Wednesday, March 1, 2017

Dow rockets ahead to go over 21,000 after Trump's speech

Dow soared 245, advancers over decliners a relatively modest 2-1 & NAZ jumped up 57.  The MLP index went up 3 to 330 & the REIT index slid back 1+  to the 351s.  Junk bond funds went higher along with stocks & Treasuries were sold to buy stocks.  Oil went up in the 54s & gold dropped 15 to 1239.

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Light Sweet Crude Oil Futures,A

Gold Apr 17

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US stocks rose to records, the $ jumped the most in 6 weeks & Treasuries fell as investors grew increasingly confident global economic growth is accelerating, clearing the path for higher interest rates in America.  Banks led gains as the odds for a rate hike in 2 weeks swelled past 65% & Pres Trump's address to Congress did little to alter views that his administration will seek pro-growth policies.  The $ surged a day after 2 Fed officials said the case for lifting borrowing costs Mar 15 has strengthened.  Robust factory data from China spurred gains in metal prices.  Trump reiterated broad proposals for boosting spending & cutting taxes without providing specifics that could be seen as impeding Congress's path to enact the policies.  That left investors focused on the Fed & the pace of economic growth.  Data showed consumer spending rose less than projected in Jan, though the tight job market & low borrowing costs will continue to support consumers, whose confidence is getting a boost from optimism about lower taxes under Trump.

Stocks Surge to Record Highs; Dow Hits 21,000

2 influential Fed officials signaled a greater willingness to tighten monetary policy, perhaps as soon as next month.  NY Fed pres William Dudley said the case for tightening had become “a lot more compelling” in recent months.  “The risks to the outlook are now starting to tilt to the upside,” he said.  His remarks followed comments from San Francisco Fed chief John Williams, who said he expects an interest-rate increase will receive “serious consideration” at the Mar 14-15 meeting of the FOMC.  The hawkish talk from Fed officials reflected growing confidence in the durability of the US economic expansion almost 8 years since the Great Recession ended in 2009.  Behind that optimism: surging business & consumer confidence, more buoyant financial markets & an increased likelihood of an expansionary fiscal policy under pres Trump.  The probability of a Mar hike implied by pricing in federal funds futures contracts temporarily jumped to more than 70% after the pair spoke, from about 50% earlier in the day & from 34% less than a week ago.  “Put it all together, I think the case for monetary policy tightening has become a lot more compelling,” Dudley said.

Fed Officials Signal More Willingness to Consider March Hike

Consumer spending rose less than projected in Jan as rising prices pinched Americans' wallets, leading inflation-adjusted purchases to fall by the most since 2009.  The 0.2% advance in spending followed a 0.5% increase in the prior month, the Commerce Dept reported.  The forecast called for a 0.3% gain.  Incomes rose 0.4%, though inflation-adjusted disposable incomes had the biggest drop since 2013.  The results indicate less momentum early in the year, & a pickup in inflation may further limit faster growth in household spending, which accounts for about 70% of the economy.  At the same time, the tight job market & low borrowing costs will continue to support consumers, whose confidence is getting a boost from optimism about lower taxes under Trump.  The Fed's preferred measure of consumer prices climbed 0.4% from Dec & 1.9% from a year earlier, just shy of its 2% target that was last met in Apr 2012.  The core price measure, which excludes food & fuel, rose 0.3% from the prior month & was up 1.7% from Jan 2016.  The latest figures follow revised Q4 data that showed consumer spending will remain the driver of this economic expansion.  Adjusting consumer spending for inflation, which generates the figures used to calculate GDP, purchases fell 0.3% after a 0.3% increase the previous month.  This was the largest drop since Sep 2009, when the measure declined 1.  Disposable income, or money left over after taxes, decreased 0.2% after adjusting for inflation, breaking a more than 3-year streak of monthly gains.  It rose 0.1% in the prior month.  The saving rate increased to 5.5% from 5.4%.  Wages & salaries rose 0.4% for a 2nd month.  In Jan, household outlays on services fell 0.2% after adjusting for inflation.  Purchases of durable goods, which include automobiles, also fell, decreasing 0.8% after adjusting for inflation, the biggest drop since Aug & follows a 1.8% increase.

Trump's speech got a tremendous reception.  A few months ago, reaching Dow 20K looked uncertain.  Now it's over 21K, up an astonishing 2.7K (15%) since the election.  Hopes are riding high that  Trump & the Reps will deliver improved growth (which could also help pay for spending programs) & raise household income.  When the excitement is over tomorrow, the Reps in Congress will have to pass legislation to turn this speech into reality.  One negative statistic, market breadth is drab, .

Dow Jones Industrials

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