Wednesday, February 15, 2017

Markets edge higher on economic data

Dow rose 24, advancers over decliners 4-3 & NAZ gained 2.  The MLP index was fractionally lower in the 337s & the REIT index fell 3+ to the 341s.  Junk bond funds were flattish & Treasuries pulled back, taking the yield on the 10 year Treasury over 2.5%.  Oil was off a tad & gold did little.

AMJ (Alerian MLP Index tracking fund)

Light Sweet Crude Oil Futures,A

Gold Apr 17

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The US cost of living increased in Jan by the most in 4 years, led by higher costs for gasoline & other goods & services that indicate inflation is gathering momentum.  The consumer-price index rose a larger-than-forecast 0.6% after a 0.3% gain in Dec, Labor Dept figures showed.  Compared with the same month last year, costs paid by Americans for goods & services rose 2.5%, the most in 5 years.  Higher prices for gasoline, apparel & new cars show cost pressures are building as steady demand provides some companies with pricing power.  The figures underscore Janet Yellen's congressional testimony that more interest-rate increases will be appropriate if inflation picks up & the labor market remains tight.  A 7.8% jump in the cost of gasoline accounted for about ½ of the increase in the Jan.  The forecast called for a 0.3% month-over-month advance in the CPI.  But costs of some other goods & services also moved up.  Clothing prices jumped 1.4%, the most since Feb 2009.  Men's apparel surged by the most on record & new vehicle prices climbed 0.9%, the biggest advance since Nov 2009.  The core CPI measure, which excludes volatile food & fuel costs, rose 0.3%, the most in 5 months.  Core inflation increased 2.3% from January 2016.  A survey called for the core index to rise 0.2% from the previous month & 2.1% from the prior year.  “At our upcoming meetings, the committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” Yellen said yesterday.  She reiterated that falling behind on inflation could do more harm to the economy & possibly cut short the expansion.  The Fed's preferred inflation gauge, the Commerce Dept personal consumption expenditures price index, has been below the central bank’s 2% target since Apr 2012.

Consumer Prices in U.S. Increase by Most Since February 2013

US retail sales rose more than forecast last month in a broad-based advance that indicates the consumer is well-positioned to propel the economy in early 2017.  The 0.4% advance in Jan followed a 1% gain in the prior month that was larger than previously reported, according to the Commerce Dept.  The forecast called for a 0.1% rise.  Excluding a decline at auto dealers, sales increased the most in 4 months.  Steady hiring, a modest improvement in wage growth & discounting are keeping consumers spending, providing a solid start to Q1.  Household purchases, which account for about 70% of the economy, are projected to drive growth while rising business optimism also suggests a pickup in investment.  10 of 13 major categories showed a pickup in the value of sales last month, led by merchants of electronics & appliances, sporting goods & clothing.  Retail sales excluding automobiles & gasoline service stations increased 0.7%, exceeding projections & the biggest gain since Apr.  Automobile dealer sales fell 1.4% after a 3.2% surge the previous month.  The Commerce Dept's retail figures that are used to calculate GDP & which exclude categories such as food services, auto dealers, home-improvement stores & service stations, stayed strong.  The retail control group's sales rose 0.4% for a 2nd month.  Purchases of electronics & appliances advanced 1.6 %, the most since Jun 2015.  Purchases of sporting goods climbed 1.8%, the biggest advance since Jul 2015.  Clothing retailers had a 1% increase in receipts, the most since Feb of last year.

The rally is taking a pause once again as the Dow approaches 20.5K.  Hard to believe this advance.  On election eve, Dow futures were down around 800 in Asia trading.  From that starting point, it has risen 3K in only 3 months.  That has to be one of the greatest advances in history!!  But dark clouds are out there & this straight up advance will not last forever.  The more it goes up without a correction, the greater the risk of an ugly market eventually.  In the meantime, the bulls are happy.

Dow Jones Industrials


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