Thursday, August 27, 2015

Markets rally sharply after a midday decline

Dow rose 369 closing at the highs in a highly volatile day, advancers over decliners about 8-1 & NAZ gained 115.  The MLP index jumped 14+ to the 354s (helped by a surge in oil prices) & the REIT index added 5+ to the 305s.  Junk bond funds were mixed to higher & Treasuries had a modest advance.  Oil soared to the 42s (see below) & gold eased back.

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CLV15.NYM....Crude Oil Oct 15....42.58 Up ...3.98 (10.3%)

Live 24 hours gold chart [Kitco Inc.]

Contracts to purchase previously owned homes in the US climbed in Jul for the 6th time in the last 7 months, signaling further momentum in residential real estate.  The pending home sales index increased 0.5% after a revised 1.7% decline in Jun, the National Association of Realtors (NAR) said.  The projection called for the index to rise 1%.  Consistent employment growth & still-cheap borrowing costs are bolstering household balance sheets, helping Americans feel more comfortable about signing for big purchases.  A bigger pickup in worker pay, alongside a tightening rental market, could provide more of a boost to housing through the end of the year.  Purchase contracts increased 7.2% in the 12 months ended in Jul after an 11.1% annual advance in Jun on an unadjusted basis.  The pending sales index was 110.9 on a seasonally adjusted basis.  A reading of 100 corresponds to the average level of contract activity in 2001, or “historically healthy” home-buying traffic, according to the NAR.  Pending sales rose in 2 of 4 regions, increasing 4% in the Northeast & 0.6% in the South.  “The prospects for ongoing strength in the housing market remain intact for now,” the NAR said.  “The U.S. economy is growing -- albeit at a modest pace -- and the labor market continues to add jobs.”  Pending sales are a leading indicator because they track new purchase contracts.  Existing-home sales are tabulated when a deal closes, usually a month or 2 later.  Those re-sales make up about 90% of the market & climbed in Jul for a 3rd month to reach the highest level since Feb 2007.  The gain was driven by stronger sales of single-family houses even as the share of first-time buyers shrank.

Pending Sales of Previously Owned U.S. Homes Rose 0.5% in July

Apple, a Dow stock, sent invitations to an event on Sep 9 in San Francisco, where it’s expected to unveil the latest iPhone, a new Apple TV set-top box & other updated products.  “Hey Siri, give us a hint,” reads the invitation to the event at the Bill Graham Civic Auditorium, starting at 10AM.  The release of a new iPhone is the most important annual product rollout for its business.  The device, first unveiled by Steve Jobs in San Francisco more than 8 years ago, generated $31.4B in sales last qtr, making up 63% of the company’s revenue.  The latest smartphones will look similar to the current iPhone 6 models, with 4.7" & 5.5" screens, along with an improved camera & faster processor, according to leakers.  A new feature called Force Touch, first introduced in the Apple Watch, is also expected to be added, which will let users navigate thru features by pressing down on the screen.  The company may also release an update to Apple TV, which serves as a gateway for streaming online video content from iTunes, Netflix, HBO & other providers.  Jobs first unveiled Apple TV on the same day as the iPhone in 2007, but the company hasn't updated the product in several years.  It’s now a crowded market offering consumers access to similar content.  The event will give CEO Tim Cook an opportunity to assuage the concerns of investors who have raised questions about company growth, particularly in China, where the economy is showing signs of slowing.  The stock rose 3.15.  If you would like to learn more about AAPL, click on this link:

Apple to Hold iPhone Event on September 9 in San Francisco

Apple (AAPL)

Oil rocketed higher, posting its biggest one-day rally since 2009 as recovering equity markets & news of diminished crude supplies set off a short-covering surge by bearish traders.  Snapping back from a deep 2-month slump that reached 6½ year lows this week, oil climbed as world stock markets rose on hopes Chinese gov measures to stimulate the economy would pay off, while the dollar strengthened as risk aversion eased.  The rally was aided by news indicating more drawdowns in crude this week at Cushing, Oklahoma, traders said.  A big upward revision in Q2 US economic growth helped.  More than reversing the past week's losses, front month Brent crude for October rose $4.07 to $47.21, a 9.4%.  Gains accelerated toward the close, heading toward the biggest one-day rally since early 2009, when prices were bouncing back after the financial crisis.  US crude rose $4.00 to $42.60 per barrel, showing its biggest one-day percent gain since early 2009.  It had hit a Feb 2009 low of $37.75 on Mon.

Oil Makes Biggest Gain in More Than 6 Years

Kansas City Federal Reserve pres Esther George discussed how China & market volatility are affecting her outlook on raising rates in Sep.  “Anytime that you get new information in between meetings, it can complicate decision making. So certainly you have to look at the changes, the volatility we saw in the market, what new information we may have about China and take that in. The question is whether it fundamentally changes the outlook of the U.S. economy,” she said.  George added she has a wait-and-see approach on data before suggesting a rate hike.  “Given what we’ve seen recently, I think we just have to wait and see. I don’t want to take too much signal from something that could turn out to be noise. I don’t want to overreact to short-term data that may not in the long term really turn out to be significant for that kind of a decision,” she said.  She also said the US economy is getting back on track after a slow start to the year.  “So after a disappointing first quarter, it looks like we’re back on track. We’ll probably do another two percent growth. The labor markets continue to show great health, I think. We’ve had over 200,000 jobs per month for 15 of the last 17 months. That is great sign, I think. And so as consumers spend, as they gain more confidence, as low oil prices seed through to them, my outlook is for continued growth. And I think in that context, it’s time for us to talk about normalization,” she continued.  George said continuous low rates can create instability in the markets.  “Well, when rates are this low for a long period of time, you create certain incentive. And there can be mispricing of risk. There is certainly a desire to reach for yield. And if you think about the kind of accommodation, the quantitative easing was focused on asset values at the time. And so as we’ve seen housing values recover and the stock market that has grown, once you begin to talk about raising rates, you might expect volatility at some time,” she said.

Fed's George: 'Wait and See' on Data Before Rate Hike

This market is not for the timid.  Today Dow rose more than 300, then sold off to near break even.  But trading in the last hour brought it back to its strong finish at the close.  Go figgah!!  Macro economic news was favorable   The Shanghai markets shot up more than 5%, helped by the gov buying stocks.  However, substantial volatility is out there.  There may be more wild swings in stocks going into Labor Day, a time generally associated with quiet trading with many away on holiday.  Not in 2015.

Dow Jones Industrials


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