Wednesday, August 19, 2015

Markets pare losses after Fed comments at last meeting

Dow sank 162 (there was selling at the close), decliners over advancers 5-2 & NAZ was off 40.  The MLP index dropped another 5+ to the 358s (as oil hit another low) & the REIT index fell 2 to the 323s.  Junk bond funds were weak & Treasuries rallied.  Oil sank to a more than 6 year low in the 41s & gold climbed higher with growing uncertainty in global stock markets.

AMJ (Alerian MLP Index tracking fund)

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CLV15.NYM....Crude Oil Oct 15....41.53 Down ...1.59  (3.7%)

Live 24 hours gold chart [Kitco Inc.]

Federal Reserve officials said last month that while conditions for raising interest rates were approaching, they need more confidence inflation is moving toward their goal, according to meeting minutes.  Most participants “judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point.”  The details come 4 weeks before the Sep meeting, when most economists forecast the central bank will raise its benchmark interest rate.  Policy makers say a decision to raise rates will hinge on continued improvement in the labor market & confidence that inflation will move higher.  “Almost all members” indicated that “they would need to see more evidence that economic growth was sufficiently strong and labor markets conditions had firmed enough for them to feel reasonably confident that inflation would return to the Committee’s longer-run objective over the medium term,” the minutes show.  Officials in Jul left the benchmark federal funds rate near zero & said that it will be appropriate to begin tightening policy once they have seen “some further improvement” in the labor market & are reasonably confident that inflation will move up toward their 2% objective.  The addition of the modifier “some” was the only change to their language on conditions that would warrant a rate increase.  The labor market has shown continued progress since the FOMC meeting, with US firms adding 215K jobs in Jul compared with the year-to-date monthly average of 211K.  Inflation, by contrast, has remained subdued.  The Fed’s preferred gauge hasn’t been above the committee’s 2% goal since Apr 2012 & rose 0.3% in the year thru Jun.  The Jul minutes showed policy makers raising questions about what it would take to get inflation back to their target.  Rising demand for labor “still appeared not to have led to a broad-based firming of wage increases,” the minutes said.  “It was noted that considerable uncertainty remained about when wages might begin to accelerate and whether that development might translate into increased price inflation,” the minutes added.  Still, “most” officials expected that downward pressure on inflation from declines in energy prices & a stronger dollar “would prove to be temporary.”

Fed Officials Say Rate Rise Closer, Job Market Needs Improvement

Euro-area finance ministers signed off on a bailout program for Greece of  €86B ($95B), paving the way for the nation to pay its bills & begin to rebuild its economy.  Greece is due to receive a first installment of funds from the European Stability Mechanism tomorrow, in time to pay the ECB & clear its arrears with other creditors.  Finance ministers just approved the bailout deal.  “The Greek government is bound to implementing this wide-ranging reform package with determination and we will monitor the process closely,” said Dutch Finance Minister Jeroen Dijsselbloem, who leads the group of euro-area ministers.  “It’s not going to be easy. We are certain to encounter problems in the coming years but I trust we will be able to tackle them.”  The aid deal comes after months of negotiations & legislative fights in Greece & in creditor nations.  Lawmakers in Germany & the Netherlands signed off on the plan earlier today, after German Chancellor Merkel & Dutch Prime Minister Rutte fought off domestic opposition to push the bailout thru.  Greece is due to receive €13B tomorrow & another €10B will go into a segregated ESM account that is available for bank recapitalization.  A separate €3B is slated to be disbursed by the end of Nov.  The IMF will review whether to contribute money to Greece later this year when European authorities will also assess the nation’s progress in meeting its commitments & the euro area also plans to evaluate debt relief options for Greece at that time. 

Euro Area Agrees on 86 Billion-Euro Bailout Deal for Greece

Target, a Dividend Aristocrat, raised its full-year earnings forecast for the 2nd time & reported its 6th straight rise in quarterly sales, driven by demand for home products & apparel.  Same-store sales rose 2.4% in Q2, better than the 2.2% rise expected.  The company earned 1.22 per share on an adjusted basis, above its own estimate of 1.04-1.14.  Revenue rose 2.8% to 17.4B.  The company said it now expected full-year adjusted EPS of 4.60-4.75.  It had earlier raised the lower end of its forecast by 5¢ to 4.50-4.65.  The stock went up 57¢.  If you would like to learn more about TGT, click on this link:

Target Raises 2015 Earnings Forecast Again

Target (TGT)

Even with a recovery during the day, stocks had a dreary.  That has been common for months.  Dow continues to flirt with its lows since last Nov & no relief is in sight.  If the Fed postpones the rate hike in Sep, that will only raise the recurring question about "when."  Macro economic data from the US remains inconsistent, & that is better than data from overseas.  Europe is in or very close to a new recession & the growth engine in China keeps sputtering.  The bear market in oil is very scary because it is saying that weak demand will drag on for months, at a minimum.  As the chart shows below, Dow is playing defense.

Dow Jones Industrials

stock chart 


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