Monday, December 15, 2014

Markets slump as oil reaches a new 5½ low

Dow sank another 99, decliners over advancers 3-1 & NAZ dropped 48.  The MLP index tumbled another 12+ to 420 (nearing a 2 year low) & the REIT index fell 4 to the 319s.  Junk bond funds were weak & Treasuries rallied as stocks sold off.  Oil is now in the 55s & gold is below 1200.

AMJ (Alerian MLP Index tracking fund)

CLF15.NYM....Crude Oil Jan 15....56.08 Down ...1.73  (3.0%)

Live 24 hours gold chart [Kitco Inc.]

Crude oil dropped to a 5-year low after the United Arab Emirates said OPEC won’t rein in production in response to the slump.  OPEC will refrain from curbing output even if prices fall as low as $40 a barrel, UAE Energy Minister Suhail Al-Mazrouei said.  Prices have slipped about 20% to the lowest in 5 years since OPEC decided against cutting production to tackle the glut at the Nov meeting.  The group has pumped more than its output target of 30M barrels a day for the last 6 months.  Oil slid into a bear market this year amid the highest US production in three decades & slowing growth in global consumption.  Futures rebounded earlier today on signs that output will decrease in Libya & Nigeria, which are responsible for about 9% of OPEC production.  OPEC will stand by its decision not to cut output, the UAE’s Al-Mazrouei said yesterday.  The group will wait at least 3 months before considering an emergency meeting to discuss output again, he addeed.  “We are not going to change our minds because the prices went to $60 or to $40,” Mazrouei said.  “The market will stabilize itself.”  OPEC pumped 30.05M barrels a day in Nov, 1.73M barrels a day more crude than the world needs from the exporters in Q1.  An increase of 6M barrels a day in non-OPEC supply, from countries including the US & Russia, together with speculation in oil markets, triggered the recent drop in prices, OPEC Secretary-General Abdalla El-Badri said yesterday.  The US pumped 9.12M barrels a day in the Dec 5 week, the most in weekly Energy Information Administration started in 1983.

U.A.E. Says OPEC Won’t Change Output Even If Oil Price Drops as Low as $40

Business at US restaurants is rising along with consumer confidence, which hit a 7-year high earlier this month.  Sales at casual-dining establishments grew 0.3% in Nov from a year ago, following a 1.6% increase in Oct, according to the Knapp-Track Index.  This marked 4 consecutive gains in the monthly index of restaurant sales after an 8-month negative streak.  This end-of-year boost caps off a progressive improvement throughout 2014, said Malcolm Knapp, who created the index in 1991.  As a result, total sales at casual-dining eateries are poised to outpace last year’s 0.9% gain, he said.  Restaurateurs are “cautiously optimistic” heading into 2015, even as wage gains for hourly employees remain lackluster & consumers are “shopping very carefully and not making a lot of impulse purchases,” Knapp said.  The US is an “allocation nation,” with Americans having to choose each month which discretionary purchases to make, including eating out or buying clothes.  The improvement in sales has been driven primarily by diners who are spending more when eating at restaurants, said Larry Miller, founder of, which provides an industry performance benchmarking service.  “People are feeling better about the economy, and the purse strings are a little looser.”  Improved hiring in particular has helped buoy restaurant sales because that growth is highly correlated with eating out, Miller said.  Employers added an average of 240K workers to their payrolls in Jan-Nov, the most for the period since 1999.  Trends have been improving throughout the year after severe winter weather rocked the industry in Q1.  Comparable sales at casual-dining & limited-service establishments rose 2.2% in Apr-Nov, up from 0.9% in Q1, according to data Miller collects.

Restaurant Sales Rise on U.S. Sentiment Gains: EcoPulse

Honeywell is counting on cost-cutting to help boost EPS next year by as much as 12% as a weak € & falling oil prices throttle sales growth.  HON predicted EPS of $5.95-$6.15 in 2015, up from $5.50-$5.55 expected this year.  Sales are forecast to grow as little as 1% to $40.5-$41.1B, the company said.  As the pace of growth in China slows & Europe struggles, HON has increased capital expenditures & reduced costs thru “restructuring” projects to boost earnings growth amid sluggish sales.  The company forecast $125M of additional savings in 2015.  The weaker € may shave about $650M off sales & cut EPS by 10¢, HON said.  Excluding acquisitions, divestitures or foreign exchange, sales are forecast to rise 4%.  Capital expenditures will rise to $1.3 B in 2015 from $1.1B this year.  Investment has increased from a range of $800-$900M in previous years as HON spends to boost growth.  Lower oil costs will have a “net positive” on HON as airlines spend more on spare parts & fuel costs drop for the company in distribution & other areas, said CFO Tom Szlosek.  Oil prices, which have fallen to a 5-year low, will cause sales at the resin & chemical units in 2015 to decline about $115M, he said.  The company plans to buy back just enough stock to keep the number of shares constant this year.  The stock fell 7¢.  If you would like to learn more about HON, click on this link:

Honeywell Sees 2015 EPS Growth Constrained on Weak Euro, Oil

Honeywell (HON)

Low prices for oil should be bullish for economies around the world.  But it's not working out that way.  There is oversupply, on the margin because OPEC is not adjusting production to reflect a changing world of abundant supply.  Even favorable economic data is not bringing out stock buyers.  Oil is clearly in a bear market & looks like it may drag stock averages into bear territory.  Dow has pulleld back to where it was on Oct 30.

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