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Friday, July 15, 2016
Overbought markets waver on mixed economic data
Dow fell 8, advancers slightly ahead of decliners & NAZ gave back 7. The MLP index lost 1+ to 321 & the REIT index fell 1+ to 367. Junk bond funds were little changed & Treasuries retreated again. Oil was even & gold pulled back slightly.
Sales at US retailers rose more than forecast last month in a broad
advance that shows consumers delivered for the economy in Q2. The 0.6% increase retail receipts exceeded
the highest estimate & followed a 0.2 percent
gain the previous month that was smaller than previously estimated, according to the Commerce Dept. Core sales, used to
calculate GDP, rose a larger-than-projected 0.5% for a 2nd month. A prolonged period of job creation &
slowly improving wage gains are providing households with the means to
keep spending. Consumers are key to shaping the growth path for the economy as global demand remains lackluster &
threatens to damp business investment. The forecast called
for a 0.1% & May was previously
reported as a 0.5% increase. 11
of 13 major categories showed stronger demand in Jun from the prior
month, including a 1.1% advance in receipts at online merchants & a 0.7% increase at health & personal care outlets. Sales of
sporting goods, furniture & building materials also picked up. The 3.9% surge in building supplies followed a 2.5% plunge in May
that was larger than previously estimated. Automobile
dealers’ sales rose 0.1% after falling 0.5% the
prior month. Industry figures earlier this month that showed U.S.
vehicle sales slumped in June from the month before. Purchases of cars
and light trucks fell to a 16.6M annualized rate last month from a
17.4M rate in May.
The cost of living in the US rose in Jun, propelled by a rebound
in fuel prices & sustained gains in rents that is driving inflation
closer to the Federal Reserve's goal. The CPI
climbed 0.2 percent for a 2nd month, according to the Labor Dept. A 2nd consecutive decrease in food costs held
it below the forecast
which called for a 0.3% advance. Steadying energy costs &
the dissipating influence of the strong $ will stoke price
pressures more broadly & enable companies to regain the ability to
charge their customers more. Faster inflation underpinned by an
improving economy and a healthy job market would also enable the Fed to
resume raising interest rates. Prices increased 1% in the 12 months ended Jun, the same as in the prior month. The
core CPI measure, excluding food & fuel costs, also
rose 0.2% for a 3rd month. It increased 2.3% from Jun
2015, up from 2.2 percent in the prior 12-month period & matching the
largest year-to-year advance of the economic expansion that began in
2009.
Energy costs increased 1.3% from a month earlier. Food prices dropped 0.1%. Expenses
for shelter climbed 0.3%, driven up by rents & hotel rates. Higher
prices for shelter, including rents & hotel rates, have been helping
to prop up inflation, while cheaper energy bills & the stronger $
were exerting downward pressure last year. The Fed's preferred
gauge of inflation, which is the Commerce Dept's personal
consumption expenditures measure, hasn’t matched the Fed's 2% goal since Apr 2012.
Consumer confidence in the US dropped in Jul as UK's vote to leave the EU flustered high-income earners. The University of Mich preliminary sentiment index fell to
89.5, a 3-month low, from 93.5 in Jun. The projection was for no change. The Brexit vote caused global equity markets to briefly
slump, giving Americans in the upper 1/3 of the income scale reason to
shudder over their finances. “Prior to the Brexit vote, virtually no consumer thought the issue
would have the slightest impact on the U.S. economy,” Richard Curtin, the survey's director said. “Following the Brexit vote, it was mentioned by record
numbers of consumers, especially high-income consumers.” The current conditions index, which measures Americans’ perceptions of their personal finances, declined to 108.7 from 110.8 in the prior month. While slightly fewer Americans reported recent gains in finances, the
least since 2007 said their balance sheets had deteriorated.
The gauge of expectations 6 months from now dropped to 77.1, the lowest since September 2014, from 82.4 in Jun. Respondents expected the inflation rate in the
next year will be 2.8%, compared with 2.6% in the Jun.
Stocks are taking a day off. Traders have to absorb the big gain in the last couple of weeks. Even with the averages a little lower, this move should not be confused with a correction. The markets are vastly overbought & a major correction is needed. Next week will start earnings from the big industrial companies & markets are assuming an abundance of good news. Maybe not..
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