Wednesday, January 14, 2015

Markets fall on growth concerns

Dow sank 186 (but off the lows), decliners over advancers 3-2 & NAZ lost 22.  The MLP index climbed 3+ to the 421s & the REIT index increased 2+ to the 346s.  Junk bond funds pulled back & Treasuries rose.  Oil bounced back to about 48 on bargain hunting & gold was little changed.

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CLK15.NYM...Crude Oil May 15....49.45 Up ...1.40 (2.9%)

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A Federal Reserve (FED) survey showed most regions saw “modest” or “moderate” economic growth driven by gains in consumer spending, while the energy-rich Dallas district slowed as oil prices plunged.  “Consumer spending increased in most districts, with generally modest year-over-year gains in retail sales,” the FED said in its Beige Book report from its 12 districts gathered on or before Jan 5.  “Auto sales showed moderate to strong growth.”  The report follows Commerce Dept showing that retail sales slumped in Dec from the prior month.  From a year earlier, sales increased 3.2% in Dec following a 4.7% gain in Nov.  Several districts “expect somewhat faster growth over the coming months,” the report showed.  “Payrolls in a variety of sectors expanded moderately” & “significant wage pressures were largely limited to workers with specialized technical skills.”  The Beige Book offers policy makers, who meet Jan 27-28, anecdotal evidence about the state of the economy as they consider when to raise ineterst rates for the first time since 2006.  Oil prices have plunged by more than half since Jun.

Fed Saw Consumer Spending Rise Amid Concern on Lower Oil Prices

Wells Fargo expenses rose to the highest level in 2 years as the lender paid employees more & increased spending on risk-monitoring.  Q4 expenses climbed 4.7% from a year earlier to $12.6B.  The increase crimped EPS which rose to $1.02.  The estimate was for EPS of $1.01.  CEO John Stumpf has increased spending to boost revenue as record low interest rates & more deposits squeeze lending spreads.  Net interest margin, the difference between what a bank pays for deposits & charges for loans, fell to 3.04%.  Q4 revenue increased to $21.4B, beating the $21.3B estimate.  The bank reported $84.3B in full-year revenue.  Mortgage-banking revenue of $1.52B fell $118M from Q3 on lower originations.  The lender made $44B in home loans, down from $48B in Q3, & the pipeline of unclosed loans rose to $26B at yearend.  “Revenue increased as net interest income benefited from loan growth and the prudent deployment of our liquidity,” CFO John Shrewsberry said.  “Fee income remained strong and diversified. Credit quality continued to improve.”  Costs tied to commissions & bonuses rose 10% from a year earlier to $2.58B.  The efficiency ratio, a measure of how much is spent for each dollar of revenue, weakened to 59% from 57.7% in Q3.  The figure should be 55-59% in 2015.  Return on equity fell to 12.8% in Q4, from 13.1% in Q3.  “While we don’t expect next year to be a breakout year, we’re probably on the upper end of expectations of the consensus of economists,” Stumpf said last month.  “This is a very diverse economy.”  The stock fell 63¢.  If you would like to learn more about WFC, click on this link:

Wells Fargo Expenses at Highest Level in Two Years Crimp Quarterly Profit

Wells Fargo (WFC)

Oil oversupply that sent prices to a 5-year low will probably persist until at least H2 when demand is set to recover, according to Kuwait's oil minister & the OPEC governor of the UAE.  Faster global economic growth will be needed to help absorb the oil surplus estimated at 1.8M barrels a day, Kuwait Oil Minister Ali Al-Omair said.  A demand-led recovery is seen in H2, the UAE Governor to OPEC Ali Al Yabhouni said.  Slowing economic growth contributed to lower prices, Al-Omair added.  “We are expecting that this situation will continue until the surplus oil is absorbed & the world economy improves,” Al-Omair said.  “Forecasts indicate that this will not happen before the second half.”  OPEC produced 30.2M barrels a day of oil in Dec, down from 30.4M barrels in Nov. China's GDP climbed 7.4% last year, the slowest expansion since 1990, according to estimates.  Demand for oil is seen rising in China & elsewhere in Asia, UAE Energy Minister Suhail Al Mazrouei said.  It is shale oversupply that needs to be corrected, & OPEC will stand by its decision not to cut its crude output, he said.  Crude tumbled last year as oil extraction soared at shale formations in the US, but that has slowed recently.  “We are watching the movement of oil price and indeed it has reached a level that even experts did not expect,” Kuwait’s Al-Omair said.  OPEC isn’t planning any meetings before its scheduled gathering in Jun, he added.  “This is OK because even if we now cut some of our production it will not be more than the surplus which is existing in the market.”

Oil Recovery Seen by Gulf Producers as Slump Spurs More Demand

Oil finally went up, something many of its fans have forgotten.  Around 50, it remains depressed & with sluggish growth in the global economy, prospects are not good for a meaningful advance.  Stock traders are trying to make sense out of low oil prices that do not bring stronger economic growth at retail.  Next week, earnings reports from industrials will give an idea of how well businesses did in Q4 when oil prices plunged.

Dow Jones Industrials

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