Friday, June 23, 2017

Higher markets as oil rebounds

Dow added 14, advancers over decliners 5-2 & NAZ went up 15.  The MLP index recovered 2+ to the 281s & the REIT index rose 1+ to the 354s.  Junk bond funds just marked time & Treasuries slid a little lower.  Oil gained (more below) & gold climbed to 1257.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil   42.65  -0.09-0.2%

        8.50   0.7%

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Record prices for new US homes amid a sales pickup indicate the supply of houses may be tight at the lower end of the market, pinching first-time buyers, gov data showed.  Single-family home sales increased 2.9% m/m to 610K annualized pace (est. 590K).  Median sales price surged 16.8% y/y to a record $346K.  Supply of homes unchanged at 5.3 months; 268K new houses were on market at end of May.  Low mortgage rates, a solid labor market & rising wages continue to drive steady demand for housing while scarce inventory sends prices to the highest ever, a trend that could squeeze first-time buyers.  The industry faces headwinds including a lack of available workers & a limited number of plots to build on.  Even with the gain, the pace of sales remains at less than ½ the peak seen in 2005.  Any supply rebound may be far off, as new-home construction starts are down in recent months & permits were at a one-year low in May.

Surging Prices for New U.S. Homes Suggest Tight Low-End Supply

Oil is heading for a 5th weekly decline after sinking into a bear market amid concerns rising supply from the US to Libya would offset production cuts from OPEC & its allies.  Oil tumbled into a bear market this week on concerns that expanding global supply will counter reductions from OPEC & its partners including Russia.  Rigs drilling for oil in the US are at their highest in more than 2 years.  West Texas Intermediate for Aug delivery was $42.84 a barrel.  Prices rose 21¢ to $42.74 yesterday after falling almost 5% the previous 3 sessions.  US oil production rose 20K barrels a day last week to 9.35M, the Energy Information Administration reported.  While crude stockpiles slid by 2.45M barrels to 509M, a steeper decline than forecast, inventories remain about 100M barrels above the 5-year average.

Oil Heads for Fifth Weekly Drop as Supply Climbs

Investors pulled $7.7B from US equities, the biggest outflows in 5 weeks, data from Bank of America Merrill Lynch (BAML) showed, reversing the previous week's bumper inflows as bears battled with the bulls.  Globally equities attracted just $500M in the week to Wed as the heavy outflows from US stocks offset $2.1B of inflows to emerging markets & $1.1B of inflows to European stocks.  Bonds attracted $5B globally, with $3.3B injected into investment grade bonds, $1.1B into high yield and $1.9B into emerging market debt funds.  While BAML said "irrational sentiment" was confined to tech stocks, corp bonds & emerging debt, it is sticking with its view that an Icarus-style climb will be followed by a Humpty Dumpty-like fall in the autumn.  The S&P 500 has climbed to record highs this week with tech stocks rebounding from recent declines.  Inflows to tech funds in 2017 are growing at their fastest annualized rate in 15 years, equivalent to 21% of assets under management.  But some investors are getting cold feet, with $200M pulled from tech funds last week, the first tech outflows in 16 weeks.  BAML cited several signs of excess, not least the fact that Facebook (FB) market cap now exceeds the market cap of MSCI India.

U.S. equities see biggest outflows in five weeks

Higher prices for oil sent a sigh of relief to traders.  That market is oversold & bargain hunting is behind the rise.  But fundamentals starting with bloated inventories around the world remain dreary for the commodity.  Tech recovered lost ground this week & the popular averages are still near record levels as Congress tries to figure out how to handle a revised healthcare plan.  The stock market continues to like Trump, even with his difficulties.

Dow Jones Industrials


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