Tuesday, January 31, 2017

Mixed markets on negative earnings reports

Dow lost 107 (but off the lows), advancers over decliners 3-2 & NAZ inched up 1.  The MLP index went up 1+ to the 329s & the REIT index added 2+ to the 339s.  Junk bond funds were flattish & Treasuries rose.  Oil went up in the 52s & gold gained 16 to over 1200.

AMJ (Alerian MLP Index tracking fund)

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Live 24 hours gold chart [Kitco Inc.]

Exxon Mobil, a Dow stock & Dividend Aristocrat, biggest profit miss in at least a decade is the starkest sign yet that major oil explorers remain mired in the deepest market slump in a generation.  After resisting the industry trend of discounting the value of oil & natural gas fields that turned into money-losers amid the 2½ year market slump, the company took a $2B hit on the value of some Rocky Mountain gas.  It was the 9th-straight qtr of year-over-year profit declines, the longest such streak since at least 1988.  The market collapse that crushed prices, dried up cash flow & prompted hundreds of thousands of job cuts across the industry aggravated the impact XOM felt from its own stillborn Russian drilling venture, domestic legal disputes over whether the company engaged in climate-science deception & the loss of its gold-plated credit rating.  The $2B writedown slashed Q4 EPS to 41¢ compared 67¢ a year earlier.  The result was more than 40% lower than the estimate, the widest gap in more than 10 years.  In his first month on the job, CEO Darren Woods is looking to deepwater drilling in South America & West Africa, gas exports in the South Pacific & shale riches in the Permian Basin beneath Texas & New Mexico to bolster reserves & improve production & profit outlook.  The company agreed 2 weeks ago to shell out as much as $6.6B to double its Permian drilling rights in its biggest transaction in 6½ years & XOM unveiled plans to boost full-year capital spending by 14% to $22B.  XOM also expects to follow thru with most of the 4.6B-barrel reserves reduction it warned about in Oct because depressed prices made some fields unprofitable to drill.  About 3.6B barrels of reserves in the Canadian oil sands & the equivalent of another 1B barrels in other North American fields could fall off company books if low energy prices persisted.  That would equate to 19% of reserves & would be the largest de-booking since the 1999 merger that created the company in its modern form.  The stock fell 97¢.  If you would like to learn more about XOM, click on this link:

Exxon’s Profit Miss Shows No One Immune From Market Ravages

Exxon Mobil (XOM)

Harley-Davidson said demand for motorcycles in the US continued to decelerate in 2016, so the famed motorcycle maker is embarking on an effort to bring new riders into the sport.  The company said it is focused on promoting motorcycle riding in the US, looking to expand its reach beyond the traditional motorcycle buyer.  CEO Matt Levatich said the plan reflects challenges in the US, as it braces for a “new normal” in the domestic market.  “Now more than ever, we’re not only in the business of building great motorcycles. We’re in the business of building riders,” Levatich said.  Bike brands have faced a shrinking US motorcycle market as their core customers get older & consumers choose to spend money on new vehicles instead.  Based on the latest data provided by HOG, US motorcycle registrations totaled 263K thru the first 3 qtrs of 2016, a 5.6% decline.  The company also has contended with competition from cheaper bikes.  Despite heavy discounts being offered, HOG has avoided getting into a price war.  In 2016, HOG achieved sales gains in Europe & other intl markets.  But retail sales in its home market fell 3.9% & shipments followed suit as HOG sought to reduce dealer inventories.  This year, the company expects worldwide motorcycle shipments to be flat to down modestly.  Dealers trained 65K people thru the company's Rider Academy program last year.  The company is also pitching its bikes to more young adults, women, African-Americans & Hispanics, Levatich said.  Sales of new Harley motorcycles to those demographics accounted for 40% of US retail sales in 2016, up from 34% in 2010.  “We’ll continue our demand-driving focus, but we need to do more—particularly in the U.S.—to drive industry growth and assure the vitality of the sport long-term,” Levatich said.  “Our long-term, 10-year strategy has the headlining goal to build the next generation of Harley-Davidson riders worldwide.”  Despite weaker demand across the industry, HOG picked up market share in the US & Europe.  Q4 EPS was 27¢ compared 22¢ in the same period a year earlier.  Revenue declined 6% to $1.11B.  The stock slumped 89¢.  If you would like to learn more about HOG, click on this link:

Harley-Davidson Seeks New Crop of Riders as U.S. Sales Stall

Harley-Davidson (HOG)

Gold climbed to tally a monthly gain of about 5.2%, their largest such gain since Jun.  A sharp decline in the $ & losses in US equities helped lift investment demand for the precious metal.  April gold rose $15.40 (1.3%) to settle at $1211.

Gold Futures Mark Largest Monthly Gain Since June

Under Armour tumbled the most in 9 years after its sales forecast missed the estimates by a wide margin, signaling that the sports-apparel maker's days of rapid growth may be drawing to a close.  Sales this year will increase as much as 12% to nearly $5.4B, the company said.  That trailed the $6.05B estimate & would be UA's smallest annual gain since it went public in 2005.  UA, which has doubled its sales about every 3 years, is now having a hard time maintaining that rapid growth.  While the company helped make moisture-wicking clothing a staple of gym-goers’ wardrobes, the increased popularity of athletic wear as everyday apparel has brought a raft of new competitors.  Investors may also have been rattled after the CFO Chip Molloy announced he was leaving for personal reasons.  He joined the company only a year ago.  Revenue rose just 12% to $1.31B last qtr.  That marked the smallest year-over-year gain since 2009 & trailed the $1.41B estimate.  EPS was 23¢, missing the 25¢ estimate.  The company cited multiple reasons for its weaker growth & said the trends will continue into this qtr, with sales expected to gain at a mid-single-digit percentage.  UA said a decline in people shopping across the retail industry caused an increase in discounting that hurt profitability.  CEO Kevin Plank also said that the bankruptcies of several large customers disrupted the North American market.  But Plank, who is also the founder, said UA is misfiring on its products and that it’s too focused on workout gear while the athleisure trend has people wearing athletic apparel in everyday life.  The stock plunged 5.87.  If you would like to learn more about UA, click on this link:

Under Armour Sinks After Dismal Forecast Rattles Investors

Under Armour (UA)

The stock market held up fairly well in what could have been a very ugly day.  News from DC was heavily negative.  And earnings were not pretty.  Dark clouds keep gathering in a stock market that is overbought long term.  As pointed out in the past, it needs a correction to get rid of nervous nellies.  The chart below shows the Dow is up a good 3K in the last year with only minor bumpers along the way.

Dow Jones Industrials


Markets continue sliding lower as Trump makes his presence felt

Dow declined 151, decliners only slightly ahead of advancers & NAZ dropped 27.  The MLP index lost 1+ to the 316s & the REIT index rose 2+ to the 339s.  Junk bond funds were lower & Treasuries gained today.  Oil climbed higher & gold shot up into the 1200s (more on both below).

AMJ (Alerian MLP Index tracking fund)

Crude Oil Mar 17

Gold Futures,Apr-2017

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Gold rose for a 3rd day, set for its best month since Jun, as Trump fired the US acting attorney general over his order barring entry by citizens from 7 predominantly Muslim nations.  The White House dismissal of Sally Yates, describing her refusal to uphold the executive order as a betrayal, added to a dawning realization among investors that Trump will follow thru on pledges made during his election campaign.  The metal rose 0.3% to $1199 an ounce as investors sought a haven & stocks fell.  A gauge of shares around the world fell for a 4th day, the longest run since before the election.  Gold is set for its strongest month since Britain's decision to leave the EU in Jun.  Trump won office with campaign promises including ending admission of refugees from war-torn Muslim majority countries, rewriting or abandoning trade agreements & ending the decline in US manufacturing jobs.

Gold Gains as Trump Shocks Markets by Doing What He Said He’d Do

Oil advanced as the $ weakened against its peers, spurring a rally in raw materials.  Futures rose more than 1.3% & the $ slipped after a trade adviser to Trump said Germany is benefiting from a “grossly undervalued” currency.  A weaker greenback boosts the appeal of $-denominated commodities as an investment.  Seaway Crude Pipeline's 400K-barrel-a-day Legacy line shut after it was ruptured by road workers near Dallas, cutting crude flows to the Gulf Coast.  Oil is down 1% this month after advancing the last 2 months as OPEC agreed on Nov 30 to reduce supply, with 11 other nations including Russia joining the deal less than 2 weeks later.  While Middle East producers implement the cuts, US drillers targeting crude have increased the nation’s rig count to the highest level since Nov 2015.  West Texas Intermediate for Mar rose 54¢ (1%) to $53.17 a barrel.  Volume was 52% above the 100-day average.  The contract slipped 1% to $52.63 yesterday.  US crude inventories probably expanded by 3M barrels last week, according to a survey.

The Conference Board Consumer Confidence Index, which had increased in Dec, retreated in Jan.  The Index stands at 111.8 (1985=100), down from 113.3 in Dec.  The Present Situation Index increased from 123.5 to 129.7, but the Expectations Index decreased from 106.4 last month to 99.8.  "Consumer confidence decreased in January, after reaching a 15-year high in December (Aug. 2001, 114.0)," said the Conference Board.  "The decline in confidence was driven solely by a less optimistic outlook for business conditions, jobs, and especially consumers' income prospects. Consumers' assessment of current conditions, on the other hand, improved in January. Despite the retreat in confidence, consumers remain confident that the economy will continue to expand in the coming months."  Consumers' appraisal of current conditions improved in Jan.  Those saying business conditions are "good" increased slightly from 28.6% to 29.3%, while those saying business conditions are "bad" decreased from 17.8% to 16.1%.  Consumers' assessment of the labor market was also more positive than last month.  The percentage of consumers stating jobs are "plentiful" rose from 26.0% to 27.4%, while those claiming jobs are "hard to get" decreased from 22.7% to 21.5%.  Consumers' short-term outlook, which had increased considerably last month, declined in Jan.  The percentage of consumers expecting business conditions to improve over the next 6 months decreased from 24.7% to 23.1%, while those expecting business conditions to worsen increased from 8.9% to 10.7%.  Consumers' outlook for the labor market was somewhat mixed. The proportion expecting more jobs in the months ahead decreased from 21.7% to 19.8%, while those anticipating fewer jobs was virtually unchanged at 14.0%.  The percentage of consumers expecting their incomes to increase declined from 21.5% to 18.0%, while the proportion expecting a decrease rose from 8.6% to 9.6%.

Consumer Confidence Index Declined in January

Last night Trump fired the asst attorney general (a temp position until the new attorney general is approved by the senate).  This headline news got a lot of attention in the stock market, a strong indication that all is not well in DC.  On the other hand stocks are absorbing the news reasonably well on hopes changes will benefit the economy.  Today he is meeting with drug execs, looking for lower prices for drugs.  Dow is back to 19.8K, around where it has been since early Dec.  With all the changes promised & coming, it's still close to its record levels made last week.  That's a positive sign for the stock market.

Dow Jones Industrials