Thursday, December 17, 2015

Market decline led by sell-off in commodities

Dow dropped 253 (to the low), decliners over advancers 3-2 & NAZ pulled back 68 (barley above 5K.  The MLP index sank 7+ to the 253s (just above its 12 year low) & the REIT index slid back 1+ to the 322s.  Junk bond funds were mixed & Treasuries saw buying.   Oil is wallowing under 35 & gold sank (see the chart below).

AMJ (Alerian MLP Index tracking fund)

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Live 24 hours gold chart [Kitco Inc.]

Oil prices fell, with Brent trading near 11-year lows, as data showing fresh supply builds at the delivery point for US crude futures added to worries about a global glut.  Market intelligence firm Genscape reported an inventory increase of 1.4M barrels at the Cushing, Oklahoma delivery hub for the US crude, West Texas Intermediate (WTI).  WTI & Brent fell about 3% yesterday after gov data showed a ramp up in oil supplies across the US last week.  A Federal Reserve interest rate hike, which should support the dollar, added to bearish sentiment in oil.  Speculation about an imminent end to a 40-year ban on US crude exports has caused Brent's premium to WTI to dwindle to $1 per barrel or less.  The premium had been above $13 a barrel in Mar.  The world's biggest oil producers in OPEC added to bearish sentiment, forecasting scant chance for a meaningful oil price rise in 2016.  Extra Iranian production was expected to add to the global glut, while voluntary output cuts looked remote, they said.

Oil Falls on Fresh Supply Concerns, Dollar Strength

A massive bill that extends $B in tax assistance to businesses & expands the budget deficit won House approval in the closest thing to a grand bipartisan tax bargain in years.  Lawmakers voted 318-109 for the $622B measure, which has been linked procedurally to year-end federal spending legislation needed to avoid a gov shutdown.  The measure goes to the Senate, where it will likely be voted on together with a $1.1T spending bill that must be approved to avert a repeat of a gov shutdown in 2013.  The tax makes permanent dozens of costly corp tax breaks such as the research & development tax credit that had until now have been temporary.  Middle-class Americans also benefit under the legislation.  The bill offers aid to students, low-income parents, teachers & others, attracting support from the White House & House Dem.  Reps said the bill largely continues existing tax policy, but ends uncertainty for businesses & families by making permanent many tax breaks that previously had to be continually reviewed & renewed, sometimes for decades.  Though it falls far short of the comprehensive tax reform that Reps & Dems have sought for years, the package is a rare example of congressional action on a major economic issue.  Passage of the deal was helped by the shrinking in recent years of the budget deficit.  Reps smoothed the way for the tax bill by making it part of the wider agreement to prevent the gov from running out of funding in the coming days.  The broader legislation also includes a proposal to lift a 40-year-old ban on crude oil exports, a historic move that nevertheless would have little immediate effect on oil markets.  The congressional Joint Committee on Taxation estimated the tax provisions would increase budget deficits by around $680B over 10 years.

House Approves Massive Tax Cuts Bill

General Mills cut its full-year sales forecast & reported its 2nd straight fall in quarterly sales, hurt by a strong dollar & weak demand for its snacks & baking products in the US (its biggest market).  The company now expects net sales to fall in low single-digit percentage terms in the year ending May on a constant-currency basis.  GIS had earlier said it expected sales to stay flat in 2016.  US retail sales fell 4% in fiscal Q2 as consumers shift away from processed items & pick foods that are perceived as healthier.  To meet this demand, the company rolled out gluten-free Cheerios in various flavors this year.  It also has said that it had reduced sodium by at least 20% in 7 product categories including soups & frozen pizzas.  EPS was 87¢, helped by cost cuts, & excluding items, EPS was 82¢.  Total sales fell 6% to $4.42B.  Analysts had expected EPS of 83¢ on revenue of $4.61B.  The stock fell 1.96.  If you would like to learn more about GIS, click on this link:

General Mills Cuts Full-Year Sales Forecast

General Mills (GIS)

The Janet Yellen rally is over.  This was not a pretty day for stocks in what was supposed continue happy times from earlier this week.  Price swings in oil are controlling the stock market & there is a strong negative bias to those swings.  There was selling into the close.  The Santa Claus rally that some expected may have to wait until next year.  Dow remains in the red for Dec & YTD.

Dow Jones Industrials


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