Tuesday, May 26, 2015

Markets tumble as improved economic data boost rate hike bets

Dow dropped 161, decliners over advancers almost 5-1 & NAZ lost 50.  The MLP index sank 6+ to 439 (a very big drop) & the REIT index fell 3+ to 319.  Junk bond funds were mixed & Treasuries rallied.  Oil & gold both sold off.

AMJ (Alerian MLP Index tracking fund)

CL.NYM...Crude Oil Jul 15...58.61 Down .....1.11  (1.9%)

GC.CMX...Gold Jun 15....1,185.70 Down ...18.30  (1.5%)

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Orders for capital equipment rose in Apr for a 2nd straight month, a sign US business investment could pick up in H2.  Bookings for non-military capital goods excluding aircraft, a proxy for future corp spending on new equipment, advanced 1% after a 1.5% gain in Mar that was larger than previously estimated, according to the Commerce Dept.  Total durable goods demand declined 0.5%, as forecast.  Oil & mining companies are counting on a reprieve as crude prices rebound from the rout that pummeled business activity, while the strong dollar continues to undermine exports of American-made goods to overseas markets.  Domestic demand should keep factories churning out goods such as cars, as the labor market proves hardy.  The drop in demand for total durable goods, meant to last 3 years or more, followed a 5.1% jump in Mar that was the biggest since Jul & greater than previously reported.  The forecast called for orders to fall 0.5%.  Shipments for non-defense capital goods excluding aircraft, used in calculating GDP, rose 0.8% after increasing 1%.  Americans’ appetite for new cars has been the prize for factories.  Orders for automobiles climbed 0.3% last month after a 4.2% gain in Mar.  Excluding transportation equipment, orders increased 0.5% after a 0.6% advance a month earlier.  They were projected to rise 0.3%.  Among the bright spots was demand for machinery, which climbed in Apr for the first time in 3 months.  Cutbacks in drilling & mining equipment had been a drag on orders.

Orders for Capital Equipment in U.S. Climb for Second Month

Purchases of new homes in the US rose more than projected in Apr, a sign this part of the market is picking up steam during the busiest selling period of the year.  Sales increased 6.8% to a 517K annualized pace from a 484K rate in the prior month, according to the Commerce Dept.  The forecast was for 508K.  Prices picked up & inventory was little changed.  Steady hiring, low borrowing costs & a limited supply of existing homes is helping lift demand for new properties. Housing-related companies have said the spring selling season is off to a good start, & the brighter outlook for sales may spur more residential construction, which would contribute to economic growth.  The median sales price increased 8.3% from Apr 2014 to $297K.  Purchases rose in 2 of 4 regions, led by a 36.8% surge in the Midwest, the biggest jump since Oct 2012, pointing to a rebound from harsh winter temperatures the month before.  The supply of homes at the current sales rate fell to 4.8 months from 5.1 months in Mar.  There were 205K new houses on the market at the end of Apr compared with 204K the prior month.

Sales of New U.S. Homes Climbed More Than Forecast in April

Consumers turned slightly more upbeat this month after taking a dimmer view of the economy in Apr.  The better attitude was concentrated in current economic conditions, although households hold a mixed view of job prospects.  The Conference Board index of consumer confidence increased to 95.4 from a revised 94.3 in Apr, first reported as 95.2.  But the May & April indexes are far below the 101.4 reported in Mar.  The forecast called for the latest index to be little changed at 95.0.  The present situation index, a gauge of consumers' assessment of current economic conditions, rose to 108.1 in May from a revised 105.1 in Apr, originally put at 106.8.  Consumer expectations for economic activity over the next 6 months fell to 86.9 from a revised 87.1, first reported as 87.5.  Consumers account for the bulk of economic activity.  However households haven't boosted spending by much, despite a cash windfall from falling gasoline prices.  That reticence is evident in retail sales . Growth in store sales, outside of car buying, has been lackluster.  According to the survey, consumers in May have mixed feelings about the current labor situation but are more optimistic about future job prospects.  20.7% of consumers this month think jobs are "plentiful, " compared with 19.0% who thought that in Apr while another 27.3% this month describe jobs as "hard to get," up from 25.9% saying that last month.  The share of respondents anticipating more jobs in the next 6 months rose to 14.6% in May from 13.8% saying that in Apr.  The share expecting fewer jobs fell to 15.5% from 16.4%.

Consumer Confidence Rises More than Expected in May 

Stocks have had a fabulous run over the last 6 years, but that has fueled by easy money.  Just a hint that rates are heading north fairly soon sent stocks south.  That is not how a strong stock market is supposed to behave.  After inching to a new high last week, Dow is down 250 from that peak & is ready to go below 18K where it has been for months.

Dow Jones Industrials

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