Wednesday, April 13, 2016

Markets soar, led by financial and tech stocks

Dow climbed 187 (close to the high), advancers over decliners 3-1 & NAZ gained a very big 75.  The MLP index surged 15+ to the 278s (still about ½ of the record highs 2 years ago) & the REIT index went up 1+ to the 339s.  Junk bond funds advanced & Treasuries also saw buying.  Oil slid back to the 41s & gold also lost ground.

AMJ (Alerian MLP Index tracking fund)

3 Stocks You Should Own Right Now - Click Here!

CL.NYM....Light Sweet Crude Oil Futures,M....42.13 Down ...0.04  (0.1%)

Live 24 hours gold chart [Kitco Inc.]

JPMorgan Chase, a Dow stock, Q1 profit beat estimates as the firm slashed bankers' pay, & trading revenue declined less than predicted. The shares rose.  EPS was $1.35, down from $1.45 a year earlier.  On an adjusted basis, EPS was $1.41, beating the $1.25 estimate.

This is the first bank to show how much money the biggest banks are making from trading & advising on deals.  It already warned that market turbulence & global growth concerns deterred clients from trading or issuing securities in Q1, typically the strongest of the year.  “While challenging markets impacted the industry, we maintained our leadership positions and market share,” CEO Jamie Dimon said.  “Even in a challenging environment, clients continue to turn to us in the global markets.”  Revenue slipped 3% to $24.1B, compared with the $23.8B estimate.  Non-interest expenses fell 7% to $13.8B on lower investment-banking & trading compensation & legal costs.  Pay in the investment bank fell 14% to $2.6B, down more than $420M from a year earlier.  Return on tangible common equity declined to 12% from 14% a year earlier.  The stock jumped up 2.51.  If you would like to learn more about JPM, click on this link:

JPMorgan Profit Beats Estimates on Pay Cuts, Trading Results 

J P Morgan Chase (JPM)

The US economy continued to expand from late-Feb early Apr, boosting employment & delivering some long-awaited upward pressure on wages & prices, a Federal Reserve report showed.  “Most districts said that economic growth was in the modest to moderate range and that contacts expected growth would remain in that range going forward,” according to the Fed's Beige Book, an economic survey published 8 times a year.  It also noted a general pickup in manufacturing, which had been hurt by a rising $.

In contrast to the Mar 2 Beige Book, when Fed district banks said prices were “generally flat,” this report indicated that “overall, prices increased modestly across the majority of districts, & input cost pressures continued to ease” amid cheap energy bills.  Retail prices “increased modestly” while wages rose in all districts except Atlanta, the report showed.  Wages climbed most in occupations where labor shortages & turnover was elevated.  Of the 12 regional reserve banks, only Cleveland reported a decline in overall employment, while only Cleveland & Kansas City said manufacturing activity had declined.  Manufacturing in several districts, including Boston, St. Louis & Minneapolis, also reported increased capital outlays.  The report painted a generally improving picture of the economy 2 weeks ahead of the next meeting of the FOMC.  Minutes of the Mar meeting show several officials were then opposed to an Apr rate increase, arguing a hike that soon would signal an inappropriate sense of urgency.

Economy in U.S. Delivers Modest Gains in Prices, Wages, Fed Says

Many of the deeply indebted shale producers are slashing credit lines.  It's a tacit acknowledgment that energy prices aren't coming back, & represents an abrupt turnaround from last year when banks were lenient on struggling drillers in the hope that better times were coming.  Since the start of 2016 lenders have yanked $5.6B of credit from 36 oil & gas producers, a reduction of 12%, making this the most severe retreat since crude began tumbling in mid-2014.

And it isn’t over.  Banks are in the middle of a twice-yearly review of energy loans, where they decide how much credit they are willing to extend to junk-rated companies based on the value of their oil & gas reserves.  With crude hovering near $40 a barrel, assets are worth far less than they were 2 years ago.  In some cases, companies are finding the amount they can borrow based on their oil & gas reserves is getting cut to a level below the amount the company has outstanding, effectively leaving them overdrawn.  Banks are cutting their oil & gas exposure in part because they're facing pressure from regulators & investors to rein in risk.  Borrowers are feeling the pinch.  At least 15 companies have seen their credit lines cut as banks are setting aside more money to cover losses on energy loans.

Oil Drillers Feel the Pain as Banks Slash Their Credit Lines

Weak earnings at JPM got rave reviews because they beat lowered estimates.  That's saying something!  This story may be repeated at other banks.  Higher revenue & earnings are less important now.  After a 2 month surge by stocks, Dow is within 400 of setting a new record high.  It looks like the Fed is addicted to low interest rates & may find more excuses this year to postpone the next rate increase.  But oil is another matter & troubles are not over for those companies.  The stock market is VASTLY overbought (shown in the chart below) & that spells worries for investors.

Dow Jones Industrials


No comments: