Monday, December 5, 2016

Dow reaches a new record as services economy grows in November

Dow added 45, advancers over decliners 5-2 & NAZ went up 53.  The MLP index was off a tad in the 298s & the REIT index rose 2+ to the 328s.  Junk bond funds were little changed & Treasuries clawed their way higher.  Oil slid back to the 52s (more below) & gold was also lower.

Dow Jones Industrials

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America's service industries expanded in Nov at the fastest clip since Oct of last year, putting the economy's biggest sector on a robust growth path.  The Institute for Supply Management non-manufacturing index jumped to 57.2, exceeding all forecasts, from 54.8 in Oct.  Readings above 50 signal growth.  The forecast called for 55.5.  Measures of business activity & employment strengthened at companies that cover almost 90% of the economy, signaling growing optimism about demand.  The factory survey released last week also showed promise, with manufacturing expanding by the most in 5 months.  “This last quarter is having the year finish up pretty strong,” Anthony Nieves, chairman of the survey, said.  “I don’t project that December is going to be much different.”  The latest reading puts the ISM services gauge above the 54.5 average for the first 10 months of this year & compares with 57.2 in all of 2015.  The services survey covers a range of industries, including retail, health care, agriculture & construction.  14 industries, including farming, retail, entertainment & transportation, expanded in Nov.  The real estate, rental & leasing sector, along with public administration, contracted.  The business activity index, which parallels the factory production gauge, jumped to 61.7, also the highest since Oct 2015, from 57.7.  A measure of services employment climbed to a 13-month high of 58.2 from 53.1.

OPEC's mission to implement last week's historic deal to curb production just got a little bit harder after 3 of its African members increased output in Nov.  Crude production from OPEC rose to a record 34.16M barrels a day with gains led by Angola, up from a revised 33.96M barrels a day in Oct.  Nigeria & Libya, which aren't bound by the OPEC cuts because their output has suffered from sanctions & oil infrastructure sabotage, also boosted production by a combined 140K barrels a day.  Although OPEC uses independent estimates known as secondary sources that differ from the estimates, the resurgence in production from these 2 exempt African countries shows the other members will have to make deeper cuts to reach the goal of 32.5M barrels a day.  OPEC will implement those cuts from Jan with the help of Russia, which has vowed to slash its own output by 300K barrels a day, the same as the combined reduction proposed for other non-OPEC nations.  OPEC is holding talks with non-OPEC nations on Sat to ink a deal.  Angola's output increased by 170K barrels a day, with volumes rebounding following field maintenance in Oct.  Iran's output stayed relatively steady at 3.67M barrels a day while Saudi Arabia’s, the de-facto leader, lowered its daily production by 50K barrels to 10.53M.

OPEC Target Gets Harder as African Members Boost November Output

Gold prices settled lower as Italian voters rejected constitutional reforms as expected & prospects that the Federal Reserve may tighten monetary policy at an accelerated pace rose.  Gold for Feb delivery declined $1.30 (0.1%) to settle at $1176 an ounce.

Gold Settles Lower As Accelerated Fed Hike Pace Prospects Rise

McDonald's, a Dow stock & Dividend Aristocrat, losing ground in its battle for the coffee drinkers, is planning to shake up its McCafe brand.  The company will reintroduce the McCafe concept next year, about 8 years after it debuted nationwide.  The push follows efforts to upgrade its java & get more of its beans from sustainable sources.  “We’re really excited about the McCafe brand and what it can do to complement our food offerings,” Kristy Cunningham, US senior VP of strategy & insights, said.  The new McCafe campaign will include special deals, more seasonal beverages & increased marketing of the chain's coffee rewards program, she said.  Coffee is still a booming business, but fast-food companies haven't been able to capitalize on much of that growth.  Sales at burger chains rose just 3.3% last year, compared with an almost 10% jump for coffee cafes.  Though McCafe generates $4B annually in US. sales, it could better cater to customer needs, Cunningham said.  McCafe is “a very important piece,” Cunningham said.  “It gives us the chance to follow what the customer is really looking for.”  The stock rose 1.05.  If you would like to learn more about MCD, click on this link:

McDonald’s Revamps Its $4 Billion McCafe Brand

McDonald's (MCD)

Stocks keep charging ahead.  Optimism from Trump's election outranks a rate hike along with hints about more to come & the confusion in Italy.  The rally in oil may have maxed out as reality (about higher production) affects this market.  Dow retreated a little in late day trading & remains very overbought, needing a correction.

Dow Jones Industrials


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