Thursday, March 3, 2016

Markets drift lower after ISM factory services report

Dow fell 19, advancers over decliners 2-1 & NAZ was off 5.  The MLP index rose 5+ to 264, continuing its month long run, & the REIT index lost 1+ to 320.  Junk bond funds were  mixed to lower & Treasuries declined.  Oil was a little lower in the 34s & gold continues in demand, going over 1250.

AMJ (Alerian MLP Index tracking fund)

CLJ16.NYM.....Crude Oil Apr 16...34.24 Down ....0.42  (1.2%)

GCH16.CMX...Gold Mar 16.....1,250.00 Up ...8.90 (0.7%)

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Growth in US service industries slowed for a 4th straight month in Feb, prompting the first job cuts in 2 years.  The Institute for Supply Management non-manufacturing index eased to 53.4 from 53.5 in Jan.  While readings above 50 signal expansion, the gauge has posted slower growth since Nov & the employment measure dipped below the expansion threshold for the first time since Feb 2014.  Services industries, which range from construction to finance, account for the lion's share of the economy, & a slowdown risks taking a bigger bite out of growth than the slump in manufacturing.  Continued job growth & signs that the recovery remains on track despite market volatility will be needed to convince consumers to keep spending & provide a much-needed boost.  The forecast called for 53.1.  The ISM factory survey released on Tues indicated the decline in manufacturing had found a bottom.  The index rose for a 2nd month, reaching 49.5 in Feb from 48.2 the prior month.  Details from the services survey showed the employment index declined to 49.7 from 52.1 in Jan, indicating companies last month started cutting staff, perhaps in response to the turmoil in financial markets.  The drop could color expectations ahead of the Feb jobs report released tomorrow.  The business activity index rebounded to 57.8 from 53.9, which was the lowest reading since Aug 2012.  The measure is more of a sentiment indicator & parallels the factory production gauge.  The services new orders index fell to 55.5, the lowest since Mar 2014, from 56.5.  It's a forward-looking measure, & may indicate the slowdown isn't over.  The prices paid index dropped to 45.5, the weakest reading in more than 6 years, from 46.4.  While services are still outperforming manufacturing, momentum seems to have shifted to the latter as factories show nascent signs of recovery.  It'll take sustained improvement in the labor market to persuade consumers that it's still safe to spend.

Slower Growth Prompts First U.S. Services Job Cuts Since 2014

The number of Americans applying for unemployment benefits rose last week to a level that's consistent with steady improvement in the labor market.  While jobless claims unexpectedly climbed 6K to 278K, the 4-week average dropped to the lowest level since the end of Nov, according to the Labor Dept.  Layoffs have been at subdued levels for a year as employers retain workers to cater to rising demand.

The forecast called for 270K claims last week.  The 4-week moving average, which smooths out week-to-week swings, decreased to 270K from 272K.  The number continuing to receive jobless benefits rose 3K to 2.26M & the unemployment rate among people eligible for benefits held at 1.7%.  For a full year now, claims have been below the 300K level that is typically consistent with an improving job market.

Applications for U.S. Jobless Benefits Rose Last Week to 278,000

The time of double-digit growth for the smartphone industry has come to an end, according to a new report from industry tracker IDC.  Smartphone shipments are expected to grow just 5.7% year-over-year in 2016, versus a 10.4% increase to 1.44B smartphone shipments worldwide in 2015.  IDC said the decline is related to saturation of the Chinese market, which has transitioned to a mature market with more stable growth from a fast-growing emerging market in years prior.  IDC expects the trend of single-digit year-over-year growth to continue thru 2020.  Android is expected to maintain its leading share of the market over the next few years, with IDC predicting its share rises to 84.6% by 2020 from an expected 82.6% in 2016.  Apple (AAPL), a Dow stock, iOS is expected to maintain its spot as the 2nd-largest smartphone manufacturer, though its share of the market is projected to decline slightly through 2020 to 14% from an estimated 15.2% in 2016.

Smartphone Shipment Growth To Halve In 2016

Stocks continue to digest recent gains.  Dow has risen almost 1K in less than month, so some profits are being taken.  The global supply glut for oil shows no sign of going away anytime soon, despite a lot of hot air from oil producing countries.  China's economy is having to cope with slower growth rates & that impacts its trading partners around the world.  The US economy keeps stumbling along with only modest growth.  Tomorrow's job report for Feb is expected to be routine with new jobs created around 200K.

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