Tuesday, April 26, 2016

Markets churn ahead of the FOMC announcement tomorrow

Dow added 13 (but just under 18K), surprisingly advancers over decliners 3-1 & NAZ slid back 7.  The MLP index was off a fraction to the 295s & the REIT index rose 7+ to the 338s.  Junk bond funds did little & Treasuries were lower.  Oil jumped up to 44 (see below) & gold also went up.

AMJ (Alerian MLP Index tracking fund)

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CLM16.NYM....Crude Oil Jun 16....44.09 Up ...1.45 (3.4%)

Live 24 hours gold chart [Kitco Inc.]

Consumer confidence retreated more than forecast in Apr as Americans' optimism about the outlook for the economy & employment waned.  The Conference Board's sentiment index fell to 94.2 this month from a revised 96.1 reading in Mar.  The forecast called for a decrease to 95.8.  A measure of consumers' expectations decreased to a more than 2-year low.

Sentiment has remained subdued as Americans digest election-year uncertainty & financial markets that are shaking off early-year turbulence caused by concerns about the global economy.  Stronger labor-market prospects, including emerging signs of a pickup in wage growth, should help keep confidence from faltering.  The gauge averaged 98 for all of last year.  The gauge of consumer expectations for the next 6 months fell to 79.3, the lowest since Feb 2014, from a revised 83.6 in Mar.  The proportion of consumers expecting more jobs to become available in the next ½-year dropped to 12.2% from 13% in the prior month.  The share anticipating improving business conditions fell to 13.4%, the smallest since Oct 2011.  Income expectations were mixed.  While the share anticipating higher incomes dropped to an almost 2-year low, the percentage expecting lower incomes also decreased.  The measure of present conditions rose to 116.4 from a revised 114.9 in the previous month.  Americans viewed the current state of affairs in the labor market more favorably than future conditions.  The share who said jobs were currently harder to get decreased to 22.7%, the lowest since Aug.
The worst oil crash in a generation has cost Exxon Mobil, a Dow stock & Dividend Aristocrat, the gold-plated credit rating it had held since the Great Depression.  S&P stripped XOM of its highest AAA measure of credit-worthiness, cutting it to AA+ (the same as the US gov).  It’s a defeat for XOM, which sought to retain the rating after S&P placed it on notice in Feb.  Before the downgrade, it shared the distinction with just 2 other companies: Johnson & Johnson & Microsoft (both Dow stocks & JNJ is a Dividend Aristocrat).  "Nothing has changed in terms of the company’s financial philosophy or prudent management of its balance sheet," a company spokesman said.  "Exxon Mobil places a high value on its strong credit position and continues to be focused on creating long-term shareholder value despite near-term market volatility.”  S&P questioned XOM's decision to spend $54B on stock buybacks since 2012 even as its debt load swelled.  Its preference for returning cash to shareholders may be hurting its ability to stockpile cash & pay down debt, the credit rating company said.

XOM  also is facing challenges in finding enough new discoveries to replace the crude it’s pumping from the ground, S&P said.  The company only found enough new oil last year to replace 67% of its production.  "In our view, the company’s greatest business challenge is replacing its ongoing production," S&P said.  The downgrade will not only raise its cost to borrow money but may also erode its status among oil-rich govs as a premier partner with which to do business.  XOM said in Feb, the company’s AAA rating was a key selling point when competing for drilling licenses.  The stock rose 30¢.  If you would like to learn more about XOM, click on this link:
Exxon Mobil Loses Top Credit Rating It Held Since Depression

Exxon Mobil (XOM)

Oil markets rose as a tumbling $ boosted commodities denominated in the greenback after bets the Federal Reserve will hold US interest rates where they are.  Crude oil futures also rose on the back of a 3% hike in US gasoline & ultra-low sulfur diesel (heating oil) prices.  US gasoline margins climbed as high as 4% in early trading in part on a series of refinery unit outages in the Gulf Coast market.  Analysts expect the US gov to announce tomorrow that crude stocks fell 2.3M barrels last week while distillate & gasoline stockpiles fell.  Futures rose from early in the session as the $ fell about ½% ahead of the Fed policy statement.  The $ rallied earlier this year, weighing on oil, as investors braced for possible interest rate hikes from the FOMC.

Crude Prices Jump on Weak Dollar, Firmer Oil Product Markets

There is little for the stock market to do before Janet speaks tomorrow.  All bets are that she will find another excuse to leave interest rates alone.  She may also send a signal about what to expect in Jun.  Oil is back to where it was 6 weeks ago, its high for 2016.  The Dow is where it was for much of last year, fluctuating above 18K & unable to advance further.

Dow Jones Industrials


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