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Wednesday, November 4, 2015
Lower markets after Yellen said a Dec rate hike is a “live possibility”
Dow lost 50 finishing near the lows, decliners over advancers 3-2 & NAZ fell 2. The MLP index plunged 10+ to the 332s & the REIT index was off 1+ to the 325s. Junk bond funds were mixed to lower & Treasuries also declined. Oil dropped after a report showed a higher than expected build in oil stocks as well as on OPEC's expectations that demand for its oil will remain under pressure in the next years & gold continued weak.
Fed Chair Janet Yellen said an improving economy has set the stage
for a Dec interest-rate increase if economic reports continue to
assure policy makers that inflation will accelerate over time. “At
this point, I see the U.S. economy as performing well,” Yellen said on before the House Financial Services Committee. “Domestic spending has been growing at a solid pace” & if the data continue to point to growth & firmer prices, a
Dec rate hike would be a “live possibility,” she said in response
to a question.
U.S. 2-year note
The
FOMC in its Oct statement said it will
consider raising interest rates at its “next meeting,” citing “solid”
rates of household spending & business investment. No decision has yet been made on the timing of a rate increase, Yellen cautioned. “What
the committee has been expecting is that the economy will continue to
grow at a pace that’s sufficient to generate further improvements to the
labor market and to return inflation to our 2 percent target over the
medium term,” she added.
ExxonMobil, a Dow stock & Dividend Aristocrat, CEO Rex Tillerson painted a very bleak picture on the economy & jobs. "If you look at energy for kind of a proxy for how the economy is
going, it’s pretty sluggish and there’s not a lot that we can see on the
horizon through next year that’s going to change that," he said. Tillerson added that the US economy has been "sluggish" since the downturn of 2009. "We’ve never really found our legs. We [have] just been kind of sliding along at a very, very modest economic rate." Tillerson attributes job growth in the US to the shale revolution. "If you look at job growth in the U.S. since about 2010 and 2009 when
the shale revolution really began and activity levels really picked up
to these very high levels most of the job growth in the United States,
if you strip out our industry… there was no job growth in the U.S… As
we’ve had the downturn we are seeing significant job losses there and I
think that’s why you see it translating into a flattening into some of
the job gains." Despite seeing solid free cash flow in his business, he warned that the jobs picture could get worse in the US. "As companies move into next year, depending on their cash available,
they will have to adjust their activities further in order to manage
the cash that’s available to them." He also said things aren’t much better in China & Europe. "Europe is pretty much sliding sideways… and in China, we are seeing
the rate of growth continue to bend over… The global economy is not
hitting on all its cylinders," he continued.
Time Warner reported
better-than-expected quarterly profit & revenue, boosted by higher
subscription fees for HBO & an increase in licensing revenue at its Warner Bros. studio business. Revenue at the studio
business rose about 15% in Q3, helped by the
releases of the "LEGO Dimensions" & "Mad Max" videogames. The syndication of TV shows "2 Broke Girls" & "Person of Interest"
also boosted revenue at the studio, which contributes about 49%
oftotal revenue. Revenue at HBO increased 4.8% as more people
signed up for popular shows such as "Game of Thrones" & "True
Detective." HBO's heavy investments to develop original programming has paid off,
helping it prevent viewers from moving to other online streaming
services, a worry that has plagued the cable sector. HBO, the smallest of the 3 business units, is also hardly impacted by television ratings for its shows as the network is advertisement-free. Media companies are remodeling their businesses to grab a larger share of
the video-streaming market as consumers increasingly take to watching TV
shows online, dubbed as "cord cutting." Total revenue rose 5.1% to $6.56B. EPS
rose to $1.26 from $1.11. Excluding items, EPS was $1.25. Analysts had expected EPS of $1.09 on revenue of $6.51B. The stock sank 5.10. If you would like to learn more about TWX, click on this link: club.ino.com/trend/analysis/stock/TWX?a_aid=CD3289&a_bid=6ae5b6f7
Janet spoke & the markets listened. She signaled that a Dec rate hike is a "live possibility" which means it's coming unless some major negative event gets in the way. After almost one decade of no rate hikes the stock market is spooked, afraid of the unknown. A 25 basis point hike is not going to bring on a recession. All that it will bring is a small increase in interest rates which will still be low based on historical standards. Traders & investors have to relax & watch other significant events like earnings. And Q3 earnings have not been pretty. Earnings pay for dividends & drive stock prices higher! Dow is barley in the black YTD.
![Live 24 hours gold chart [Kitco Inc.]](http://www.kitco.com/images/live/gold.gif?0.04174241599086159)
...1.49 
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