Thursday, March 31, 2016

Markets crawl higher on the last day of the quarter

Dow gained 13, advancers over decliners 4-3 & NAZ rose 10.  The MLP index went up 4+ to the 266s & the REIT index was flattish in the 339s.  Junk bond funds edged higher & Treasuries had a modest advance.  Oil rose in the 38s & gold also traded higher (see below).

AMJ (Alerian MLP Index tracking fund)

CL.NYM...Crude Oil May 16...38.07 Down .....0.25  (0.7%)

GC.CMX...Gold Apr 16......1,237.60 Up ...10.70 (0.9%)

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Initial jobless claims increased by 11K to 276K last week, the highest since the end of Jan, according to the Labor Dep.  The forecast called for filings to hold at 265K.

The data may indicate that improvement in the labor market, which has been the strongest part of the economy lately, is being tempered by still-weak manufacturing, flagging business investment & soft consumer spending.  Initial claims would still need to show a sustained trend higher to confirm that layoffs are on the rise.  Jobless claims have been below 300K, a level associated with a healthy labor market, for 56 consecutive weeks.  That's the longest since 1973.  The 4-week moving average of claims, a less volatile measure than the weekly figures, increased to 263K from 259K.  The number continuing to receive jobless benefits fell 7K in the latest reporting week to 2.17M, the lowest level since mid-Oct.  The unemployment rate among people eligible for benefits held at 1.6%.

Initial Jobless Claims in U.S. Rose Last Week to Two-Month High

S&P has cut the outlook for China's credit rating to negative from stable, saying the nation's economic rebalancing is likely to proceed more slowly than the ratings firm had expected.  The credit rating is AA- with a negative outlook.  S&P also affirmed the long-term & A-1+ short-term sovereign credit ratings.  “We revised the outlook to reflect our expectation that the economic and financial risks to the Chinese government’s creditworthiness are gradually increasing,” S&P said.  “This follows from our belief that, over the next five years, China will show modest progress in economic rebalancing and credit growth deceleration.”  China's economic expansion will remain at or above 6% a year in the next 3 years, S&P forecast.  The investment rate may be “well above” what S&P says are sustainable levels of 30-35% of GDP.  “In our opinion, these expected trends could weaken the Chinese economy’s resilience to shocks, limit the government’s policy options, and increase the likelihood of a sharper decline in trend growth rate,” it added.  A downgrade could follow if S&P sees a higher likelihood that China seeks to stabilize growth at or above 6.5% by increasing credit at a “significantly faster rate” than nominal GDP growth.  Ratings could stabilize if credit growth is moderated to levels in line with economic expansion, S&P said.

China Rating Outlook Cut to Negative From Stable by S&P

Gold is headed for the biggest quarterly advance since 1990 as demand for haven assets surged to make the metal this year's best performing major commodity.  Bullion rose 0.5% to $1230 in Singapore.  The metal is up 16% since the start of Jan, the first quarterly gain since Jun 2014.  Gold rallied this year as it cemented its status as a store of value amid financial market turbulence & concern about the global economy, which led to speculation that the Federal Reserve would pause on tightening monetary policy.  A gauge of the US currency headed for the biggest quarterly loss since 2010 after Fed Chair Janet Yellen said the central bank will act “cautiously” as it looks to withdraw stimulus. Investor holdings in exchange-traded products have expanded by about 300 metric tons this qtr, the most in 7 years. 

Gold Heads for Best Quarterly Rally in 25 Years on Haven Demand

Q1 is closing out with little excitement.  Thanks to a major climb in Mar, Dow is up 300 YTD.  Earnings season is very near near & expectations have been revised lower.  GDP is also expected to have another weak qtr.

Dow Jones Industrials



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