Monday, September 28, 2015

Markets sink led by weak biotechs

Dow tumbled 185, decliners over advancers 5-1 & NAZ dropped 80.  The MLP index sank 6+ to the 308s (multi year lows) & the REIT index lost 2+ to the 301s.  Junk bond funds were lower & Treasuries rallied.  Oil dropped to the 44s & gold was weak.

AMJ (Alerian MLP Index tracking fund)

CLX15.NYM...Crude Oil Nov 15...44.84 Down ...0.86  (1.9%)

GCU15.CMX...Gold Sep 15......1,147.50 Up ...1.50 (0.1%)

In Aug, household spending climbed more than forecast & incomes also rose as the biggest part of the economy continued to power past a global slowdown.  Consumer purchases climbed 0.4%, matching the gain in Jul (larger than previously reported), according to the Commerce Dept.  The forecast called for a 0.3% increase.  Incomes advanced 0.3%.  By maintaining spending, consumers are helping the US overcome intl risks that threaten to weigh on growth.  Solid gains in the labor market, combined with cheap gasoline & modestly growing incomes, should continue to boost consumption.  The price index tied to consumer spending was unchanged in Aug & from a year earlier, the gauge was up 0.3%.  This inflation measure is preferred by Federal Reserve policy makers.  Stripping out the volatile food & energy components, the price measure rose 0.1% from the month before & 1.3% in the 12 months ended Aug.  Wages climbed 0.5% after a 0.6% jump a month earlier.  That helped power a 0.4% gain in inflation-adjusted spending, the most in 3 months.  Real outlays for durable goods rose 1.2% after a 1.3% increase a month earlier.  Spending on non-durable goods & services rose more in Aug than in Jul.  Because spending rose more than incomes, the personal saving rate eased to 4.6% in Aug from 4.7% a month earlier.  With cheap oil reducing business investment & a stronger dollar crimping factories, households have had to do the heavy lifting for growth this year.  GDP rose at a 3.9% rate Q2, boosted by stronger consumer spending & construction.  The biggest obstacle for the economy in Q3 is the need to reduce bloated inventories, which has economist projecting slower growth.  GDP is forecast to expand at a 2.4%.

Consumer Spending in U.S. Rose More Than Forecast in August

Federal Reserve Bank of New York pres William C. Dudley said the central bank will "probably" raise interest rates later this year despite uncertainties over global growth.  "I think that the economy is doing pretty well," Dudley said today.  He expects growth in H2 will be "a little bit weaker" than in H1.  Dudley said his expectation on timing was "not calendar guidance. It depends on the data. That’s based on my view of how the economy is likely to evolve.”  His remarks are aligned with the views of Janet Yellen, who said Thurs she also felt it likely the Fed would increase rates this year for the first time in almost a decade.  The FOMC decided Sep 17 not to hike rates, citing worries over the slowdown in China & other intl concerns.  Dudley said China is the largest factor among intl developments the Fed is watching, though he stressed external forces mattered only to the extent they influenced the central bank’s progress on its goals for 2% inflation & maximum employment.  "It’s really about the implications of China’s growth," he added.  China’s slowdown has helped push down global commodity prices. That, along with a strengthening of the dollar, has contributed downward pressure to inflation in the US.  Dudley said inflation probably would move back toward the target over time, & that 2% was "the right target."  He said the inflation goal was not a ceiling for policy makers & he wouldn’t be disturbed if inflation went over the target, before adding, "I don’t think we’re going to deliberately try to overshoot 2 percent."

Fed's Dudley Says U.S. on Track for 2015 Interest-Rate Increase

Contract signings to purchase previously owned homes in the US  unexpectedly declined in Aug for just the 2nd time this year, signaling residential real estate might have difficulty building on recent momentum.  An index of pending home sales decreased 1.4% after a 0.5% advance in Jul, according to the National Association of Realtors.  The projection called for the gauge to climb 0.4%.  A scant supply of homes for sale that’s keeping prices elevated is hampering demand.  At the same time, historically low mortgage rates & steady employment gains should help underpin the market as the broader US economy battles headwinds from dollar appreciation & slower overseas growth.  “Pending sales have leveled off since mid-summer, with buyers being bounded by rising prices and few available and affordable properties within their budget,” NAR chief economist Lawrence Yun said.  Purchase contracts increased 6.7% in the 12 months ended in Aug after a 7.2% annual gain in July on an unadjusted basis.  The pending sales index was 109.4 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.  Pending sales are considered a leading indicator because they track new purchase contracts.  Existing-home sales are tabulated when a deal closes, usually a month or 2 later.  Re-sales, which make up about 90% of the market, dropped in Aug from the strongest since 2007.  Inventories decreased 1.7% from a year earlier, showing lean stockpiles could limit the enthusiasm of potential home buyers who have fewer properties to choose from.

Pending Sales of Previously Owned U.S. Homes Unexpectedly Fall

This is getting to be routine, another dreary day for the stock market in what was supposed to be a year of more gains.  While biotechs are leading the decline, breadth is ugly.  Stories of layoffs & companies reducing guidance are behind the sell-off.  Dow is down 400 in Sep & the month is living up to its reputation for being a bad time in the stock market.

Dow Jones Industrials

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