Wednesday, October 15, 2014

Markets attempt a recovery after Dow drops more than 450

Dow finished down 173 (well off the lows), decliners slightly ahead of advancers & NAZ fell 11.  The MLP index rebounded a whopping 18+ to the 475s & the REIT index lost 1+ to the 301s.  Junk bond funds were around 1% lower & Treasuries soared, taking the yield on the 10 year Treasury just below 2%.  Oil edged even lower & gold capped the longest rally since Aug (although a limited one) as weaker global economies & slumping US equities revived demand for the metal as a haven asset.

AMJ (Alerian MLP Index tracking fund)

CLX14.NYM....Crude Oil Nov 14....81.55 Down ...0.29  (0.4%)

Live 24 hours gold chart [Kitco Inc.]

The budget deficit in the US shrank in the last fiscal year to the lowest level as a share of the economy since 2007 as faster growth & falling unemployment boosted tax receipts, the Treasury Dept said.  The shortfall was $483B in the 12 months to Sep 30, compared with $680B a year earlier.  That’s about a 1/3 of the record $1.4T deficit reached in 2009.  Revenue jumped 8.9% & spending gained 1.4%, the figures showed.  Treasury Sec Jacob Lew said the fiscal improvement is partly tied to stronger growth, as the nation’s unemployment rate dropped to 5.9% in Sep from 7.2% a year earlier.  Still, the deficit is forecast by the CBO to start widening again as an aging population prompts more spending on Social Security & health care.  Last month the gov posted a $105B surplus, compared with a $75B surplus Sep 2013.  The estimate was for a surplus last month of $90B.  The deficit will start rising again in the presidential election year of 2016, the CBO projects.  Receipts in the fiscal year that began Oct 1, 2013, totaled $3.02T compared with $2.77T a year earlier & outlays increased to $3.5T from $3.45T in fiscal 2013.  “Not since World War II, more than 60 years ago, has there been faster and more sustained deficit reduction,” Lew said.  “The American economy today is better positioned than any other advanced economy in the world.”  The expiration of a 2 percentage-point cut in payroll taxes & an increase in higher-income tax rates also contributed to the better revenues.  Both changes took place in Jan 2013, affecting the 2014 fiscal-year data from Oct-Dec.  Expenditures in fiscal year 2014 were driven up by outlays for Medicaid. Spending by the Dept of Health & Human Services, which administers Medicare & Medicaid health programs, climbed 5.6%.  Social Security Administration outlays increased by 4.4%.  Subsidies for health insurance under Obamacare added to spending, as did student loan costs, the CBO said.  Meanwhile, the gov spent 4.9% less on Dept of Defense military activities as across-the-board spending cuts called sequestration drove down costs.  It also reduced outlays on unemployment benefits, with outlays to the unemployment trust fund dropping 35% from the prior year.

Yellen Said to Voice Confidence in Expansion Amid Foreign Risks
Photo:   Bloomberg

Janet Yellen voiced confidence in the durability of the US economic expansion in the face of slowing global growth & turbulent financial markets at a closed-door weekend meeting.  Yellen told the Group of 30 that the economy looked to be on track to achieve growth of around 3% going forward.  She also saw inflation eventually rising back up to the Fed’s 2% target as unemployment falls further.  The G-30 describes itself as a “nonprofit, international body composed of very senior representatives of the private & public sectors & academia.”  Yellen’s reported remarks were roughly in line with the forecasts presented by Fed policy makers at their last meeting in Sep.  They saw the economy growing by 2.6-3% next year & inflation rising to 1.7-2% in 2016.  The economy has expanded at a 2.2% annual rate since the recession ended in Jun 2009.  Inflation, as measured by the personal consumption expenditures price index, was 1.5% in Aug.  In a press conference last month following the meeting of the FOMC, Yellen said policy makers expected “a moderate pace of growth going forward.”  That's her job, adding the voice of reason & calm in difficult times.

Yellen Said to Voice Confidence in U.S. Economic Expansion

US wholesale prices unexpectedly fell in Sep for the first time in a year, propelled by a drop in fuel costs that continues into this month, Labor Dept figures showed.  The 0.1% decrease in the producer price index was the first decline since Aug 2013 & compares with the forecast of a 0.1% gain.  The core measure, which strips out volatile food & fuel, was unchanged.  Oil costs plunged to a 4-year low on concerns about slowing global growth, a sign prices in the production pipeline may stay muted.  The lack of inflation pressures gives Federal Reserve policy makers room to keep interest rates near zero even as they’re on pace to end their unprecedented monthly bond purchases this month.  Wholesale prices excluding food & energy were forecast to rise 0.1% after a similar gain in Aug.  Over the past 12 months, wholesale prices climbed 1.6% following a 1.8% increase the prior month.  Core producer costs were also up 1.6% from Sep 2013.

Producer Prices in U.S. Decrease for First Time in a Year

Dow was down 460 at its lows, but late day buying trimmed the losses as for the other averages.  The Alerian MLP Index had a spectacular recovery, pretty much its best day ever.  The VIX, volatility (or fear) index, had been languishing around 12.  It shot up 3 today to 26 (going over 30 at the highs), not seen since mid 2012.  These are unusually wild times.  Coming up with explanations about these kinds of swings doesn't mean much.  The one month charts for AMZ & the Dow are shown to give a flavor of what the markets have been going thru.  The rest of the month looks drab at best.  Early earnings have not been impressive.  Cheerless data on the US economy (probably the best on the world) & so-so earnings can not be counted on to bring out buyers.

Dow Jones Industrials

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