Friday, July 28, 2017

Markets drift lower as Amazon disappoints

Dow lost 7, advancers just ahead of decliners & NAZ gave back 26.  The MLP index inched higher in the 298s & the REIT index was up a fraction to the 355s.  Junk bond funds were mixed & Treasuries did not budge in price.  Oil rose in the 49s & gold advanced 6 to 1272.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil49.40

GC=FGold   1,271.20

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Pickups in consumer & business-equipment spending powered a US economic rebound in Q2, signaling the 8-year expansion is on track to be sustained, Commerce Dept figures showed.  GDP rose at a 2.6% annualized rate from prior qtr (est. 2.7%) & Q1 growth was revised to 1.2% from 1.4%.  Consumer spending, biggest part of the economy, grew 2.8% (matching est.) after 1.9% gain.  Nonresidential fixed investment climbed 5.2%. Trade added to growth as exports rose faster than imports; inventories were slight drag.  The results confirm that the slowdown at the start of 2017 was temporary & show an economy growing in H1 at about a 1.9%  rate, compared with the expansion's 2.2% average pace thru the end of 2016.  Consumer spending led the rebound, helped by a steady job market & household finances boosted by stock & home-equity gains.  Disposable incomes, adjusted for inflation, posted the best back-to-back qtrs since H1-2015.  Business investment in equipment rose at an 8.2% pace, the most in almost 2 years, signaling companies are optimistic about demand in the US as well as in overseas markets.  The overall pace of nonresidential investment eased from 7.2% amid a slowdown in the structures category that followed a boom in oil-and-gas wells in the prior period.  Intellectual-property investment also slowed.  A particular weak spot last qtr was residential investment, which fell by the most since 2010 following a strong gain in the previous period.  Builders are coping with a shortage of available labor & lots, & warm weather in Q1 may have pulled forward some activity.  Price data in the report indicated that inflation moved away from the Federal Reserve's 2% goal.  Excluding food & energy, its preferred price index, tied to personal spending, rose at a 0.9% annualized rate last qtr, matching the weakest gain since 2010.

Second-Quarter U.S. Growth of 2.6% Underscores Resilience

Less enthusiasm about prospects for the US economy & personal finances sent consumer sentiment to a 9-month low in Jul, survey data from the Univ of Mich showed.  The sentiment index dropped to 93.4 (est. 93.2) from 95.1 in Jun (preliminary reading was 93.1).   Expectations measure fell to 80.5 from 83.9 the prior month; preliminary reading was 80.2. Current conditions gauge, which measures  perceptions of personal finances, advanced to a 12-year high of 113.4 from 112.5 in the prior month; preliminary reading was 113.2.  While 51%, matching the largest share since 2000, of consumers indicated that their finances had improved recently, households were wary about their prospects.  The proportion that anticipated financial gains in the coming year dropped to 34% from 42% a month earlier.  The decline in financial prospects was mostly among lower- & middle-income Americans.  What’s more, 28% said they expected the economy to improve in the year ahead, down from 42% just 3 months ago.  The drop in the main gauge of sentiment shows confidence is the lowest since Pres Trump was elected.  The decrease in expectations was concentrated among Reps, underscoring the frustrations voters have with lawmakers in DC & the uphill path for any policies that would help propel the economy.  “Long-term prospects for the economy were still dominated by partisanship, as 70 percent of Republicans expect a continuous expansion and 66 percent of Democrats expect a renewed downturn sometime in the next five years,” Richard Curtin, director of the consumer survey, said.  “Unemployment, a top concern of consumers, was expected to fall from its current low level by 52 percent of Republicans, and to increase by 43 percent of Democrats,” Curtin added.

Weaker Prospects for Incomes Weigh on U.S. Consumer Sentiment

German inflation unexpectedly remained stable in Jul, strengthening the case for a discussion about reducing ECB stimulus in the autumn.  The rate was unchanged at 1.5%, according to the Federal Statistics Office.  The estimate had predicted a drop to 1.4%.  Consumer prices rose 0.4% from Jun.  Data from Europe's largest economy bode well for inflation in the 19-nation region, which the ECB wants to see on a self-sustained upward path before it unwinds monetary stimulus.  Pres Mario Draghi said this month that with asset purchases currently scheduled to run out at the end of the year, a discussion about the future path of policy will take place at one of the next Governing Council meetings.  Euro-area consumer prices increased an annual 1.3% in Jun & Draghi said the rate is likely to hover around that level in the coming months.  So far, the region's booming economy has failed to translate into faster inflation & higher wages, but this may be about to change as activity continues to pick up & unemployment falls.  After strong data from France, Spain & Austria on today, the currency bloc is in for another qtr of robust growth.

German Inflation Unexpectedly Steady as ECB Nears Exit Debate

High priced Amazon (AMZN) plunged 36 on disappointing earnings which are weighing heavily on all tech stocks..  The Dow is drifting lower, off its highs, on profit taking.  2 Dow energy stocks were mixed.  Exxon (XOM) fell but Chevron (CVX) earnings weren't too bad based on expectations.  Dow is up 200 this week & about 450 this month, not bad, as confusions reigns in DC.  Meanwhile NAZ is off slightly this week but up 210 in Jul.

Dow Jones Industrials


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