Thursday, May 19, 2016

Markets sell off despite Wal-Mart jump

Dow sank 178, decliners over advancers a very big 5-1 & NAZ dropped 46.  The MLP index was fractionally lower in the 295s & the REIT index tumbled 14+ to the 331s.  Junk bond funds declined & Treasuries had a modest gain.  Oil fell to the 47s & gold also declined.

AMJ (Alerian MLP Index tracking fund)

CLM16.NYM...Crude Oil Jun 16...47.17 Down ...1.02  (2.1%)

GC.CMX...........Gold Apr 16.....1,249.50 Up ...0.30 (0.0%)

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Filings for US unemployment benefits declined last week from a more than one-year high, as a plunge in NY returned claims to a level consistent with a firm labor market.  Applications dropped 16K, the biggest decrease since early Feb, to 278K, according to the Labor Dept.  The forecast called for 275K.  The decrease was primarily due to fewer filings in NY after a surge the previous week that probably reflected difficulties adjusting for the spring break holiday.  A subdued rate of dismissals, along with steady hiring, shows companies have confidence in the demand outlook.

Filings have been below 300K for 63 straight weeks, the longest stretch since 1973 & a level typically consistent with a healthy labor market.  The 4-week average of claims, a less-volatile measure than the weekly figure, rose to a seasonally adjusted 275K from 268K in the prior week.  The number continuing to receive jobless benefits decreased 13K to 2.15M & the unemployment rate among people eligible for benefits held at 1.6%.

Jobless Claims in U.S. Dropped Last Week From a One-Year High

Factory activity across the mid-Atlantic was lackluster in May, more evidence that improvement in the manufacturing sector will be modest, though signs of budding inflation emerged during the month.  The Federal Reserve Bank of Philadelphia said its index of general business activity covering the regional factory sector registered at -1.8 this month, little changed from Apr.  In Mar, the index surged to 12.4 to break a 6-month streak of declines.   Economists expected the index to tip back into positive territory, rising to 3.0.  Results above zero represent expansion whereas readings below that level signal contracting activity.  Earlier this week, the neighboring Empire State's index slipped back into contraction after rising for 2 straight months, pulled lower by a drop in demand.  US production has been constrained by waning global demand as economies across Latin America, Asia & Europe struggle, & the strong $ has served as a significant headwind for exporters.  After languishing for months, the manufacturing sector has started to show signs of life, though improvement is expected to be only modest.  Across the Philadelphia area, production edged lower as demand slipped after flatlining in Apr.  Shipments improved & inventories rose to the highest level in 9 months.  Factories remained reluctant to hire, still waiting for demand to more meaningfully pick up before adding jobs, though the decline in head counts wasn't as severe as in recent months.  After a sharp drop last month, the average workweek index ticked up slightly but remained negative.  In a sign of emerging inflation, manufacturers in the region reported pickups in both prices paid & prices received.  Rising raw material costs pushed prices paid up to 15.7% & more factories were able to command higher prices, sending a gauge of prices received up to 14.8, double the Apr level.  Respondents signaled that they continue to expect conditions to improve in the coming months, suggesting current softness will be temporary.  Nearly ½ of firms surveyed expect an increase in activity over the next 6 months.

Philadelphia Fed Index Remains Soft in May

Wal-Mart, a Dow stock & Dividend Aristocrat, posted surprise revenue growth in Q1 offered an upbeat view on the current period, underscoring that the company's robust grocery business could help shield it from a difficult retail environment.  The company has been spending heavily to get customers back into its stores, working to better stock stores, improve efficiency & increase pay for its employees.  But it has warned that those efforts would dent profits this fiscal year.  Indeed, profit slipped 7.8% in Q1, but it still topped company expectations.  The results stand out from a list of retailers with disappointing starts to the year.  WMT gets more than ½ its revenue from grocery products, which might shield it from some of the pressures on brick-&-mortar retailers, as food shopping has been slower to shift online.  In Q1, sales at existing US stores ticked up 1%, marking the 7th straight quarterly gain after a long stretch of declines.  Analysts had expected 0.5% growth.  The number of people visiting its stores rose 1.5%.  Over all, EPS was 98¢, down from $1.03 last year.  The company had forecast EPS of 80-95¢ & analysts anticipated 88¢.  Revenue rose 0.9% to $115.9B, above the $113.2B estimate from analysts.  Excluding currency impacts, revenue rose 4%.  For Q2, company expects EPS of 95¢-$1.08.  Analysts are expecting 98¢.  The stock skyrocketed 5.73 (9%).  If you would like to learn more about WMT, click on this link:

Wal-Mart Posts Surprise Revenue Increase, Gives Upbeat Outlook

Wal-Mart (WMT)

If it wasn't for WMT, Dow would be down more than 250.  The thought of a rate hike is spooking the markets, although it should be considered routine & LONG OVERDUE.   Low interest rates have lasted for a decade.  Traders have to learn to grow up.  This decline has become more significant, with the Dow down almost 1K from last year's high.

Dow Jones Industrials


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