Thursday, January 19, 2017

Markets slide lower ahead of Trump's inauguration

Dow dropped 29, decliners over advancers 5-2 & NAZ was off 4.  The MLP index lost 1 to the 319s &the REIT index was off 2+ to 341.  Junk bond funds were flattish & Treasuries headed lower.  Oil rose (more below) & gold declined to just above 1200. 

AMJ (Alerian MLP Index tracking fund)

Crude Oil Feb 17

Gold Futures,Feb-2017

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When OPEC & Russia meet this weekend to gauge progress on their oil-supply deal, they'll be trying to dispel the shadow of previous unfulfilled promises.  Oil prices rose 20% in the month after OPEC agreed to cut output, reaching $54.06 a barrel Dec 28.  Since then, they've slipped almost 5% as traders, with one eye on rising US shale production, await proof that OPEC & other producers will live up to their deal.  They recall how Russia broke its pledge during cutbacks in 2008, while some members of the producers group failed to fully implement the agreement.  The dealmakers have created a panel to verify the cuts, a 5-nation group with both OPEC & non-OPEC members that will meet Jan 22.  While some see this as an impressive indication of intent in the midst of a 2-year price rout, others worry the group is only now trying to establish how compliance will be assessed.  Before OPEC even removed a single barrel from the market, its decision alone sent shock waves through the oil market, changing the shape of what’s called the forward curve.  Near-term prices moved up on expectations on tighter supply, while later contracts fell as producers rushed to hedge their output.  West Texas Intermediate for Feb delivery was trading at $51.48 a barrel in London today.

OPEC Seeks to Quiet Doubts on Supply Cuts as Rally Falters

Filings for US unemployment benefits fell to near the lowest level since the 1970s, consistent with a still-improving labor market, according to the Labor Dept.  Jobless claims declined by 15K to 234K (forecast was 252K).  Previous week’s claims revised to 249K from 247K.  Continuing claims dropped by 47K to 2.05K.  Unemployment rate among people eligible for benefits was unchanged at 1.5%.  Workers, especially those with experience, are become harder to find as the labor market tightens, making employers reluctant to fire staff members amid steady economic growth.  Jobless claims have remained below 300K for 98 consecutive weeks, the longest streak since 1970 & a threshold indicative of a healthy labor market.  The 4-week average of initial claims, a less-volatile measure than the weekly figure, declined to 246K, the lowest since 1973, from 257K in the prior week.

Builders broke ground on more US homes than forecast in Dec as a jump in apartment construction helped cap the 7th straight yearly increase, a report from the Commerce Dept.  Starts rose 11.3% to a 1.23M annualized rate (forecast was 1.19M) from a revised 1.1M pace. Permits, a proxy for future construction, decreased 0.2% to a 1.21M annualized rate (forecast was 1.23M). Single-family starts declined 4% to 795K rate, while multifamily construction jumped 57.3% to 431K.  Residential construction ended the year on a stronger note, a sign the industry will continue to be in a steady recovery.  Even with a recent pickup in mortgage rates, borrowing costs remain attractive for those who qualify for a mortgage & the job market is still solid.  While faster growth in construction is impeded by a shortage of skilled workers & available ready-to-build lots, builder confidence is close to an 11-year high on optimism Trump & the new Congress will ease regulations.  Permits for single-family homes rose 4.7% in Dec & multifamily permits declined 9%.  For all of 2016, there were 1.17 million starts, up from 1.11M in the prior year (the most since 2007).

The stocks market is jittery.  Trump will become pres tomorrow & past enthusiasm is fading.  The nominees will probably be approved.  But getting work done in a deeply divided town can be more difficult.  Even the Reps are not united on how to handle a new version of Obamacare.  Additionally, sore lowers will do everything they can think of to disrupt anything on Trump's agenda.  Dow is well below 19.8K as it heads into more headwinds.

Dow Jones Industrials

stock chart  

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