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Monday, January 25, 2016
Lower markets as oil resumes it downward slide
Dow dropped 51, decliners over advancers 5-2 & NAZ gave up 10. The MLP index added 6+ to the 249s & the REIT index lost 1 to the 308s. Junk bond funds were mixed to lower & Treasuries went up in a declining stock market. Oil fell to 31 (see below) while gold climbed higher.
Oil dropped after Saudi Arabia, the world's biggest crude exporter,
said low prices won’t reduce its spending on energy projects & China’s
diesel consumption dropped for a 4rth consecutive month. Saudi Arabian Oil (Saudi Aramco) is maintaining its investment plans despite the rout in the crude market, Chairman Khalid Al-Falih said. Diesel use in China dropped 5.6% in Dec compared
with a year earlier & gasoline consumption grew at the slowest pace in
more than 2 years.
Oil
resumed its decline after the biggest 2-day rally in more than 7
years as concerns persist over ample US stockpiles, steady production
from Saudi Arabia & Russia & the outlook for increasing Iranian
shipments after the end of sanctions. Prices may take as long as 3 years to normalize. Prices advanced 11% last
week & the European benchmark crude traded at a 16% premium to WTI. Saudi Aramco is spending as much now as it did before the crash in crude prices, signaling no surrender in Saudi Arabia's battle with rivals. It's formulated a new strategy in
response to cheaper crude, Al-Falih said & the
state-run producer can sustain low oil prices for “a long, long time.”
McDonald's, a Dow stock & Dividend Aristocrat, reported better-than-expected quarterly same-restaurant
sales, helped by the launch of all-day breakfasts in the US & strong demand in China. Global same-restaurant sales rose 5%, above
the 3.2% expected. Sales at US restaurants open at least 13 months rose 5.7%, handily beating the average estimate of 2.7%. The company introduced all-day breakfasts in US
restaurants in Oct, to attract more diners in the face of
growing competition from rivals. "As we enter 2016, we expect continued positive
top-line momentum across all segments," said CEO
Steve Easterbrook, who took the helm last year. The company does not break out China sales but said
sales in its "high growth" markets, which include Russia & China, rose
3%. EPS rose to $1.31 in Q4 from $1.13 a year earlier. Analysts had expected EPS of $1.23. Revenue fell 3.5% to $6.34B, mainly due
to a strong $, but beat the estimate of $6.22B. The stock rose 2.36. If you would like to learn more about MCD, click on this link: club.ino.com/trend/analysis/stock/MCD?a_aid=CD3289&a_bid=6ae5b6f7
Halliburton, the world's #2 oilfield services provider, reported a
better-than-expected quarterly adjusted profit as deep cost cuts helped
offset the impact of a drop in drilling activity. HAL said 2016 would be another challenging year for the industry. Several oil & gas producers have scaled back
drilling & slashed capital spending in response to a more than 70% fall in oil prices since Jun 2014. Excluding a $192M impairment charge & costs
related to its pending acquisition of Baker Hughes, EPS was 31¢, higher than the estimate of 24¢. Operating margins in the North America
operations, which account for more than ½ of revenue,
improved 1.6 percentage points in the qtr ended Dec 31. CEO Dave Lesar said the company, which is
awaiting regulatory approval for the Baker Hughes deal, was focused on
pending regulatory reviews & divestitures required to alley
competition-related concerns. Total revenue fell 42% to $5.08B,
including a 57% drop in North American revenue, mainly due to
weak drilling activity & pricing. The net loss attributable to the company 3¢ per share, compared with a profit of $1.06 a year earlier. The stock slid back pennies. If you would like to learn more about HAL, click on this link: club.ino.com/trend/analysis/stock/HAL?a_aid=CD3289&a_bid=6ae5b6f7
Last week's rally in the stock market is over & the bears have taken command once again. Oil is the main driver of stock prices & its outlook remains bleak. More earnings reports are due this weak & on balance they can not be expected to bring back stock buyers. Dow is struggling to hold 16K. It wasn't too long ago that it was struggling to hold 17K.
.....1.17 
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