Wednesday, March 1, 2017

Markets surge as Trump's address gets a red hot reception

Dow shot up 303 (closing near the highs), advancers over decliners a little better than 2-1 & NAZ gained 78.  The MLP index added 3+ to 331 & the REIT index 1+ to the 351s.  Junk bond funds crawled higher & Treasuries had a large drop while stocks rallied.  Oil slid below 54 on the inventory report & gold pulled back, although losses were pared in late day trading.

AMJ (Alerian MLP Index tracking fund)

3 Stocks You Should Own Right Now - Click Here!

Live 24 hours gold chart [Kitco Inc.]

The Dow crossed the 21K milestone at the opening bell today in what was one of the fastest 1K-point advances in history.  Optimism came from Pres Trump's first address last night in which he outlined the ways in which he hoped to “make America great again.”  His policy priorities included repealing ObamaCare, revamping the tax code, improving trade policies & requesting Congress approve $1T for infrastructure spending.  The speech offered few explicit details about how he plans to move these policy priorities across the finish line, but that didn't seem to bother investors much who sent the Dow nearly 200 points higher at the start of trade.  With a close above 21K, it took just 24 days to advance from the highly-anticipated 20K milestone, matching the Dow's progress from 10K to 11K in 1999.  While the point ascent ties for the fastest ever, the 1999 run was a bigger boost on a % basis as it rose 10% compared to just 5% for the latest leg higher.  Also helping push stocks higher was a run up in expectations the Fed will move ahead with another rate rise at this month's policy meeting.  Federal funds futures, a tool used to predict market expectations for changes in monetary policy, showed odds for a Mar rise jumped from 35.4% yesterday to 68.6% today after a deluge of economic data, including consumer sentiment, Q4 GDP & home price figures showed the economy held onto momentum found in H2-2016.

Dow’s Latest 1K-Point Advance New Record, Trump Policy Priorities Fuel Rally

After years of seeing fewer US customers come in its doors, McDonald's (a Dow stock & Dividend Aristocrat) is increasingly embracing a different philosophy: take the food to them.  The fast-food chain will rely heavily on delivery to reignite sales, especially in the US.  The company also is turning more aggressively to digital technology, such as mobile ordering & payments, to meet its growth targets.  The overhaul is part of a bid to achieve long term system-wide sales growth of 3-5%, starting in 2019.  The company also aims to boost operating margins from the high-20% range to around mid-40%.  “Restaurant delivery is a $100 billion market and it’s exploded,” Senior VP Lucy Brady, who runs strategy for the chain, said.  “There’s significant opportunity that we haven’t even tapped into yet.”  The world’s biggest restaurant chain has faced slowing sales since excitement around the 2015 US launch of all-day breakfast has died down.  That's put pressure on CEO Steve Easterbrook to find new initiatives that can revive momentum.  Though the company has been testing delivery for years, it now sees an opportunity to “scale quickly” with the concept.  Many of its overseas restaurants already offer delivery, especially in Asia & the Middle East, & the company generated almost $1B in sales from the channel last year.  The stock rose 1.40.  If you would like to learn more about MCD, click on this link:

McDonald's Sees $100 Billion Delivery Market as Way to Grow

McDonald's (MCD)

The economy grew at a modest to moderate pace across the US, further tightening the labor market but without significant acceleration in wages or inflation, a Federal Reserve survey showed.  The central bank's Beige Book economic report, based on information collected by regional Fed banks from early Jan thru Feb 17, said employment grew moderately while some districts reported “widening labor shortages,” another sign the economy was at or near what is considered full employment.  Wages generally continued to respond only “modestly or moderately” to the tightening jobs market, with a few districts reporting “some pickup in the pace of wage growth.”  Overall pricing pressures were little changed from the prior report.  “Businesses were generally optimistic about the near-term outlook but to a somewhat lesser degree than in the prior report,” the Fed added.  The survey results come amid growing expectations that Fed officials will raise their benchmark lending rate by a ¼ percentage point Mar 14-15.  Yields on 2-year Treasury notes climbed above 1.3% earlier today for the first time in more than 7 years.  Several policy makers have said in recent days the central bank is close to achieving its dual goals of bringing unemployment to its lowest sustainable level & inflation to 2%.  NY Fed pres William Dudley said yesterday the case for tightening had become “a lot more compelling,” while his San Francisco counterpart John Williams said he expects a hike will receive “serious consideration” this month.  The Beige Book report included several references to the negative impact of a stronger $ on exports & tourism.  Some districts also reported rising concern that various policies proposed by the Trump administration may adversely affect certain industries.  “A few manufacturing contacts said their customers held a ‘wait-and-see’ approach & that there is considerable uncertainty, including over the potential impacts related to policy changes from the Trump administration,” according to the Dallas portion of the report.

Fed Says U.S. Growing Modestly With Subdued Inflation Signs

Manufacturing expanded in Feb at the fastest pace since Aug 2014 as factory managers reported stronger orders & production.  The Institute for Supply Management's index climbed to 57.7, the 6th straight advance, from 56 a month earlier.  Readings above 50 indicate growth.  The forecast was for 56.2.  The gauge of orders increased to the highest level in just over 3 years, while an index of production posted its best reading since Mar 2011.  The data were preceded by recent regional indicators showing similar strength that has prevailed since the presidential election as companies begin to step up investment & the global economy stabilizes.  “Things look good at this point,” the ISM survey committee said.  “I don’t see anything here, or in the winds, that would suggest we can’t continue with this kind of pace going forward in the next few months.”  17 of 18 industries surveyed by the purchasing managers' group, the most since Aug 2014, posted growth in Feb, including textiles, apparel, machinery & computers.  Furniture was the only industry that shrank.  Even while manufacturing sentiment gauges have surged, actual measures of output have shown more moderate progress.  The Fed's gauge of factory production increased 0.2% in both Dec & Jan.  The gauge of new orders increased to 65.1 last month from 60.4 in Jan.  42% of purchasing managers said orders were better in Feb, up from 32% in Jan & the largest share since Apr 2011.  Order backlogs jumped to 57 from 49.5, the biggest one-month advance in 4 years.  The pickup in unfilled orders indicates production will probably stay strong in coming months.  The ISM said 26% of purchasing managers reported backlogs were increasing, the biggest share since May 2015.  The measure of export demand improved to 55, close to a Dec reading that was the strongest since May 2014.  The index of production rose to 62.9 in Feb from 61.4.  The factory employment index fell to 54.2 from 56.1 the prior month.  The report also showed factory inventories expanded in Feb for the first time since Jun 2015.  Customer stockpiles, however, became leaner.  The gauge fell to 47.5, the fastest rate of contraction since Apr 2016.

Trump has been driving the market rally since his election & that was demonstrated clearly today with surging stock prices.  However, market breadth was only modest.  But his proposed policies are bringing confidence to investors.  Initial Feb economic data in the last few days has added fuel to the rally.  Now the ball is the the Rep's court & those guys have to deliver meaningful legislation to upgrade meager growth rates the stock market has gotten accustomed to during the last decade.  Gold was not left behind as is typical when stocks rally.  It remains near recent highs with negative bets on the stock market still strong.

Dow Jones Industrials

No comments: