Friday, July 31, 2015

Mostly lower markets, led by energy stocks & commodities

Dow dropped 53, advancers over decliners 3-2 & after gains in the AM, NAZ finished down chump change.  The MLP index was off 4+ to the 381s & the REIT index rose 2+ to the 318s.  Junk bond funds were higher & Treasuries climbed higher as stocks & commodities fell.  There was more selling in oil (see below) taking into the 47s & gold inched higher, still below 1100.

AMJ (Alerian MLP Index tracking fund)

CLV15.NYM....Crude Oil Oct 15....47.95 Down ...0.96  (2.0%)

Live 24 hours gold chart [Kitco Inc.]

US wages & salaries rose in Q2 at the slowest pace on record, dashing projections that an improving labor market would boost pay.  The 0.2% advance was the smallest since records began in 1982 & followed a 0.7% increase Q2, the Labor Dept said.  The agency’s employment cost index, which also includes benefits, also rose 0.2% from the prior qtr.  The FOMC is counting on rising wages to boost the economy & bring inflation closer to the 2% goal.  The setback may prompt some officials to call for a delay in raising interest rates.  Wages & salaries typically account for 2/3 of total employment expenses.  The ECI data help color the outlook for worker pay after the Jun employment report showed average hourly earnings rose 2% from a year earlier, matching the average since the start of the expansion 6 years ago.  Wages of all employees, including gov workers, advanced 2.1% from the same period  in 2014 after climbing 2.6% year-over-year in Q1.  Private wages were little changed in Q2 from the prior qtr, the worst performance since those records began in 1980.  Wage growth has been slow to respond to indications that the labor market is tightening, which would normally cause managers to feel pressure to boost pay amid a smaller pool of workers.  Job openings climbed in May to 5.36M, the highest in records dating to the end of 2000, Labor Dept data show.  There are about 1.6 Americans per available position, matching the lowest level since Sep 2007.  Surveys of small businesses, at least, show managers aren’t planning on further need to raise wages in order to attract & retain employees.

Quarterly Increase in U.S. Worker Pay Smallest on Record

Chevron, a Dow stock & Dividend Aristocrat profit tumbled in Q2 as the company took over $2B in impairments & charges to suspend projects amid lower crude-oil prices.  "Second-quarter financial results were weak, reflecting a crude-price decline of nearly 50% from a year ago, said CEO John Watson.  "Our upstream businesses were particularly hard hit, as lower prices reduced revenues and triggered impairments and other charges."  It booked $1.96B in impairments & $670M in charges related to project suspensions & adverse tax effects.  The charges stemmed from a downward revision of its long-term crude-oil price outlook.  He said the company has multiple efforts under way to improve its cash flow, which has been a problem lately as CVX has spent cash faster than it comes in.  "We're getting our cost structure down, through renegotiations across the supply chain and by sizing our contractor and employee workforce to reflect lower activity levels going forward," he added.  In the latest qtr, capital spending fell to $8.72B from $10.19B a year ago.  EPS droppe to 30¢, down from $2.98 a year earlier.  Currency fluctuations decreased earnings by $251M, compared with $232M a year ago.  Revenue fell 30% to $40.3B.  Analysts had forecast EPS of $1.16 & revenue of $30.9B.  Exploration & production (the upstream segment) swung to a loss of $2.22B from a profit of $5.26B a year earlier.  Refining, marketing & chemical operations (downstream) earnings jumped to $2.96B from $721M a year earlier.  CVX profits are better insulated than most oil producers because it also makes money from refining the fuel into gasoline & diesel & lower-cost crude has helped its refinery businesses improve profit margins.  Production grew 2% to 2.6M barrels per day, owing to project ramp-ups in the US, Bangladesh & Argentina.  The stock dropped 4.55 (5%).  If you would like to learn more about CVX, click on this link:

Low Oil Prices Slam Chevron 2Q Earnings

Chevron (CVX)

Oil prices again, with US crude posting the largest monthly drop since the 2008 financial crisis, after signs that top producers in the Middle East were continuing to pump at record levels despite a growing global gut.  Uncertainty ahead of key US oil production & rig count data due also weighed on oil despite a weaker (that normally would be supportive to commodities).  Futures of global benchmark Brent & US crude oil were down more than 1% each.  Brent was down almost 4% declining for a 5th week in a row.  Thru Jul, US crude was down 20%, its largest monthly decline since Oct 2008, when oil had an epic collapse at the outbreak of the financial crisis.  Jul losses came on the back of a stock market tumble in top energy consumer China & a growing oversupply in oil.  A survey showed that Saudi Arabia & other big oil producers in the MidEast, members of OPEC, were not wavering in their quest for market share over prices.  OPEC pumped more than 32M barrels per day this month, up 140K bpd from Jun, reaching the highest monthly level in recent history.

Crude Prices Down for 5th Straight Week

Stocks had another cheerless week.  Dow was up 100+ this week, good enough for a small advance in Jul.  Earning reports are largely in & they brought little to cheer about.  The US economy is doing better than in other countries, but negative global influences hurt.  The long recovery continues to get only so-so grades.  Even with lower unemployment rates, household has been able to make significant headway & there is no indication that story will change.  The Greek bailout remains unclear & China has not been able to juice the economy & straighten out its stock market.  Stock markets remain on defense, looking for direction.

Dow Jones Industrials

stock chart 

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Markets attempt to crawl higher, led by tech stocks

Dow inched up 13, advancers over decliners almost 3-1 & NAZ added 25.  The MLP index fell 3+ to the 382s & the REIT index rose 4+ to 320.  Junk bond funds edged higher & Treasuries advanced, bringing the yield on the 10 year Treasury below 2.2%.  Oil slid back in the 48s & gold was flattish under 1100.

AMJ (Alerian MLP Index tracking fund)

CLV15.NYM....Crude Oil Oct 15...48.77 Down ...0.14  (0.3%)

GCQ15.CMX...Gold Aug 15.....1,097.60 Up ...9.20 (0.9%)

3 Stocks You Should Own Right Now - Click Here!

China’s stocks fell, capping the biggest monthly drop for the index in 6 years, as the gov struggles to rekindle investor interest amid a $3.5T rout.  The Shanghai Composite Index slid 1.1% to 3663, dragged down by energy & industrial companies.  The gauge tumbled 15% this month, the biggest loss among 93 global benchmark gauges, as margin traders cashed out & new equity-account openings tumbled amid concern valuations are unsustainable.  While unprecedented state intervention spurred a 18% rebound from the Jul 8 low, volatility returned on Mon when the gauge plunged 8.5%.  Outstanding margin debt on mainland bourses has fallen about 40% since mid-Jun, while the number of new stock investors shrank last week to the smallest since the gov started releasing figures in May.  Turnover has fallen as volatility surged.  The value of shares traded on the Shanghai exchange on Thurs was 53% below the Jun 8 peak, while a 100-day measure of price swings on the Shanghai Composite climbed to its highest level in 6 years on Fri.  At the market’s peak in Jun, investors were opening more than 1M accounts a week.  Margin debt surged 5X over the preceding 12 months, propelling the Shanghai Composite to a 150 % advance.  The outstanding balance of loans backed by share purchases fell to 881B yuan ($142B) on the Shanghai Stock Exchange Tues, the lowest level since Mar 16.  To shore up markets, the gov has armed a state-run financing agency with more than $480B to bolster the market, allowed hundreds of companies to suspend share trading & banned major shareholders from selling stocks.

China’s Stocks Fall to Cap Worst Monthly Decline in Six Years

The University of Michigan's final Jul reading on the overall index on consumer sentiment came in at 93.1, down from 96.1 in Jun.  It was lower than the survey's preliminary reading of 93.3.  The final reading was the lowest since May & was below the forecast of 94.0.

Consumer Sentiment Gauge Ticks Lower in July

Exxon Mobil, a Dow stock & Dividend Aristocrat, reported lower-than-expected Q2 results as tumbling crude prices halved profit at the world's largest publicly traded oil company.  Profit at its exploration & production business fared even more poorly with a profit of $2B, down sharply from $7.9B a year earlier.  Crude prices in the qtr fell more than 40% from a year earlier, hit by growing global supplies & worries about slowing demand from China.  EPS fell to $1.00 from $2.05 last year.  Analysts had expected EPS $1.11.  Oil & gas output grew 3.6% to 4M barrels oil equivalent per day (boed).  The stock sank 3.76 (almost 5%).  If you would like to learn more about XOM,click on this link:

Exxon profit halved by tumbling crude price; shares drop

Exxon Mobil (XOM)

After all is said & done, Dow is up about 1% in Jul slightly in the red YTD.  Earnings season, largely over, was sluggish, & that's being kind.  The oil giants & MLPs are getting clobbered.  There have been div cuts & the best are eking out quarterly increases of a penny to maintain a string of higher divs.  A slightly higher market today does not change Dow's status, it's still on defense.  For the time being, tech stocks are the darlings, attracting buyers.

Dow Jones Industrials