Tuesday, May 31, 2016

Markets close the month on a down note.

Dow dropped 86, advancers barely ahead of decliners & NAZ gained 14.  The MLP index was fractionally higher to the 301s & the REIT index lost pennies in the 341s.  Junk bond funds rose & Treasuries found buyers as stocks were being sold.  Late day selling took oil under 49 after a strong rally this year (see below) & gold crawled higher after recent selling.

AMJ (Alerian MLP Index tracking fund)

3 Stocks You Should Own Right Now - Click Here!

CLN16.NYM....Crude Oil Jul 16....49.23 Down ...0.10  (0.2%)

Live 24 hours gold chart [Kitco Inc.]

Oil is set to cap the longest run of monthly gains in 5 years as output disruptions from Nigeria to Canada curb supply before OPEC meets Thurs to discuss production policy.  Futures topped $50 today & are set for a 4th monthly advance.  Militant attacks have cut Nigerian supply to the lowest level in more than 2 decades.  Producers are starting to resume operations in Canada as wildfires that reduced output by more than a 1M barrels a day eased.  Libya’s Petroleum Facilities Guard captured towns near the oil ports of Es Sider & Ras Lanuf after clashes with Islamic State militants.

Oil has surged more than 85% since touching a 12-year low in Feb on signs the global surplus is easing amid declining output. OPEC is unlikely to reach an agreement limiting production this week in Vienna as the group sticks with Saudi Arabia's strategy of squeezing out rivals.

Oil Set for Longest Run of Gains in 5 Years Before OPEC Meets

Qualcomm is targeting the next generation of wearables with the new Snapdragon Wear 1100 processor aimed at the purpose-based wearables segment: child- & elderly-friendly watches, fitness trackers & smart headsets.  With consumer demands in mind—smaller sizes, longer battery life, smarter sensing, more secure locations—the processor features Power Save Mode (PSM) & support for voice, Wi-Fi, & Bluetooth.  It also incorporates its iZat integrated location engine for enhanced accuracy, as well as a hardware cryptographic engine, random number generator & TrustZone for security.  Snapdragon Wear 1100 is commercially available & shipping today.  "We are delighted to add Snapdragon Wear 1100 to our Snapdragon Wear family, thus making it easier for customers to develop connected wearables with targeted use cases such as kid and elderly tracking," Anthony Murray, senior VP & general manager said.  The company recently revealed that its processors power more than 100 current wearable products, covering smart eyewear, watches, bands, handsets & other accessories.  "With the launch of the Snapdragon Wear 1100, customers will now be able to bring additional connected use cases in such targeted devices as kid and elderly watches," QCOM added.  The stock lost 35¢.  If you would like to learn more about QCOM, click on this link:

Qualcomm Eyes Next-Gen Wearables With Snapdragon Wear 1100


Retail executives can't figure out what's keeping shoppers from spending in their stores — so how are they supposed to forecast customer demand 6 months from now?  As companies work their way through bloated spring inventories — with memories of an unseasonably warm winter not far in the past — many are taking a cautious approach to the Christmas holiday orders they're now starting to place.
Shoppers walk past the Santa Claus photo booth in at the Westfield Mall in Annapolis, Maryland.
Jim Watson | AFP | Getty Images
Shoppers walk past the Santa Claus photo booth in at the Westfield Mall in Annapolis, Maryland.

Rollercoaster Q1 earnings & a muddy start to the current period have many industry execs uncertain about the potential for a H2 spending rebound.  Yet they face a delicate balance.  While placing too aggressive a holiday order can leave retailers with too much merchandise, forcing them to run unplanned promotions, having too little in stock can pressure their overall revenues.  Several major brands have already whittled down the amount of merchandise they carry at a given time, as part of a long-term strategy to fuel demand.  The idea is that if they have fewer versions of the same T-shirt in stock, shoppers will feel a need to snatch up something they like before it's gone.  In theory, that will result in fewer items ending up on the sale rack & eating into retailers' margins.  Get ready for a tough holiday season.

Retailers already fretting Christmas

Dow started the month at 17,773 & finished up all of 25.  For most of the month, it didn't stray from from its beginning value.  That's called sideways trading & to be expected from a tired bull market.  The main driver for the bulls has been the astounding rise in oil prices, especially without planned production cuts by OPEC members, & continued hopes that Janet will not raise interest rates in Jun.  Those conditions may not continue.

Dow Jones Industrials


Markets hold gains after Yellen's comments

Dow rose 44, advancers over decliners almost 2-1 & NAZ gained 31.  The MLP index was a fraction in the 301s & the REIT index climbed 1+ to the 341s.  Junk bond funds went up & Treasuries were sold.  Oil was a little lower (see below) & gold continued to be weak (at a 7 week low) as it heads for 1200.

AMJ (Alerian MLP Index tracking fund)

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CLN16.NYM....Light Sweet Crude Oil Futures,J....49.22 Down ...0.26  (0.5%)

Live 24 hours gold chart [Kitco Inc.]

Janet Yellen said the ongoing improvement in the US economy would warrant another interest rate increase “in the coming months,” stopping short of giving an explicit hint that the central bank would act in Jun.  “It’s appropriate -- and I’ve said this in the past -- for the Fed to gradually and cautiously increase our overnight interest rate over time,” Yellen said today.  “Probably in the coming months such a move would be appropriate.”  The meeting on Jun 14-15, the FOMC will contemplate a 2nd interest-rate increase following 7 years of near-zero borrowing costs that ended in Dec.  A series of speeches by Fed officials & the release of the minutes to the Apr meeting have heightened investor expectations for another tightening move either next month or in Jul.  Several regional Fed presidents have in recent weeks urged financial market participants to take more seriously the chances of a rate hike in the next 2 months, pointing to continued signs of steady if unspectacular growth in the economy & the waning of risks posed by global economic & financial conditions.

Left scale - hourly earnings; right scale - unemployment
Left scale - hourly earnings; right scale - unemployment

The labor market has continued to expand even as the jobless rate has declined to 5%, which many economists consider to be close to or at full employment.  Inflation & wages have also shown signs of edging up, a trend the Fed has longed for but is anxious to keep under control.  Market sentiment over the Jun meeting has been shifted by FOMC member comments & the Apr meeting minutes which show a majority on the committee favored a Jun rate increase if the economy continued to improve.

Odds of a Jun rate hike implied by pricing in federal funds futures contracts were 32% following her remarks compared to 28% earlier today & about 4% 2 weeks ago.

Yellen Says Fed Hike Probably Appropriate in ‘Coming Months’

Verizon, a Dow stock, & its 2 unions reached an agreement in principle on a new labor contract, the Labor Dept said, paving the way for about 39K landline employees to return to work after a 44-day strike.  The parties are putting the 4-year deal in writing, & union members should return to work next week, said Labor Sec Thomas Perez.  The walkout has been one of the largest in recent years.  Perez helped broker the deal by bringing CEO Lowell McAdam & 2 union executives to DC to discuss ways to resolve the dispute.  The labor standoff pushed the number of striking US workers to the highest in more than & years & could depress the May jobs numbers slated for release next week.  Because of the strike, VZ probably won’t add FiOS TV or broadband customers in the qtr.

The stock went up 46¢.  If you would like to learn more about VZ, click on this link:

Verizon Gets Deal in Principle to End Landline Worker Strike

Verizon (VZ)

Oil settled with a loss on today, but gained for the week as traders geared up for the key meeting of major oil producers next week.   Jul WTI crude settled at $49.33 a barrel, down 15¢ (0.3%).

Oil Futures Fall For The Session, But Gain For The Week

Oil continued lower after data showed that the weekly number of active US rigs drilling for crude fell by 2 to 316.  The total US rig count was unchanged at 404.

Weekly U.S. Oil-rig Count Down By 2: Baker Hughes

Fed officials are getting the stock market ready for a rate hike & traders are adjusting their thinking.  The world is not expected to come to an end in Jun with a hike.  However underlying economic data is not impressive.  Stock trading in the summer may reflect that reality.  Dow is where it was a year ago (shown in the chart below), struggling to crack thru the 18K ceiling.

Dow Jones Industrials