Tuesday, February 28, 2017

Markets retreat amidst growing uncertainty in DC

Dow dropped 25, decliners ahead of advancers 2-1 & NAZ lost 36.  The MLP index added 2+ to the 327s & the REIT index was off 2 to the 352s.  Junk bond funds were little changed & Treasuries went up a little.  Oil slid below 54 & gold also pulled back.

AMJ (Alerian MLP Index tracking fund)

Light Sweet Crude Oil Futures,A

Gold Apr 17

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Consumer confidence unexpectedly increased in Feb to the highest level since 2001 as Americans grew more upbeat about present & future conditions, according to the Conference Board.  The Confidence index advanced to 114.8 (forecast was 111) from a revised 111.6 in Jan.  Present conditions gauge increased to 133.4, the highest since 2007, from 130.  The measure of consumer expectations for the next 6 months rose to 102.4 from 99.3.  The share of those who said more jobs will be available in the coming months rose to 20.4% from 19.7%.  The gain in sentiment is the 3rd in the last 4 months, though the real test for the economy is how much follow-through there will be in terms of actual spending.  While companies continue to add workers, the pace of wage growth has been relatively subdued, especially at this point of the business cycle.  Americans are also waiting on specifics from DC as lawmakers consider ways to boost the economy.  “Consumers rated current business and labor market conditions more favorably this month than in January,” Lynn Franco, director of economic indicators at the Conference Board, said.  “Overall, consumers expect the economy to continue expanding in the months ahead.”  Buying plans were mixed, with more expecting to buy a new automobile & fewer planning purchases of appliances.  The share of households who expect their incomes to rise in next 6 months was little changed at 18.3% this month after 18.1%.  The labor differential, measuring the share of those saying jobs are plentiful minus the share saying they're hard to get, was little changed at 5.9 points after 6 points in Jan.  24% of consumers said they expect better business conditions in the next 6 months, up from 22.9%.

U.S. Consumer Confidence Rises to Highest Level Since July 2001

A Rep effort to repeal & replace Obamacare encountered resistance from party conservatives who said draft legislation emerging in the House would not reduce the cost of healthcare.  Growing divisions among House Reps over how to approach the healthcare law could signal new problems for a top party priority just as Pres Trump prepares to address lawmakers & the public about his 2017 agenda.  House Speaker Ryan had promised legislation on Obamacare after lawmakers return this week from a 10-day recess.  Ryan told reporters that the White House, Senate & House were working on a single plan to repeal & replace the current healthcare law.  He insisted there were no rival plans.  "At the end of the day, when we get everything done and right, we're going to be unified on this," he said.  But 2 prominent members of the House Freedom Caucus, a conservative bloc of about 40 Reps, criticized draft legislation circulating among House members.  The draft plan would be paid for by limiting tax breaks on some employer-sponsored healthcare plans & would provide tax breaks based on age rather than income to help consumers buy insurance.  "It’s a new entitlement program," said Rep Mark Meadows of North Carolina, the Freedom Caucus chairman.  "It raises taxes on the middle class to give subsidies to others who could indeed be millionaires," he added.  "It also comes down to a plan that doesn't reduce the cost of healthcare."  Meadows said it would become clear within the next 48 hours whether the proposal has enough support to pass the House as lawmakers review the document.

House Conservatives Balk at Emerging Obamacare Plan

Senate Majority Leader Mitch McConnell said he would not back slashing State Dept funding as the Trump administration is expected to propose, adding that deep cuts would not pass the legislative chamber.  He also said Reps, who control both the Senate & the House, are still not in agreement on a healthcare plan to replace Obamacare.

Top Senate Republican says Deep State Dept Budget Cuts Won't Pass

Target, a high yielding Dividend Aristocrat, forecast a surprise drop in full-year sales at established stores & reported a steeper-than-expected fall in holiday-qtr sales due to "unexpected softness" at its stores.  Net sales have now declined for 6 qtrs in a row as shoppers increasingly gravitate to online retailers & spend more on big-ticket purchases such as cars & home renovations rather than on electronics, food & apparel.  The retailer expects sales at stores open for at least a year to decline in the low-single digit percentage range in fiscal 2017, after reporting a fall of 0.5% in 2016.  Analysts were expecting same-store sales to increase 0.4% in 2017.  TGT also forecast full-year EPS from continuing operations of $3.80-$4.20, while analysts were expecting EPS to top $5.00.  The retailer also reported a drop in gross margins as well as a bigger-than-expected decline in profit for Q4, reflecting pressure from discounting & clearance as well as costs from its shift from brick-&-mortar to digital channels.  "Our fourth quarter results reflect the impact of rapidly-changing consumer behavior, which drove very strong digital growth but unexpected softness in our stores," CEO Brian Cornell said.  The stock tumbled 8.14 (12%).  If you would like to learn more about TGT, click on this link:

Target Forecasts Drop in Same-Store Sales, Shares Sink

Target (TGT)

Stocks pulled back, but the decline was not significant.  It can be called a mild form of profit taking, long overdue.  Dow did not stray from a 60 point range.  The prospect of Trump's speech was felt all day in the stock market.  A key point of it will be to redirect federal spending from some programs (such as foreign aid) to defense.  Considering the uncertainty in DC, especially on where to spend enormous amounts of money, the stock market has held up quite well.  The popular indices remain essentially at record levels, up substantially from the election a little over 3 months ago.  That optimism will get a major test in tomorrow's trading.

Dow Jones Industrials

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Markets drift lower ahead of Trump's speech tonight

Dow lost 6, decliners ahead of advancers 4-3 & NAZ fell 16.  The MLP index rose 1+ to the 326s & the REIT index was off 1+ to the 353s.  Junk bond funds were flattish & Treasuries crawled higher.  Oil declined (more below) & gold was off a tad, remaining near recent highs.

Dow Jones Industrials

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The US economy grew in Q4 at a 1.9% pace, unchanged from an initial estimate, as slower investment by businesses & state & local agencies offset stronger household purchases.  The gain in GDP was smaller than the forecast for a 2.1% annualized rate.  Consumer spending, the biggest part of the economy, rose 3%, more than projected, Commerce Dept data showed.  The results reinforce the leading role that consumers continue to play in the current expansion, helped by a tight job market, low borrowing costs & rising confidence.  Optimism that Trump will lower taxes, reduce regulation & rebuild infrastructure may also encourage businesses to step up investment this year, contributing to growth.  The economy expanded at a 3.5% pace in Q3.  The revision of GDP growth 1.9% is about in line with the average 2% pace of the current expansion which began in mid-2009.  Trump aims to double the pace of growth & may provide details in his address to Congress.  Treasury Secretary Steven Mnuchin has said new policies will lead to expansion of 3% or higher, while the White House website pledges a “return to 4 percent annual economic growth.”  At the same time, Mnuchin has played down expectations that Trump will boost growth right away, saying last week that reaching 3% expansion could come later in 2018 as policy changes take effect.
U.S. Economy Grew 1.9% in Quarter, Unchanged From Early Estimate
Global oil prices dipped but continued to trade in a tight range, with OPEC-led output cuts offset by increasing crude production from the US.  OPEC has so far surprised the market by showing record compliance with oil-output curbs, & could improve in coming months as the biggest laggards, the United Arab Emirates & Iraq, pledge to catch up quickly with their targets.  But while the Nov 30 agreement to reduce production prompted oil prices to rise $10 a barrel, they have been trading in a narrow $3 range in recent weeks.  West Texas Intermediate crude oil futures traded several cents on either side of the previous day's close earlier but has since dipped.   The US benchmark was 49¢ lower at $53.5.

Home prices grew at the fastest rate in 2½ years in Dec, shrugging off higher interest rates to cap a year of robust growth.   The S&P CoreLogic Case-Shiller Indices, covering the entire nation rose 5.8% in the 12 months ended in Dec, compared to a 5.6% year-over-year increase reported in Nov.  The 10-city index gained 4.9% over the year, up from 4.4% the prior month & the 20-city index gained 5.6% year-over-year, compared to a 5.2% increase in Nov.  The increase beat the expectations for the 20-city index to rise 5.4%.   The hottest markets in the country remain concentrated in the northwest, as many buyers priced out of the Silicon Valley area flee to secondary tech hubs.  Home prices hit a new record in Sep & have continued climbing by more than 5% year-over-year since then, driven by strong demand & a shortage of homes for sale.   Inventory in Dec hit its lowest level since 1999, when the National Association of Realtors started tracking the data.  The number of homes for sale was down 7.1% in January compared to a year earlier.   "With all 20 cities seeing prices rise over the last year, questions about whether this is a normal housing market or if prices could be heading for a fall are natural," said David Blitzer, managing director at S&P Dow Jones Indices.   While Blitzer said the rate of appreciation is much higher than the average pace of 1.3% since 1975, it still remains within a normal range.  "Home prices are rising, but the speed is not alarming," he added.

U.S. Home Prices End 2016 On High Note, Case-Shiller Says

The stock market is taking it easing, waiting for Trump to give his speech tonight.  He will talk about where the economy is headed.  His budget plans will be just that.  They are only plans.  Congress is charge of spending & the final budget will be approved in the coming months.  Also, the federal debt ceiling needs to be increased.  Mar 15 is the preliminary deadline, although it can be delayed for a few weeks.  That is a very hot potato.

Dow Jones Industrials

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