Monday, August 15, 2016

Stock averages at record highs on hopes for oil production cuts

Dow climbed 59, advancers over decliners almost 2-1 & NAZ gained 29.  The MLP index was up 1+ to the 316s & the REIT index lost a fraction to 367.  Junk bond funds crawled higher & Treasuries retreated.  Oil rose to the 45s (a 4 week high) & gold finished higher.

AMJ (Alerian 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 called for monetary & fiscal policy makers to rethink the way they operate, saying America is getting a taste of a new economic normal that warrants a change in orthodoxy.  This centers on the idea that neutral interest rates, those that neither stoke nor slow the economy, are historically depressed and are poised to stay that way.  To better adapt, he urged govs to prepare to provide a stronger fiscal backstop & central bankers to consider scrapping the practice of targeting low inflation.  “We can wait for the next storm and hope for better outcomes or prepare for them now and be ready,” Williams wrote in an essay.  While he isn't a voting member of the FOMC this year, Williams is one of the foremost experts on the natural interest rate.

Williams, who was Janet Yellen's top policy adviser when she was San Francisco Fed chief, joins a chorus of central bankers calling for stronger fiscal measures & a rethink as years of ultra-low interest rates & unconventional policies fail to stimulate breakout growth.  He's also the 2nd Fed policy maker in 2 months to suggest a major break with how the central bank conducts itself.  The St. Louis Fed's James Bullard on Jun 17 announced that he would stop submitting long-term economic forecasts & lowered his rate projection to one hike in 2016 & none during 2017 & 2018, based on his thinking that the economy is in a new, low-productivity & low-growth regime.

Williams Calls for Rethink of Fed Orthodoxy in New Economic Era

Confidence among US homebuilders climbed in Aug as steady job growth & low interest rates boosted prospects for the residential real-estate market in H2, according to the National Association of Home Builders/Wells Fargo.  Builder sentiment gauge rose to 60 from revised 58 (readings greater than 50 indicate more respondents reported good market conditions) & the Aug figure matched the median forecast.  Measure of 6-month sales outlook rose to 67 from 66, while index of current sales climbed 2 points to 65.  The gauge of prospective buyer traffic eased to 44 from 45.  The NAHB index has held within a narrow 3-point range this year, signaling builders are generally positive about the outlook although there has been little additional momentum to propel sentiment to a higher level.  Demand for properties remains elevated as borrowing costs stay low & employers retain workers, hire & slowly lift wages.  The index reached an all-time low of 8 in Jan 2009 & a high of 78 in 1998.  “Builder confidence remains solid in the aftermath of weak GDP reports that were offset by positive job growth in July,” NAHB chief economist Robert Dietz said.  “Historically low mortgage rates, increased household formations and a firming labor market will help keep housing on an upward path during the rest of the year.”

Confidence Among U.S. Homebuilders Improved in August on Sales

Oil production from 7 major US shale plays is forecast to decline by 85K barrels a day to 4.47M barrels a day in Sep from Aug, according toa monthly report from the Energy Information Administration.  Oil output at the Eagle Ford shale play in South Texas is expected to see the largest decline, down 53K barrels a day.  However, output from the Permian Basin, which covers parts of western Texas & southeastern New Mexico, is expected to edge up 3K barrels a day.

EIA: U.S. Shale Oil Output Forecast To Fall By 85,000 Barrels a Day In September

Sysco, a Dividend Aristocrat, shares rose after the food company reported fiscal Q4 earnings that beat expectations.  EPS was 38¢, up from 12¢ last year.  Adjusted EPS was 64¢, beating the 61¢ estimate.  Revenue was $13.65B, up from $12.4B last year & just below the $13.68B estimate.  The company said food cost deflation was 1.2%, with deflation in meat & dairy offset by inflation in other categories.  The stock finished down pennies (following a strong pop after the earnings release).  If you would like to learn more about SYY, click on this link:

Sysco Shares Rise After Earnings Beat Estimates

Sysco (SYY)

After the stock market dropped in Jan, the Dow is up a staggering 3K+ for one of the biggest rises in history.  That boggles the mind.  Beaten up MLPs have bounced back, junk bond funds are doing very well & REIT with high yields are near or at record highs.  Meanwhile US GDP growth has been drab & Britain has voted to leave the EU, among many economic disappointments.  Enjoy these valuations because they may not last when a dose of reality hits stock traders.

Dow Jones Industrials


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