Friday, October 14, 2016

Markets pare gains after weak consumer confidence data

Dow rose 39 (well off the AM highs), advancers a little ahead of decliners & NAZ gained just a fraction.  The MLP index lost 1+ to the 309s & the REIT index was off a fraction in the 341s.  Junk bond funds were a little lower & Treasuries were sold, taking the yield on the 10 year Treasury near 1.8%.  Oil was down pennies, still above 50, & gold drifter lower.

AMJ (Alerian MLP Index tracking fund)

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Janet Yellen said there are “plausible ways” that running the US economy hot for a while could fix some of the damage caused to growth trends by the Great Recession.  “Increased business sales would almost certainly raise the productive capacity of the economy by encouraging additional capital spending,” Yellen said.  “A tight labor market might draw in potential workers who would otherwise sit on the sidelines.”  The economic recovery which began in the middle of 2009 has proceeded at sluggish pace.  It took more than 6 years to drive the unemployment rate close to the Fed's definition of full employment.  Inflation has remained below its 2% target since 2012, & wages haven't grown as fast as in previous expansions.  At the Boston Fed conference, Yellen pondered whether a “high-pressure economy” could reverse some of the damage done in the recession, including declines in research spending and labor force participation.  In effect, that has been the FOMC's bet this year, though Yellen cautioned that running a low-rate policy for too long “could have costs that exceed the benefits” by increasing financial risk or inflation.  Still, she said, “the influence of labor market conditions on inflation in recent years seems to be weaker than had been commonly thought prior to the financial crisis.” 

Yellen Sees ‘Plausible Ways’ Hot Economy Could Heal Growth

Consumer confidence unexpectedly fell to a one-year low in Oct as Americans soured on the outlook for the economy amid a contentious presidential election campaign.  The University of Mich preliminary index of sentiment declined to 87.9 from 91.2 in Sep.  That was weaker than the lowest estimate.  Long-term inflation expectations declined to a record low.  A sustained acceleration in worker pay has remained elusive even as companies keep adding jobs at a solid pace & political uncertainty may be restraining confidence.  At the same time, still-cheap fuel costs & improving employment prospects will help underpin consumer spending, which accounts for about 70% of the economy.  “It is likely that the uncertainty surrounding the presidential election had a negative impact, especially on low-income consumers, & without that added uncertainty, the confidence measures may not have weakened,” Richard Curtin, director of the University of Mich consumer survey, said.  Even so, the margin of consumers expecting Hillary Clinton to win the election widened in Oct to a 46 percentage-point gap, from 34 points in Sep.  The measure of expectations 6 months from now decreased to 76.6, the lowest since Sep 2014, from 82.7.  A 37% share of respondents expected good times in the economy in the year ahead, the smallest proportion since Aug 2014, & the outlook for the next 5 years also declined.  The sentiment report’s current conditions index, which takes stock of Americans' view of their personal finances, rose to 105.5, from the prior month's 104.2.  Curtin attributed the declines in the confidence & expectations indices to weakness among households with incomes below $75,000.

Consumer Sentiment in U.S. Unexpectedly Drops as Outlook Sours

Wells Fargo reported its 4th straight fall in quarterly profit as it set aside funds for potential legal costs amid an increasingly politicized bogus-account scandal that cost CEO John Stumpf his job.  The bank, which faces numerous federal & state investigations into its practices, said noninterest expenses rose due in part to higher litigation accruals & salaries.  EPS was 1.03 versus 1.05 last year.  Analysts had expected the #3 U.S. bank by assets to report EPS of 1.01.  It was not clear if the figures were comparable.  Stock analysts have cut profit forecasts for the bank for qtrs to come following the revelation that bank employees had opened as many as 2M accounts without customers' knowledge or permission to meet aggressive sales targets.  WFC has already agreed to pay $185M to settle regulatory charges & fired over 5K employees in connection with the scandal.  Several big customers, including California & Illinois, have also suspended business relations with the bank.  The scandal is a rare setback for the bank, which emerged from the financial crisis relatively unscathed.  The stock was up a few pennies.  If you would like to learn more about WFC, click on this link:

Wells Fargo's 3Q Earnings Top Estimates

Wells Fargo (WFC)

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Stock buyers gave up around midday & stocks were sold in the PM.  Consume confidence data was not a help & the thought negative this sentiment may linger for another month made matters worse.  The Dow continues to hang in above 18K, as it has for months.  Earnings from industrial & service companies may not be helpful in the coming weeks.

Dow Jones Industrials

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