Tuesday, March 14, 2017

Markets drift lower before FOMC announcement tomorrow

Dow declined 44, decliners over advancers almost 2-1 & NAZ was off 18.  The MLP index fell 3+ to the 317s & the REIT index was fractionally lower in the 334s.  Junk bond funds remained weak & Treasuries were little changed.  Oil wer lower, in the 47s, & gold declined to 1198 as the 1200 support line did not hold.

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Optimism among chief exec officers of some of the largest US companies jumped in Q1 by the most since the economy was emerging from the last recession, as the outlook for sales, the labor market & investment brightened considerably.  The Business Roundtable's CEO Economic Outlook Index, a measure of expectations for revenue, capital spending & employment, jumped 19.1 points to 93.3.  The increase, the biggest since Q4-2009, left the gauge above its long-run average of 79.8 for the first time in 7 qtrs (readings above 50 indicate economic expansion).  The survey is yet another in a series of confidence measures that have shown sizable upswings among businesses & consumers following Trump's election.  While companies have said they're encouraged by his plans to cut corp taxes, reduce regulations & invest in infrastructure, the real test for the economy is whether they follow thru with more capital spending & hiring.  “I am enthusiastic about the opportunity to enact a meaningful pro-growth agenda that will benefit all Americans,” Jamie Dimon, chairman of Business Roundtable & CEO of JPMorgan Chase (JPM)., said.  “As these results confirm, business confidence and optimism have increased dramatically.”  In response to a special question, 52% said tax reform would be the single best policy change to create the most pro-growth environment for businesses.  Corp leaders project the economy will expand 2.2% in 2017, up from their Dec estimate of 2%.  Dimon said that if the Fed is raising interest rates into a strong environment, that is more important than rates going up 25 basis points.  “The economy seems to be OK and may be getting a little bit stronger,” while other indicators such as inflation are moving into the Fed’s target range, Dimon added.  If policy makers are raising rates, “it’s probably a sign of strength, not a sign of weakness.”  The measure of the sales outlook for the next 6 months climbed 21 points to a 5-year high of 123.8 in Q1.  A gauge reflecting plans for capital spending advanced 18.4 points to an almost 3-year high & an index of hiring expectations surged 18 points, the most in 7 years.  The Business Roundtable represents companies with more than $6T in annual revenue & about 15M employees.

Optimism Among U.S. CEOs Shows Biggest Increase Since 2009

Small business optimism remained at one of its highest readings in 43 years, as small business awaits a new healthcare law, tax reform & regulatory relief, according to the Feb National Federation of Independent Businesses (NFIB).  “It is clear from our data that optimism skyrocketed after the election because small business owners anticipated a change in policy,” said NFIB CEO Juanita Duggan.  “The sustainability of this surge and whether it will lead to actual economic growth depends on Washington’s ability to deliver on the agenda that small business voted for in November. If the health care and tax policy discussions continue without action, optimism will fade.”  The Index fell 0.6 points in Feb to 105.3 yet remains a very high reading.  The slight decline follows the largest month-over-month increase in the survey's history in Dec & another uptick in Jan.  3 of the 10 components increased, 6 declined modestly & one was unchanged.  Despite a small decrease, nearly half of owners expect better business conditions in the coming months.
“It is encouraging that the Index has persisted at 105 for three months in a row,” said NFIB chief economist Bill Dunkelberg.  “Although optimism remains high, growth is still a problem because of restrictive government policies.”  The job openings component reached its highest level since Dec 2000, but more owners reported difficulty finding qualified workers to fill open positions.  The scarcity of qualified workers is pressuring owners to raise compensation to retain & attract good employees.  26% of small business owners reported raising compensation, one of the highest readings in 10 years.  “Many small business owners are being squeezed by this historically tight labor market,” Dunkelberg said.  “They are not confident enough to raise prices on consumers, which limits how much they can increase compensation and makes them less competitive in attracting qualified applicants.”  Business owners reporting higher sales improved 4 percentage points, rising to the first positive reading since early 2015.  The percent of owners expecting higher real sales fell 3 points to a net 26%, following a 20-point rise in Dec (remaining positive).  Capital spending rose 2 points to 62%, the 2nd highest reading since 2007.  “Small businesses will begin to turn optimism into action when their two biggest priorities, healthcare and small business taxes, are addressed,” said Duggan.  “To small business, these are both taxes that need reform. It's money out the door that strangles economic growth.”

Small Business Optimism Remains Near Record High

China stocks were largely unchanged today, as caution from a series of global "risk events" later this week prevailed over strong Chinese economic data.  The blue-chip CSI300 index fell 0.1% to 3456, while the Shanghai Composite Index added 0.1% to 3239.  Investors were awaiting the outcome of the Fed's rate-setting meeting & policy decisions by the Bank of England & Bank of Japan.  The market was also keeping a close eye on the Dutch general election & shaky global oil prices.  Investors largely shrugged off positive data from the Chinese economy.  China's factory output & fixed-asset investment grew 6.3% & 8.9%, respectively, in the first 2 months of the year, exceeding market expectations.  Real estate stocks advanced 1.2% after data showed China's property sales surged despite gov measures to cool the market.

China Stocks Flat; Caution Dominates Solid Econ Data

Business execs (for big & small businesses) are feeling good about the economy after Trump's election, a key reason for the stock market rally.  Tomorrow Janet should get most of the headlines.  Then the goings on in DC will command attention.  Replacing ObamaCare is key because raising the debt ceiling & new taxes are needed to keep this optimism going   Right now, DC is a mess but the stock market is largely willing to wait & see.

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