Friday, September 25, 2015

Higher markets after Yellen signals rate hike in 2015

Dow went up 190, advancers over decliners a modest 3-2 & NAZ added 22.  The MLP index gained 2+ to the 318s & the REIT index rose 1+ to the 304s.  Junk bond funds edged higher & Treasuries sold off.  Oil rebounded to the 46s & gold was hit with profit taking after its recent advance.

AMJ (Alerian MLP Index tracking fund)

CLX15.NYM...Crude Oil Nov 15...45.80 Up ...0.89 (2.0%)

GCU15.CMX...Gold Sep 15......1,147.50 Down ...6.30  (0.6%)

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The economy expanded more than previously forecast in Q2, boosted by gains in consumer spending construction that may help the US withstand a global slowdown.  GDP rose at a 3.9% annualized rate, compared with a prior estimate of 3.7% (matching the forecast), according to the Commerce Dept.  Strong hiring, cheaper gasoline & higher home prices will probably sustain household purchases, which account for about 70% of the economy.  That helps bolsterJanet Yellen’s view that the US will overcome any fallout from cooling overseas markets & swings in global financial & commodity markets.  The upward revision was driven mainly by a bigger pickup in consumer spending & business investment in commercial & residential construction.  The economy rebounded after growing at a 0.6% pace in Q1 amid harsh winter weather, a labor dispute at West Coast ports & a pullback in energy-industry investment.  Household consumption was revised to a 3.6% gain compared with an initial estimate of 3.1%, & followed a 1.8% advance in Q1.  A strong job market & cheap gasoline are sustaining the momentum in spending this qtr, helping to boost housing & autos.  Business investment climbed at a 5.2% annualized pace, compared with a prior estimate of 4.1%.  Investment in nonresidential structures, including office buildings & factories, rose 6.2%, the most in more than a year.  Residential construction increased at a 9.3% rate, up from a previous estimate of 7.8%.  Corp spending on equipment & software eked out a tiny gain, & recent data indicate it could pick up this qtr.  Q2 growth reading was at odds with data on earnings.  Gross domestic income, which reflects all the money earned by consumers, businesses & gov agencies climbed at a 0.7% annualized rate after climbing 0.4% in Q1, marking the weakest back-to-back gains since mid-2012.  Another bright spot was gov spending, which climbed at a 2.6% pace, led by the biggest gain in state & local agency outlays since 2001.  The biggest obstacle for the economy in Q3 is the need to reduce bloated inventories.  Stockpiles in the first 2 qtrs showed the biggest back-to-back gain since records began in 1947.  The need to cut stocks is the main reason economists project growth will slow when GDP is forecast to expand at a 2.4% rate.  Fed Chair Yellen said yesterday that she is ready to raise interest rates this year & intends to let the labor market run hot for a time to heal the lingering scars of the worst recession in decades.  She also said officials are confident the economy will keep expanding.

U.S. Economy Grows Faster Than Forecast on Consumer Spending

A gauge of consumer sentiment from the University of Michigan rose to 87.2 in September from a preliminary reading of 85.7. Wall Street anticipated the gauge would see a smaller increase to 86.7.

Consumer Sentiment Rises in September

Republican House Speaker John Boehner will resign from Congress & give up his seat in the House at the end of Oct.  Boehner’s plan had been to serve through the end of last year, but Eric Cantor’s primary loss changed that decision.  Boehner has come under increased pressure amid the threat of a gov shutdown, a deadline that looms large on next week’s horizon.  If no agreement is reached, the federal gov could shut its doors next Thurs.  DC chaos was made worse.

House Speaker John Boehner to Resign from Congress

Traders were relieved that Janet gave a strong signal for one rate increase this year, suggesting the economy is doing reasonable well.  But the market breadth is thin.  All is less than well.  The growth rate for Q3 should slow when reported in a month.  DC will be getting a lot of attention next week.  The gov fiscal year ends Wed & there is no plan to finance the new year.  The 2 sides are deeply divided & with Boehner leaving, the battle could get ugly quickly.  Earnings season starts the following week.  There will be a lot of activity for investors to watch.

Dow Jones Industrials

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