Friday, May 5, 2017

Markets waver as the unemployment rate hits 4.4%

Dow fell 16, advancers over decliners about 2-1  & NAZ was off 1.  The MLP index jumped up 4+ to the 307s following yesterday's big drop & the REIT index went up 1+ to the 343s.  Junk bond funds rose & Treasuries were a tad lower.  Oil rebounded after yesterday's big drop (more below) & gold was about even.

AMJ (Alerian MLP Index tracking fund)


Crude Oil45.86



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US payroll gains rebounded in Apr by more than forecast and the jobless rate unexpectedly fell to 4.4%, signaling that the labor market remains healthy & should support continued increases in consumer spending.  The 211K increase followed a 79K advance in Mar that was lower than previously estimated, a Labor Dept report showed.  The forecast called for a 190K gain.  While the unemployment rate is now the lowest in 10 years, wages were a soft spot in the report, climbing 2.5% from a year earlier.  The brighter figures follow a weaker-than-expected reading in Mar, when payrolls were partly depressed by a snowstorm that slammed the Northeast during the survey week.  Strengthening business sentiment might be translating into hiring & the data should keep Fed policy makers on track to raise interest rates in the coming months after officials declared the Q1 slowdown to be temporary.  The unemployment rate compares with projection for 4.6%.  It's now below the 4.5% level where Fed policy makers in Mar had forecast it would reach in Q4.  Employment gains were broad-based though concentrated in services in Apr.  Leisure & hospitality registered a 55K increase, education & health services was up 41K & financial activities rose 19K.  Retail rebounded with a 6.3K increase following a revised loss of 27K.  Manufacturing & construction jobs rose but at a weaker pace than at the start of 2017.  Factories added 6K jobs after a 13K gain, while construction workers rose 5K following 1K in Mar.  Total private employment, excluding gov agencies, climbed 194K, following a 77K advance in Mar.  Gov payrolls rose 17K, including a 6K decline at federal agencies & 23K increase at state & local govs.  Wage growth accelerated on a monthly basis to 0.3%  from a revised 0.1% gain in Mar.  At the same time, the 2.5% year-over-year gain in average hourly earnings was the weakest since Aug, following a 2.6% rise in Mar.  The employment cost index increased 0.8% in Q1 for the best performance since the end of 2007, a separate Labor Dept report showed last week.

Unemployment Rate Falls to Lowest Level Since May 2007

Oil steadied after tumbling to the lowest level since before OPEC reached an output-reduction deal as US shale confounds the producer group's attempts to prop up prices.  Futures were little changed after slumping more than $2 yesterday.  Prices are approaching an 8% decline this week, bringing the US benchmark crude back to levels last seen before OPEC signed a 6-month deal in Nov to curb production & ease a global glut.  The drop in prices is being driven by expanding US output & concerns that inventories haven’t declined as much as investors had hoped, even as OPEC& Russia signal that the output cuts should be extended.  OPEC's curbs drove oil in early Jan to the highest since Jul 2015, encouraging US producers to ramp up drilling.  The result has been an 11-week expansion of American production, the longest run of gains since 2012.  Prices are still more than 50% below their peak in 2014, when surging shale output triggered crude's biggest collapse in a generation & left rival producers such as Saudi Arabia scrambling to protect market share.  West Texas Intermediate for Jun delivery rose 28¢ to $45.80 a barrel after dropping almost 4% earlier.

Warren Buffett is acknowledging what many investors have already realized: IBM's (a Dow stock) long-promised reinvention is slow, painful & nowhere near close to the end.  The CEO of Berkshire Hathaway (BRK.A) disclosed that he sold about a 1/3 of the firm's investment in the computer-services giant during H1 of this year.  Before the sales, Berkshire held about 81M shares.  The news led IBM to tumble.  IBM has been frustrating investors for years, reporting in Apr its 20th straight quarterly revenue decline.  The company once synonymous with mainframe innovations has been slow to adopt cloud-related technologies & has had to play catch-up to offer computing & other software & services delivered over the internet.  After a run of 3 straight annual dedclines, IBM's shares gained about 21% in 2016 but are still more than 25% lower than the company’s 10-year peak in 2013.  The shares have lagged behind technology peers & the S&P 500 in 2017.  BRK.A started building its IBM. stake in 2011, & eventually became the largest shareholder, with an investment valued at almost $13B.  With his initial interest, Buffett was betting on IBM's expertise in information technology services to drive growth in emerging markets.  IBM stock dropped 3.95.  If you would like to learn more about IBM, click on this link:

IBM Falls as Buffett Reports Reduced Stake Ahead of Meeting

International Business Machines (IBM)

The administration is talking about a tax plan that will bring investment funds back in the US.  Today's jobs report is fairly good, but markets are not responding.  There is just too much uncertainty coming out of DC & stock buyers are not impressed.  Dow continue to slosh around just under 21K.

Dow Jones Industrials


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