Thursday, April 7, 2016

Lower markets on concerns about earnings reports

Dow dropped 174 (closing near the lows ), decliners over advancers almost 4-1 & NAZ fell 72.  The MLP index shot up fractionally in the 262s & the REIT index lost 2+ to the 337s.  Junk bond funds were off about 1% & Treasuries advanced in price.  Oil fell back & gold had a big gain to over 1240.

AMJ (Alerian MLP Index tracking fund)

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CL.NYM....Light Sweet Crude Oil Futures,May....37.05 Down  0.70 (1.9%)

Live 24 hours gold chart [Kitco Inc.]

McDonald's, a Dow stock & Dividend Aristocrat, is growing again.  It released an ambitious growth plan for Asia last week after closing more stores last year than it opened in the US for the first time in over 40 years.  At the time, the net closures seemed to symbolize a giant in retreat, especially at a time when comparable sales at home had fallen for six qtrs in a row.  A year later, things have changed.  US comps were up 5.7% in Q4 on the strength of the all-day breakfast launch, & the company is planting its growth flag firmly once again, this time in China.  MCD said that it was looking for strategic partners, franchisees, in Asia, with a specific focus on China, Hong Kong & South Korea.  MCD expects to open 1500 new restaurants in those territories in the next 5 years, adding to the more than 2800 locations it already has there.  Of the 1500 new restaurants, MCD plans to open 1300 in China, where it already has 2200 locations.  For a company with more than 36K restaurants worldwide,  China only represents 6% of total store count.  The stock rose 62¢.  If you would like to learn more about MCD, click on this link:

McDonald's Stock Has Never Been Higher As China Push Begins

McDonald's (MCD)

Most private forecasters surveyed expect the Fed will leave short-term interest rates unchanged at its Apr policy meeting, & next raise them in Jun.  Nearly 75% of business & academic economists polled by The Wall Street Journal said the Fed would next raise its benchmark federal-funds rate at its Jun 14-15 meeting.  Forecasters assigned minimal chances to the Fed acting at its policy meeting in less than 3 weeks.  Just one economist in the survey predicted Fed would lift rates at the Apr meeting.  Financial markets also doubt the Fed will move this month.  The Fed held rates steady in Jan & Mar, citing weak inflation & global economic & financial uncertainty.  At their Mar meeting, they said they expected to raise the fed-funds rate by a half a percentage point this year, a slower pace than they predicted in Dec when they penciled in a total increase of a full percentage point by year-end.  "Given the risks to the outlook, I consider it appropriate for the committee to proceed cautiously in adjusting policy," Fed Chairwoman Janet Yellen said Mar 29.

WSJ Survey: Most Economists Expect June Rate Hike

The latest word from the Fed is that San Francisco Fed pres John Williams said the economy could soon be ready for higher rates.  “I think there’s some pretty strong upside potential for growth this year, and actually inflation. So, my own view is that [global risks] are pretty balanced, but I take it seriously that we have to pay close attention,” Williams said.  He acknowledged a division among members, but said, in his view the Fed could raise rates 2 or more times before the year is up.  Further, Williams said chatter about a looming recession are, essentially, unfounded.  “There was a lot of talk earlier this year about a recession in the U.S. or globally, and I actually don’t’ think there was any real support for that or any indications whatsoever that we were at a higher risk for recession,” he said.  He continued by reiterating Janet Yellen's repeated view that gradual tightening of monetary policy would be warranted as global growth improves.  The biggest threat to that outlook, though, he added was China & its pivot away from a manufacturing & export-driven economy, to one focused on domestic demand, services and consumer spending.  “To my mind it’s more of a subtle story. It’s not about a hard landing or the slowdown. It’s really about the structural change that’s happening in China, which is having repercussions around the globe,” he said.  Williams added that the US, though, is “weathering the storm” & proving to be “quite resilient” in the face of persisting global uncertainty.

Fed's Williams: Risks 'Pretty Well Balanced'

As earnings season is closing in, traders are getting worried.  Energy companies will have ugly, & they will be ugly, reports.  The rest of the earnings releases should also be soggy, starting with banks.  The big ones are the first to report, later next week.  During the middle of earnings season, the FOMC has its meeting.  While no interest rate hike is expected, it still represents a dark cloud for the stock market which has become addicted to low interest rates.  High yield securities sold off today on those worries.  Dow has a small gain YTD.

Dow Jones Industrials


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