Tuesday, December 1, 2015

Higher markets on hopes for a delay in interest rate hike

Dow climbed 168, advancers over decliners better than 2-1 (modest all considered) & NAZ went up 47.  The MLP index sank 4+ to the 295s (close to 6 year lows) & the REIT index added 4+ to the 326s.  Junk bond funds were mixed to higher & Treasuries also rallied.  Oil & gold gained ground.

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The Federal Reserve’s policy meeting this month, at which it’s widely expected to raise interest rates for the first time in nearly a decade, has become a source of apprehension for Chicago Fed pres Charles Evans.  "I admit to some nervousness about our upcoming decision," Evans said.  Evans, among the most dovish of Fed policy makers, reiterated that he "would prefer to have more confidence than I do today that inflation is indeed beginning to head higher" before raising rates, adding that "regardless of the exact date for liftoff, I think it could well be appropriate for the funds rate to still be under 1 percent at the end of 2016."  Fed Chair Janet Yellen is expected to reinforce the possibility of a decision to increase the central bank’s benchmark federal funds rate at the Dec 15-16 meeting when she gives her outlook for the economy tomorrow in a speech.  The next day she will testify before Congress’s Joint Economic Committee.  Evans said that it’s vital the Fed “strongly and effectively communicates its plan for a gradual path for future rate increases” following liftoff.  He also said very easy monetary policy had helped boost car sales in recent years.  "With sales above trend and higher financing costs coming, we should expect sales to move down some from their current high pace," he added.  "But against the backdrop of a healthy job market and steady economic growth, the declines shouldn’t be too large."

Fed's Evans Says December FOMC Rate Decision Makes Him Nervous

CEO confidence in the US economy is dwindling.  The Business Roundtable CEO Economic Outlook Index for the 4Q, which looks out 6 months, fell to the lowest level in 3 years.  Randall Stephenson, Chairman of the BRT & Chairman & CEO of AT&T (T) blamed the “uncompetitive” US tax code & uncertainty in DC as among his members biggest gripes.  “We are hampering and burdening capital investment in the U.S.,” Stephenson said.  The corp tax rate sits at 39%, the highest among all the Organization for Economic Co-operation & Development (OECD) countries, as tracked by the BRT.   This is just one of the factors driving companies overseas.  The survey, which compiles CEO projections for sales & plans for capital spending, fell for the 3rd straight qtr to a reading of 67.5.  Most notable was a sharp drop in plans for capital spending which tumbled nearly 17 points & shows that 26% of CEOs plan to decrease spending in the next 6 months.  Hiring expectations were flat relative to last qtr, with CEOs split roughly evenly between increasing or decreasing their payrolls in the next 6 months.  Q4 is primetime for CEOs to hammer out corp budgets & tax planning for the coming year, however the survey shows that this is problematic for many.  “You can’t forecast when you have lack of clarity,” said Stephenson who also noted that the Paris terror attacks have added a new layer of concern, along with the slowing growth of economies outside of the US.

CEO Confidence Goes From Bad to Worse

Automakers capitalized on early holiday shopping with Black Friday car deals that helped propel US sales in Nov, keeping the industry on pace for a record year.  Even with 2 fewer selling days during the month, sales are projected to ride Black Friday promotions to the biggest Nov in 14 years.  Kelley Blue Book called for total sales of 1.3M units.  Excluding Mercedes-Benz parent Daimler, the industry has tallied 1.28M vehicles, a 1.6% improvement over last year.  Daimler is scheduled to report tomorrow.  The Big Three each reported modest sales gains amid unwavering demand for pickup trucks.  General Motors (GM) sold 1.5% more vehicles, driven by a 10% increase in Chevrolet truck sales.  Crossovers & sport-utility vehicles were also strong sellers.  Fiat Chrysler Automobiles (FCAU) jumped 3%, & the Jeep brand was the biggest contributor.  Jeep sales soared 20%, offsetting declines at Chrysler & Dodge.  Ram sales edged 1% higher on an increase in pickup-truck volume.  Ford (F) saw its best Nov truck performance in 8 years as sales rose 0.4%.  Its truck sales, which surged 18% overall, overshadowed weaker demand in SUVs & cars.  Toyota (TM) sales turned 3.4% higher & Honda (HMC) reported a 5.2% decline.  The emissions issue surrounding Volkswagen ignited a 25% loss in Nov sales.  With Nov sales growth, automakers are now one month away from clinching a record-setting year.  Domestic new-vehicle sales are widely expected to surpass 17M units for the first time since 2001.  Kelley Blue Book believes industry-wide sales will rise 5.6% this year to 17.4M cars and trucks, which would mark the highest total on record.

Holiday Deals Propel November Auto Sales

Hope springs eternal for another delay in raising the interest rate.  Who knows, with all the word coming from the FOMC ahead of its meetings?  The vigorous health of car sales is another reminder that this month will be as good a time as any for the increase which is YEARS overdue.  Dec began the new month with a rise, like many other months.  That optimism may not last with the looming rate hike along with terrorism growing around the world. 

Dow Jones Industrials


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