Friday, July 29, 2016

The market closes the month mixed

Dow gave up 24, advancers over decliners 2-1 & NAZ gained 7.  The MLP index went up 1+ to the 314s & the REIT index added 2+ to the 367s.  Junk bond funds were mixed & Treasuries were purchased.  Oil was higher today after a difficult month (see below) & gold shot up on financial uncertainties around the globe.

AMJ (Aleria MLP Index tracking fund)

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Crude Oil Sep 16

Live 24 hours gold chart [Kitco Inc.]

Federal Reserve Bank of San Francisco pres John Williams played down a “low” reading on Q2 US growth & said the economy could still warrant as many as 2 interest-rate increases this year, or none.  “There’s definitely a data stream that could come through in the next couple of months that I think would be supportive of two rate increases,” Williams said.  “There’s data that we could get that wouldn’t be supportive of that -- it could be one, maybe, or none. Time will tell.”  Williams was the first Fed official to speak publicly since policy makers held interest rates steady on Wed for the 5th straight time.  The Fed was slightly more upbeat about the US economy in a statement released after its meeting, taking a step toward an increase later this year without signaling how soon a move might come.  “The GDP number for the second quarter was low,” said Williams, who isn’t a voting member of the FOMC this year.  “Final sales actually looked pretty good,” though, and “a lot of the second-quarter weakness, part of it was really inventory swings.”  He also said that the inflation data “was more or less what I had been expecting,” while the effects on the US economy from the Brexit vote appeared to be “very modest.”

Fed’s Williams Says Two Rate Increases Still Possible in 2016

Oil prices steadied today amid short-covering after a week-long selloff but were on track to end the month about 15% lower on persistent glut concerns, with the biggest decline seen for US crude in a year.  Slower economic growth & high inventories in crude & refined oil products have pressured crude futures some 20% lower from their 2016 highs, technically placing both in bear market territory.  The 2 benchmarks hit Apr lows today before paring losses on what traders described as short-covering by investors taking profit on bearish bets placed over the past week.  A 3-week low in the $ also supported oil, making commodities denominated in the greenback, such as crude, more affordable to holders of the € & other currencies.  Brent's expiring front-month contract was at $42.15, down 1.3% on the day & 15.2% on the month.  WTI's Sep contract rose 8¢ to $41.22 a barrel, after slipping earlier to below $41 the first time since Apr 20.  The monthly loss of 14.7%t, is the biggest since Jul 2015.  Crude prices are still up more than 55% from 12-year lows of $26-$27 in Q1. The recovery faded after prices above $45 enticed more oil drillers to return to the well pad.  Drillers added 3 rigs to raise the U.S. oil rig count for a 5th straight week this week.  Cheap crude also has led refiners to produce more fuel worldwide, adding to a bloated market.  Weaker-than-expected US economic growth also cast a shadow on oil consumption growth.  Analysts in a survey published today said they expected higher oil prices this year based on demand growth.

Oil Steadies but U.S. Crude Faces Biggest Monthly Loss in a Year

ExxonMobil, a Dow stock & Dividend Aristocrat, results in Q2 were disappointing. But there were some promising signs, like higher oil prices, but they weren't enough to offset the other issues plaguing the industry.  Here's a quick recap of results.


Q2 2016 Q1 2016 Q2 2015
Revenue (M) $57,694 $48,707 $74,113
Net income (M) $1,700 $1,810 $4,190
EPS            41¢     43¢   $1.00

After upstream earnings fell into the loss column in Q1, the company saw a modest pickup to a result that was just barely profitable.  The reason for the gain was mostly the uptick in oil prices, because natural gas prices & overall production actually slipped a bit compared to Q1.  But total refinery throughput & product sales were down only very slightly.  The big difference was refining margin.  Total cash from operations & asset sales was $5.5B, enough to cover the $5.1B in capital spending for the qtr.  Oil & gas production remained flat compared to the same time last year.  The div was increased 2.7% to 75¢ per share.  The stock fell 1.25.  If you would like to learn more about XOM, click on this link;

Higher Oil Prices Weren't Enough to Lift ExxonMobil's Second-Quarter Earnings

Exxon Mobil (XOM)

It is difficult to make much sense out of trading on the last day of the month.  But Dow had a good month, rising 400 to near record highs even though economic data has been drab.  Aug will prove if there are legs on this rally.  I don't think so.

Dow Jones Industrials


Markets drift lower on weak GDP data

Dow was down 35, advancers a little ahead of decliners & NAZ added 1.  The MLP index fell 2+ to the 312s & the REIT index rose 4 to the 376s.  Junk bond funds were flattish & Treasuries went up.  Oil has fallen to just above 40 & gold gained again.

AMJ (Alerian MLP Index tracking fund)s

Crude Oil Sep 16

Gold Futures,Dec-2016

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The US economy expanded less than forecast in Q2 after a weaker start to the year than previously estimated as companies slimmed down inventories & remained wary of investing amid shaky global demand.  GDP rose at a 1.2% annualized rate after a 0.8% advance the prior qtr, according to the Commerce Dept.  The forecast called for a 2.5% increase.  The report raises the risk to the outlook at a time Federal Reserve policy makers are looking for sustained improvement.  While consumers were resilient, businesses were cautious, cutting back on investment & aggressively reducing stockpiles amid weak global markets, heightened uncertainty and the lingering drag from a stronger dollar.
Private fixed investment, which includes residential & business spending, dropped at a 3.2%, the most in 7 years.  The Commerce Dept also issued its annual revisions.  The Q1 reading was revised from a previously reported 1.1% gain.  The new breakdown shows a more pronounced slowdown in the economy heading into 2016.  Year-over-year growth rate cooled from 3.3% in last year's Q1 to 1.9% in Q4-2015, rather than the previous downshift from 2.9% to 2%.  The easing in growth continued into H1 of this year.  The year-over-year pace for Q1-2016 was revised down to 1.6% from 2.1%.  That revised trajectory has implications for Fed officials, as they’re faced with an expansion that has been steadily losing steam.  The report also showed that in Q2, GDP expanded at a 1.2% rate from the same period a year earlier.
The growth estimate is the first of 3 for the qtr.

U.S. Economy Grew Less-Than-Forecast 1.2% in Second Quarter

Consumer confidence slid in Jul from the prior month on dimmer views of the US economy's prospects & lingering concerns among higher-income earners about global market conditions.  The University of Mich said that its final index of sentiment declined to 90 this month from 93.5 in Jun.  The projection was for a reading of 90.2 after the preliminary Jul figure of 89.5.  A record share of households with incomes in the top 1/3 mentioned the UK decision to leave the EU was weighing on outlooks. The gap between current views of the economy and expectations last month widened in Jul.  “While concerns about Brexit are likely to quickly recede, weaker prospects for the economy are likely to remain,” Richard Curtin, the survey’s director, said.  The sentiment survey's current conditions index, which measures Americans’ assessment of their personal finances, fell in Jul to 109 from 110.8 last month & the measure of expectations six months from now decreased to 77.8 from 82.4.  Americans anticipated an inflation rate of 2.7% in the next year, up from 2.6% in Jun.  They expect prices to rise 2.6% over the next 3-10 years, the same as in the previous month.  Despite the setback in sentiment this month, consumers have shown they’re more willing to spend than they were at the start of the year.

Consumer Sentiment Slips in July

The Institute for Supply Management’s gauge of factory activity in the Midwest region fell to 55.8 in Jul from 56.8 the month prior.  The forecast expected a larger decline to a reading of 54.0.  Readings above 50 point to expansion, while those below indicate contraction.

Midwest Manufacturing Continued to Expand in July

The economic news was not good while earnings are coming in varied.  The lack of strength in the economy makes the bulls feel better concerning extending low interest rates.  But this is not the behavior expected when popular stock averages are essentially at record highs.  This disconnect between economic performance & stocks prices is not new, but it still should be a cause for worry. 

Dow Jones Industrials