Friday, May 13, 2016

Lower markets on sluggish retail earnings

Dow dropped 63, decliners over advancers 3-2 & NAZ was even.  The MLP index fell 1+ to 292 & the REIT index lost 3+ to the 342s.  Junk bond funds were flattish & Treasuries were higher.  Oil pulled back to 46 & gold was a little lower.

AMJ (Alerian MLP Index tracking fund)

Crude Oil   46.16     -0.54 (-1.16%)

Gold      1,268.00    -3.20 (-0.25%)

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Sales at retailers jumped in Apr by the most in a year, indicating consumer spending will help the US economy recover from an early-year slowdown.  Purchases climbed 1.3%, the biggest gain since Mar 2015, after a 0.3% Mar drop that was smaller than previously reported, according to the Commerce Dept.  The forecast called for a 0.8% gain.  Healthier household finances, reflecting reduced borrowing & increased savings, mean consumers have the wherewithal to boost spending even as gasoline prices rise & job growth moderates.  That can help shore up profits at retailers after a disappointing start to 2016.
11 of 13 major retail categories showed increases last month, indicating the advance was broad-based.  Demand at auto dealers climbed by the most in a year & sales at grocery stores & online merchants were the strongest in almost 2 years.  Core sales, used to calculate GDP which exclude such categories as autos, gasoline stations & building materials, advanced 0.9%, the most since Mar 2014, after a revised 0.2% increase in Mar that was larger than previously reported.  The report will probably prompt economists to boost forecasts for Q2 consumer spending & economic growth after a disappointing start to the year.

Retail Sales Rise Most in a Year, Marking U.S. Consumer Comeback

Consumer confidence in the US jumped in May to the highest level in almost a year, propelled by the strongest views on inflation-adjusted income gains in a decade.  The University of Michigan preliminary index of sentiment rose to 95.8, the highest since Jun from 89 in Apr.  The projection called for 89.5.  The measure of the outlook over the next few years jumped by the most since 2006.  The broad-based advance in expectations was led by lower-income & younger households, while all Americans projected real incomes would rise by the most in 10 years.  Current conditions also improved as the highest share of households since 2000 said their earnings had recently grown, indicating consumer spending can help the economy recover from a Q1 slowdown.  “Consumers discounted the first quarter GDP report as a misleading indicator, instead, they have based their expectations more on their own direct experiences,” Richard Curtin, director of the University of Michigan consumer survey, said.  “The early May data are a welcome sign of an impending shift toward spending and away from savings.”

Consumer Sentiment in U.S. Jumps to Highest Level in a Year

China's broadest measure of new credit rose less than expected last month, suggesting that the central bank is starting to temper a flood of borrowing amid warnings from officials about potential side effects of the debt binge.  Aggregate financing was 751B yuan ($115B) in Apr, the People's Bank of China said, below all forecasts.  New yuan loans were 555B yuan, compared with the estimate for 800B yuan.
After a record flow of credit in Q1, policy makers are now shying away from boosting growth at all costs.  The Communist Party's People’s Daily reported “authoritative person” who said the economy must face up to its nonperforming loans & other risks associated with soaring debt levels.  China's M2 money supply increased 12.8% from a year earlier, compared with a 13.5% gain economists projected & a 13.4% rise in Mar.  Commercial banks may be becoming more reluctant to lend after soured loans rose to the highest level in 11 years, with defaults spreading from small private firms to large state-owned enterprises.  Nonperforming loans rose 9% to 1.39T yuan in Mar from Dec, the fastest increase in 3 qtrs.

China Credit Expansion Moderates Amid Warning on Debt Binge

The news is not good for stocks.  While retail sales data was helpful, earnings reports from retailers is coming in disappointing.  In addition, the 3 month bull run for stocks leaves the market heavily overbought, vulnerable to additional negative news.

Dow Jones Industrial

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