Tuesday, December 29, 2015

Higher markets as oil rebounds

Dow surged 192, advancers over decliners almost 3-1, & NAZ went up 66.  The MLP index fell 1+ to the 281s & the REIT index added 2+ to 329.  Junk bond funds traded higher & Treasuries were sold.  Oil had a strong gain in thin trading (see below) & gold lost pennies.

AMJ (Alerian MLP Index tracking fund)

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CLG16.NYM....Crude Oil Feb 16....37.88 Up ...1.07 (2.9%)

Live 24 hours gold chart [Kitco Inc.]

DuPont, a Dow stock, will cut about 28% of its workforce in its home state of Delaware in early 2016 as the chemical company proceeds with a merger with Dow (DOW). “The effect in Delaware will be significant, reflecting the urgent need to restructure our cost base and, as part of that effort, reduce our corporate overhead costs so that we can remain competitive,” CEO Ed Breen said.  The cuts will affect 1.7K employees out of 6K in the state.

The job cuts are part the plan to reduce the workforce of 63K by 10% & trim costs by $700M.  That strategy was outlined when the merger was announced 3 weeks ago.  Breen said the company was required to notify the state by Dec 31 on the job cuts.  “Given that we are in the middle of the holidays, we would have preferred to wait until individual notifications were complete before reporting the full local impact,” he added.  After the merger, the specialty products business will remain in Wilmington.  The new $130B DowDuPont plans to combine products from both companies in the areas of agriculture, commodity chemicals & specialty products to create the new businesses.  The state “will continue to urge DuPont and Dow to see the value of locating other businesses here in Delaware, where they have grown and succeeded in the past,” the Delaware governor said.  DD stock rose 1.10.  If you would like to learn more about DD, click on this link:

DuPont to Cut 1,700 Delaware Jobs Before Merger With Dow

E.I. du Pont de Nemours (DD)

Home price growth gained strength in Oct, even as more recent indicators suggest the pace of home sales has dramatically lost momentum as the year draws to a close.  The S&P/Case-Shiller Home Price Index covering the entire nation rose 5.2% in the 12 months ended in Oct, stronger than a 4.9% increase in Sep & among the largest increases all year.  The 10-city index gained 5.1% from a year earlier, compared with a 4.9% increase in Sep.  The 20-city index gained 5.5% year-over-year compared with 5.4% a month earlier.  The forecast was for a 6% increase in the 20-city index.  "Generally good economic conditions continue to support gains in home prices," said David Blitzer, managing director at S&P Dow Jones Indices.  He pointed to consumer expectations of low inflation & further economic growth, as well as recent increases in construction of new single-family homes & apartments as tailwinds for the housing market.  After years of volatility, home price growth appears to have stabilized at an annual rate of around 4-5%.  But while price growth has remained fairly steady throughout the year, the pace of sales has continued to ricochet, in part because high prices have started to scare some buyers out of the market.  The hottest markets in the country, primarily on the West Coast, continued to show double-digit price gains, with San Francisco, Denver & Portland, Ore., all reporting 10.9% year-over-year gains.  12 cities saw bigger year-over-year price increases in Oct than in Sep.  Case-Shiller offers one of the clearest indicators of how home prices are faring, but also provides a delayed picture.  Other recent indicators show that the pace of home sales slowed considerably in Oct & Nov, which many economists blamed on rising prices.

U.S. Home Prices Rise Slightly in October

Oil prices rose by $1 a barrel in thin trade amid prospects of colder weather in coming weeks but the outlook for 2016 remained bearish due to slowing global demand & abundant supplies from OPEC members.  Brent & US WTI crude prices gained more than 2% to trade above $37 per barrel after falling 3% yesterday.  Both crude benchmarks are down by more than 2/3 since mid-2014 on US shale oil output & OPEC member Saudi Arabia's decision to pump near record volumes to safeguard market share.  Yesterday, Saudi Arabia announced plans to shrink its record $98B state budget deficit with spending cuts, reforms to energy subsidies & a drive to raise revenue from taxes & privatization.  Saudi Arabia & Iraq have added output in 2015 & world production has at times exceeded demand by more than 2M barrels per day.  The global oil glut is expected to worsen in 2016 as Iran has pledged to ramp up exports once Western sanctions on it are lifted.  Saudi Arabia & its Gulf allies the UAE & Kuwait have said they are counting on global demand growth to help rebalance the market over the course of 2016.  But there are increasing signs that demand might slow much sharper than expected after a spike in 2015.

Oil Gets a Boost Ahead of Supply Data

There has not been a lot going on this week, other than the bears are on long holidays.  So the bulls have taken over.  Maybe bulls are bidding up stock prices to make their year-end portfolios look better in a drab year.  Dow is down less than 100 YTD.  But all is not well in the stock market.  Jan can be volatile.  Sometimes there is a rally when new pension money is invested in stocks.  Other times, there is a major sell-off when profits made in Dec are taken in Jan.

Dow Jones Industrials


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