Monday, October 17, 2016

Markets drift lower on expectations of lackluster earnings

Dow fell 51, decliners over advancers almost 3-2 & NAZ slid back 14.  The MLP index was flat in the 309s & the REIT index was up 1 to the 341s.  Junk bond funds were mixed & Treasuries were higher.  Oil is under 50 again (more below) & gold was up only pennies.

AMJ (Alerian MLP Index tracking fund)

stock chart

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Live 24 hours gold chart [Kitco Inc.]

Federal Reserve Vice Chair Stanley Fischer said gov policies could partly counteract the impact of lower productivity & an aging population that are holding back the US economy & weighing on interest rates.  “Some combination of more encouragement for private investment, improved public infrastructure, better education, and more effective regulation is likely to promote faster growth of productivity and living standards,” he said.  Such policies could also “reduce the probability that the economy &, particularly, the central bank will in the future have to contend with the effective lower bound” for interest rates.  Fischer said an increase in gov spending by 1% of GDP would lead to a rise in the equilibrium level of interest rates, the rate that neither stimulates nor holds back the economy, by 0.5 percentage point, according to Fed research.  An equivalent tax cut would lift the equilibrium rate by 0.4 percentage point.

Fed’s Fischer Says Fiscal Policy Could Help Fight Low Growth

Oil production from 7 major US shale plays is forecast to decline 30K barrels a day to 4.429M barrels a day in Nov from Oct, according to a 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 35K barrels.  However, output from the Permian Basin, which covers parts of western Texas & southeastern New Mexico, is expected to climb by 30K barrels a day.  Nov West Texas Intermediate oil traded at $49.98 a barrel, down 37¢.

EIA: U.S. Shale Oil Output Forecast To Edge Down By 30,000 Barrels a Day In November

Bank of America reported its first rise in profit in 3 qtrs, boosted by strong results from bond trading.  EPS rose to 41¢ from 38¢ in the same period of 2015.  Analysts had expected EPS of 34¢, although it was not clear if the figures were directly comparable.  Revenue from trading fixed-income securities, currencies & commodities jumped 32% from a year earlier, boosted by Brexit-inspired volatility & changing expectations for monetary policy in the US, Europe & Japan.  Non-interest expenses fell 3.3% to $13.48B as it has been slashing costs to help make up for weak income from lending after years of low interest rates.  CEO Brian Moynihan said in Jul the bank would cut annual costs by another $5B by 2018, which would take the total to $53B from $58B in 2015.  Net interest income rose 3% to $10.20B, the first increase in 3 qtrs.  BAC said last month it would alter the way it accounts for changes in long-term interest rates from Q3 as a way to reduce volatility in reported net interest income.  The bank set aside more money to cover potential bad loans.  The bank's provisions rose 5.5% to $850M.  Income from investment banking rose 13.3% to $1.46B, driven by higher debt & equity issuance activity.  Adjusted revenue from its wealth & investment management unit, which includes Merrill Lynch, fell 1.7% to $4.38B.  The stock crawled up pennies.  If you would like to learn more about BAC, click on this link:

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