Wednesday, April 19, 2017

Markets decline on IBM earnings and as oil drops to $50

Dow sank 118 (closing near the lows), decliners over advancers about 5-4 & NAZ went up 13.  The MLP index lost 2+ to the 318s (still drifting sideways for months) & the REIT index was fractionally lower to the 355s.  Junk bond funds drifted lower & Treasuries retreated.  Oil dropped a very big 2 to just above 50 (more below) & gold was also sold, taking it to 1281

AMJ (Alerian MLP index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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The economy continued to grow across the US at a modest-to-moderate pace in recent weeks as a tight labor market helped broaden wage gains, though consumer spending was mixed, a Federal Reserve survey showed.  The central bank's Beige Book economic report, based on anecdotal information collected by regional Fed banks covering mid-Feb thru the end of Mar, showed that household purchases outside of automobiles were softer even as Americans were gaining more wherewithal for future spending.  The report paints a picture of an economy maintaining its steady expansion, without a rapid pickup that would reflect the surge in confidence among consumers & businesses.  At the same time, underlying growth might not be as weak as some estimates indicate, such as the Atlanta Fed’s GDPNow forecast showing a 0.5% pace of GDP gains in Q1, following the previous period's 2.1% rate.  The pace of expansion was “equally split between modest and moderate” across the 12 Fed regions.  “In addition, the pickup was evident to varying degrees across economic sectors.”  Wages showed progress in responding to a tightening jobs market, with most districts reporting “difficulty filling low-skilled positions” & stronger demand for higher-skilled workers.  A larger number of businesses also reported high turnover rates & challenges retaining staff, which is typically released 2 weeks before each interest-rate meeting.  Inflation was modest, with selling prices climbing “only slightly.”  Those incremental increases corroborate other recent inflation data.  Mild price gains should help keep a floor under consumer spending that slowed in Q1, weakness that economists see dragging down the pace of expansion.  The Fed cited reports that light-vehicle sales were stronger in the period, which may contrast with data that show a slowdown in deliveries last month amid waning demand for mid-size cars.  Home-sales growth also slowed over the period, while residential construction growth accelerated.  The Beige Book report noted a lack of inventory that was restraining housing industry demand, matching other early-year gov & private-sector reports.

Fed Says U.S. Growth Continues Though Consumer Spending Mixed

IBM shares were washed in red as they dropped to a 4-month low, dragging the Dow into negative territory after the company posted its first revenue miss in 5 qtrs, signaling its turnaround efforts are progressing slower than expected.  With demand stagnating in its once robust hardware & software businesses, the company has put more focus on growing what it calls “strategic imperatives,” which include some cloud-based services, security, data analytics, cognitive computing & artificial intelligence like its Watson supercomputer.  That area of the business grew 13% on a currency-adjusted basis from the year prior, with cloud services jumping 35% during the period to post $3.5B in revenue.  As a whole, the company's strategic imperatives accounted for $7.8B (43%) of the overall $18.3B in revenue, though the expectation was for the company to book higher total revenues of $18.39B.  For the qtr, the company had EPS of $2.38, 3 pennies above thea forecasts.  The cognitive solutions segment, comprised of solutions & transaction processing software, saw a 2.8% jump in revenues driven primarily by growth in analytics & security, including Watson-related offerings.  The company's systems business, which encompasses systems hardware & operating systems software, was hit with a 16.1% revenue drop during the qtr, while other areas including global financing (financing & used equipment sales) & global business services (consulting, global process services & application management) saw revenues declined 2.1% & 1.9% respectively on a currency-adjusted basis.  However, the company saw deterioration in gross profit margin in every major category, pushing the total down to 42.8% from 46.5% the year prior.  The stock tumbled 8.37 (5%).  If you would like to learn more about IBM, click on this link:

IBM Shares Hit After 1Q Earnings Signal Slower-than-Expected Turnaround

International Business Machines (IBM)

US oil prices fell nearly 4%, reaching a session low of $50.28 per barrel & marking their biggest daily percentage decline since early Mar, as inventories posted a less-than-expected decline for the week.  US crude futures closed the day down 3.8%, trading at $50.44 per barrel & hovering only slightly above the key $50 level.  Today, the US Energy Information Administration (EIA) said US crude stocks fell 1M barrels last week, a bit less than anticipated.  A surprise build in gasoline inventories despite heavier refining activity, along with an increase in US crude production, largely pushed prices lower.  Selling intensified into the close on some maneuvering by traders.  US crude for May expires tomorrow & traders are dumping their oil contracts ahead of that.  Meanwhile, OPEC has had a difficult time reducing a global crude glut, as supply remains high in parts of the world, particularly the US.  US inventories now sit at 532M barrels, only down about 3M units from the record reached in Mar.

Oil prices just tanked into the close; 4% slide puts crude back near $50

This was another rough day for the stock market.  These kind of days have become ordinary since the start of Mar.  With an overbought market & a dysfunctional DC not able to pass important legislation, that was to be expected.  But initial earnings reports are coming in mixed or less than robust.  The Dow (800 below its record) has sunk to where it was in mid Feb.  If truly impressive earnings fail to materialize, more selling has to be expected.

Dow Jones Industrials


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