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.

AMJ (Alerian MLP Index tracking fund)

Crude Oil Aug 16

Gold Futures,Aug-2016

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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.

Retail Sales in U.S. Climb More Than Forecast in Broad Advance

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 Prices in U.S. Increased in June as Fuel, Rents Climbed

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.

Consumer Sentiment Drops as U.S. High Earners Shaken by Brexit

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..

Dow Jones Industrials


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