead to closing the gov, “is the height of irresponsibility.”  The pres is confronting potential clashes with Congress over funding the gov in the new spending year that begins Oct 1.  Reps also are threatening a fight over raising the $16.7T debt limit, which the Treasury says will be reached about mid-Oct.  These were UGLY words coming from the pres which will produce bitter fights.  

Obama Accuses Republicans of Blocking Progress on Economy

ECB President Mario Draghi put his weight behind an EU banking union during a trip to Berlin, 2 days after Germany led an attack on a proposal to centralize control of failing lenders.  German Finance Minister Schaeuble sought to keep responsibility for failing banks in national hands during 2 days of meetings last week.  He led a chorus of dissent against the European Commission’s plan to give itself final say over when to close banks & to create a €55B ($73B) common fund for resolution costs.  If Germany derails momentum towards a year-end deal on a Single Resolution Mechanism, it may imperil efforts to restore confidence in the euro zone’s financial system.  Draghi said the EU needs to press ahead.  “Banking union should help speed up the repair of banks -- that is if, as I hope, we end up with a strong single resolution mechanism,” Draghi said.  “We need a mechanism that allows non-viable banks to be wound down without financial stability risks, as we see in the U.S.”  If the plan doesn’t move forward quickly, the ECB won’t be able to count on cross-border backstops if it encounters problems at euro-area banks.  The ECB is scheduled to begin supervising lenders in the currency zone as soon as Oct 2014, forcing the EU to grapple with who should decide when to close a bank and who will pay for it.  Schaeuble said the European Commission’s proposal must be overhauled because it’s on shaky legal ground & could endanger national control of budgets.  At the same time, finance ministers renewed pledges to strive for an agreement quickly so financial markets won’t lose confidence that the currency zone is overcoming its crisis.  Uh, huh!

Draghi Gives Boost to EU Banking Union Plan After Germany Voices Dissent

The S&P 500 will climb 12% to 1900 by the end of next year as valuations rise & investors pour money into mutual funds, according to Citigroup (C).  Tobias Levkovich, its chief US equity strategist, said he favors shares of larger companies over smaller ones because foreigners will boost US holdings & may prefer to buy well-known stocks.  Computer makers, health-care providers & consumer discretionary stocks will outperform, he said. “There is plenty of dry powder to push share prices higher as confidence returns,” Levkovich said.  “A shift toward growth stocks seems appropriate along with large-cap names especially if foreign money moves into U.S. markets.”  American equities have soared in 2013, sending the S&P 500 to a record, as companies increased profits for a 5th consecutive year & the Federal Reserve maintained economic stimulus.  The US equity benchmark is near the average strategist forecast, which calls for the index to finish 2013 at 1694.  But he is more bullish than the average equity strategist.  Citi predicts the Dow will rise 11% to 17,100 by the end of 2014 from yesterday’s close.

Citigroup Predicts S&P 500 Will Advance 12% to 1,900 Next Year

Stocks lost steam after the pres spoke.  He came out fighting, blaming some Reps who are willing to close gov because they want to shut down or limit Obamacare.  Look for the Reps to respond with fighting words this evening & tomorrow.  Sequester cuts weren't bad so far, but will be larger in the next fiscal year which is just a couple of weeks away.  Even if they cut a deal on the budget, raising the debt ceiling is right behind.  Business does not like to see fighting which produces uncertainty for key execs.  Maybe that's what caused Dow to pull back late in the trading day.

Dow Jones Industrials

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