Tuesday, August 30, 2016

Markets slide lower on economic data

Dow gave back 65, decliners slightly over advancers & NAZ was off 15.  The MLP index was flat & the REIT index lost 2+ to 360.  Junk bond funds were mixed & Treasuries did little.  Oil & gold were weak (more on oil exploration below).

AMJ (Alerian MLP Index tracking fund)

Crude Oil Oct 16

Gold Futures,Dec-2016

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Explorers in 2015 discovered only about a 1/10 as much oil as they have annually on average since 1960.  This year, they'll probably find even less, spurring new fears about their ability to meet future demand.  With oil prices down by more than ½ since the price collapse 2 years ago, drillers have cut their exploration budgets to the bone.  Just 2.7B barrels of new supply was discovered in 2015, the smallest amount since 1947.  This year, drillers found just 736M barrels of conventional crude as of the end of last month.  Meanwhile the Energy Information Administration estimates that global oil demand will grow from 94.8M barrels a day this year to 105M barrels in 2026.  While the US shale boom could potentially make up the difference, prices locked in below $50 a barrel have undercut any substantial growth there.  Global inventories have been buoyed by full-throttle output from Russia & OPEC, which have flooded the world with oil despite depressed prices as they defend market share.  But years of under-investment can be felt as soon as 2025.

Global spending on exploration, from seismic studies to actual drilling, has been cut sharply in the last 2 years & spending is likely to remain low thru 2018.  The result is less drilling, even as the market downturn has driven down the cost of operations.  There were 209 wells drilled thru Aug this year, down from 680 in 2015 & 1167 in 2014.  That compares with an annual average of 1500 going back to 1960.

Oil Discoveries at 70-Year Low Signal Supply Shortfall Ahead

Home prices in 20 US cities continued to moderate in Jun, according to S&P CoreLogic Case-Shiller data.  20-city property values index increased 5.1% from Jun 2015, matching the forecast & the smallest gain since Aug, after a 5.3% year-over-year advance in May.  National home-price gauge also rose 5.1% from 12 months earlier.  On a monthly basis, the seasonally adjusted 20-city gauge fell 0.1% for a 2nd month  The report shows more gradual price appreciation that's allowing the housing market to strengthen.  New-home sales unexpectedly surged in Jul to the strongest level in more than 9 years.  At the same time, consistent appreciation might convince more sellers to put their homes on the market, & cheap borrowing costs & solid labor-market gains are supporting potential buyers.  “Overall, residential real estate and housing is in good shape,” David Blitzer, chairman of the S&P index committee, said.  “While the real estate sector and consumer spending are contributing to economic growth, business capital spending continues to show weakness.”  All 20 cities in the index showed a year-over-year gain.

Home Prices in 20 U.S. Cities Climbed 5.1%, Led by Northwest

Consumer confidence increased to an almost one-year high in Aug as Americans became more optimistic about the labor market, according to the Conference Board.  The confidence index advanced to 101.1 (forecast was 97), the highest since Sep, from 96.7.  Present conditions gauge increased to 123, the best reading in 9 years, from 118.8.  The measure of consumer expectations for the next 6 months rose to 86.4, the highest since Oct, from 82 & the share of those who said jobs were plentiful was the biggest since Aug 2007.  Strong employment that’s generating steadily rising pay is keeping Americans upbeat about the economy & its prospects.  The biggest share of respondents since Mar 2015 said they expected their incomes to increase in the next 6 months.  Such optimism signals that consumer spending, coming off the best qtr since the end of 2014, will stay robust & provide the economy with a leg up in Q3.

Consumer Confidence in U.S. Climbs to an Almost One-Year High

Stocks are meandering in this quiet week while the econoimc data report is uninspiring.  With many traders away on holiday, prices movements are not meaningful.  However, the popular stock averages remain essentially at record highs & Dow is about triple its low made in Mar 2009.  Hard to believe.

Dow Jones Industrials

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