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Tuesday, January 26, 2016
Markets rally on hopes to end worldwide oil supply glut
Dow shot up 282, advancers over decliners 4-1 & NAZ gained 49. The MLP index added 8+ to 244s & the REIT index rose 6+ to the 313s. Junk bond funds had gains of 1-2% & Treasuries rallied, taking the yield on the 10 year Treasury back below 2%. Oil had a solid gain, going well over 31, on hopes that oil producing countries are working on a deal to tackle the global supply glut & gold also did well.
Home prices in 20 US cities rose at a faster pace in the year ended
Nov, underscoring the shortage of supply amid steady demand. The
S&P/Case-Shiller index showed property values in 20 cities increased
5.8% from a year earlier, the biggest advance since Jul 2014. The projection called for a 5.7% gain.
Nationally, prices rose 5.3% year-over-year. Low
inventories are boosting property values, helping support household
wealth for homeowners & offsetting some of the damage from the drop in
stock prices. While mortgage rates are expected to stay low, faster
wage growth is needed to bring homes within reach of more Americans,
underpinning the industry's recovery this year. The Oct reading showed a year-over-year advance of 5.5%.
DuPont (a Dow stock), which agreed last month to a historic merger with Dow Chemical (DOW), forecast lower-than-expected full-year earnings & sales as the chemical company struggles with the effects of a
strengthening $ & weak demand for its agriculture products. EPS
excluding some items should be $2.95-$3.10 this year, DD
said. The estimate was
for $3.15. The company also posted its first
quarterly net loss since the height of the financial crisis, losing 29¢ a share in Q4 compared with EPS
of 74¢ a year earlier.
“Current
difficult global economic conditions in agriculture and slower growth
in emerging markets are expected to continue, challenging the company’s
sales growth in 2016,” DD said. The merger is
planned as a prelude to a split that will create 3 new companies
focused on agricultural products, commodity chemicals & specialty
materials. Sales this year
will decline by a percentage in the low-single digits due to the
currency effects & "challenges" in emerging markets & agriculture.
Analysts had seen revenue about flat for 2016. Farmer net incomes will
continue to decline in 2016 because land rents have lagged behind the
slide in commodity prices for row crops such as corn & soybeans. Operating earnings in the
agriculture unit will be down by a percentage in the "low teens" in H1, although the effects of higher product prices & cost
savings mean profit will be about flat for the full year. DD
also said it expects a benefit of 64¢ a
share this year from its cost savings & restructuring, higher
than the company's previous view of $700M. Annual savings will
ultimately reach $1B, up from an earlier projection of $900M. However, it also expects EPS to be reduced by
about 30¢ a share due to currency & by another 5-10¢ from higher taxes. Q4 EPS excluding
restructuring costs & other items was 27¢, beating the 26¢ estimate. Operating profit dropped in the largest business
segments while gains were posted in the nutrition & health
and industrial biosciences units. Revenue declined to $5.3B from
$7.38B, below the $5.39B estimate, as volumes
fell 3% & currency exchange cut sales by 7%. The stock was up 47¢. If you would like to learn more about DD, click on this link: club.ino.com/trend/analysis/stock/DD?a_aid=CD3289&a_bid=6ae5b6f7
JPMorgan Chase, another Dow stock, agreed to pay almost $1B to resolve
claims by Ambac Financial Group, that it was duped into insuring
mortgage bonds backed by shoddy loans, clearing the way for approval of a
larger settlement over similar allegations. AMBC said that the bank will pay $995M to end 2 lawsuits the
insurer filed in 2011 & 2012
over the quality of loans underlying mortgage bonds sold by Bear Stearns, which was bought by JPM in 2008. As part of the
deal, AMBC agreed to drop its objections to a $4.5B settlement
between JPM & institutional investors over claims of faulty home loans,
leaving only one objector to the pact. JPM stock rose 1.42 & AMBC stocks went up 1.85. If you would like to learn more about JPM, click on this link: club.ino.com/trend/analysis/stock/JPM?a_aid=CD3289&a_bid=6ae5b6f7
Hope is the key word behind today's rally, suggesting it may not have legs. Saudi Arabia, the biggest oil exporter, does not seem close to reducing its shipments & Russia (the 2nd largest source of oil) is in no position to cut production. Meanwhile unimpressive earnings are being reported. The latest reports on the Chinese economy (a big oil importer) are gloomy. Treasuries & gold rose today, negative bets on the stock market gains. Tomorrow the Fed will issue its report on its meeting, little new is expected.
![Live 24 hours gold chart [Kitco Inc.]](http://www.kitco.com/images/live/gold.gif?0.06602970311150558)
...1.29 
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