Tuesday, February 23, 2016

Markets slide lower on weak consumer confidence data and lower oil prices

Dow dropped 188, decliners over advancers 2-1 & NAZ was off 67.  The MLP index fell 8+ to the 241s & the REIT index lost 1+ to the 306s.  Junk bond funds were mixed to lower & Treasuries found buyers today.  Oil sank below 32 after its recent run (see below) & gold bounced back. 

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CLJ16.NYMCrude Oil Apr 1632.08 Down 1.31 (3.9%)

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Consumer confidence slumped in Feb as households grew more concerned about the outlook for the economy and jobs, sending their inflation forecast to a 9-year low.  The Conference Board sentiment index slid to 92.2 this month, less than the lowest forecast & the weakest since Jul, from a revised 97.8 in Jan.  The survey reflected responses received thru Feb 11, the day the S&P 500 sank to an almost 2-year low.  Americans believed the high-flying job market wouldn't get much better as they turned the most pessimistic about the outlook for stock prices in more than 3 years.  While buying plans for automobiles held up, households said they were less likely to buy homes or major appliances, raising concern about the strength of consumer spending, the biggest part of the economy.  “Consumers’ short-term outlook grew more pessimistic, with consumers expressing greater apprehension about business conditions, their personal financial situation, and to a lesser degree, labor market prospects,” the Conference Board said.  The forecast called for a reading of 97.2.  The gauge averaged 98 in 2015.  This report corroborates other confidence measures.  The gauge of current conditions decreased to 112.1 from 116.6 in Jan & the proportion of Americans who said jobs were plentiful fell to 22.1% from 23%.  The share of those viewing business conditions as bad rose to 19.8% from 18.8%.  The measure of consumer expectations for the next 6 months dropped to 78.9, the lowest since Feb 2014, from 85.3 in Jan.  Americans’ assessments of future labor-market conditions worsened this month.

Inflation expectations over the next 12 months eased to 4.7%, the lowest since Feb 2007, from 4.8%, helped in part by cheap gas prices.  Buying plans were mixed, with 12.3% saying they expected to purchase a motor vehicle, up from 12.1% a month earlier.  The share of consumers planning to buy a major appliance slumped to 46.8%, the lowest in a year.  Projected home purchases also took a hit, falling to 5.3% of those surveyed from 7.4% in Jan.

Consumer Confidence in U.S. Sinks to Seven-Month Low

US oil prices dropped as Saudi Arabian Oil Minister Ali al-Naimi said that production cuts aren't forthcoming.  An earlier comment by Iran's oil minister rejecting the suggestion that it would freeze production also weighed on prices.  The global crude market has been oversupplied for more than 1½ years, sending prices plunging to 12-year lows earlier.  OPEC shocked the market in Nov 2014 when it opted not to cut production to force prices higher.  Since then, some large producers including Saudi Arabia & Russia have increased production to maintain market share in a low-price environment.  Iran started ramping up its output in the last month since intl sanctions that had restricted its exports were lifted.  Prices rose early last week as major producers including Saudi Arabia & Russia proposed a deal to freeze production at Jan levels.  But Naimi said that production cuts aren't going to happen.  "There is no sense in wasting our time seeking production cuts," he said.  A freeze, he said, would slowly allow the ample inventories of crude oil to shrink, but "it's going to take time."  Even a freeze seems less likely to market watchers.  Earlier today, Iran Oil Minister Bijan Zanganeh called the suggestion that his country would freeze production "a joke," confirming comments reported by Iranian media.  Traders are also waiting on weekly US inventory data due tomorrow.  Many analysts expect that crude supplies grew again in the week ended Feb 19.  US crude stockpiles stood at the highest level in more than 80 years as of Feb 12.

Home Depot, a Dow stock, reported better-than-expected sales, boosted by an improving housing market & mild weather in the holiday qtr that encouraged customers continue outdoor activities & home renovations.  It also raised its quarterly div 17% & announced a $5B share buyback plan.  The company is benefiting from a pent-up demand for houses after the 2008 financial recession.  Low interest rates & growth in jobs, wage & credit are also spurring customers to spend more on renovating homes.  Favorable weather trends helped sales growth by about $100M, Ted Decker, executive VP of Merchandising, said.  Net sales rose 9.5% to $20.98B.  Sales at stores open for more than a year rose 8.9% in the US.  Analysts expected sales to rise 5.3.  The results bucked a broader retail trend of disappointing holiday qtr sales as shoppers spent more on big-ticket items such as home improvement & automobiles, instead of discretionary items such as apparel.  Sales of items priced above $900 rose 11.9%, while those below $50% rose 3.8%.  The appliances, tools & building material businesses posted double-digit comparable sales, while those for outdoor garden, paint, kitchen & bath were in mid-single digits.  HD expects 2016 sales to grow by 5.1-6.0%, which translates to $93.03-$93.83B.  Analysts were expecting $93.12B.  Comparable sales are expected to grow 3.7-4.5%, the company said.  EPS rose 6.6% to $$1.17, above the estimate,  The stock rose 1.68.  If you would like to learn more about HD, click on this link:

Home Depot sales beat on housing recovery, outdoor demandReuters

Home Depot (HD)

Another dose of reality hit the stock market & stocks were sold.  Euphemism about lower oil production did not last, as mentioned yesterday.  Agreements are hard to come by among countries with diverse attitudes on oil quotas.  The consumer data is a reminder that the US economy is not growing like it was predicted to by the bulls.  The modest gain Dow has in Feb could be lost if there is more selling in the last 4 days of the month as Dow remains down 1K YTD.

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