Friday, August 18, 2017

Markets waver as Steve Bannon is out

Dow lost 76, advancers over decliner about 5-4 & NAZ gave back 5.  The MLP index was fractionally higher to 270 & the REIT index fell 2+ to the 246s.  Junk bond funds crawled up & Treasuries inched higher.  Oil shot up to the 48s (more below) & gold gains were reduced to just 1 at 1293.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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House conservatives are split over how to approach the upcoming debate over the nation's debt limit, with some resigned to raising it with little drama & others gearing up for a standoff over federal spending levels that could result in an unprecedented default.  David Schweikert, a member of the conservative House Freedom Caucus, says he doesn't want to risk a showdown that analysts warn could shake markets & faith in the credit-worthiness of the US.  The Arizona Rep, who sits on the House Ways & Means Committee, said he believes a clean debt limit hike can "absolutely" pass Congress & that he could see himself voting for such a measure.  “There’s an understanding of, structurally, where we’re at, and not wanting to create the theatrical stress,” Schweikert said.  But Representative Jim Jordan of Ohio, a founder of the Freedom Caucus, said he's worried about the rumors he's heard regarding Reps moving toward a debt limit hike without any related spending cuts.  “I hope they’re not moving in that direction,” Jordan said .  “I just would be shocked if Paul Ryan would go in that direction. The speaker understands the gravity of our debt situation.”  “There’s going to be strong opposition from lots of Freedom Caucus members, and my guess is lots of members of the House Rep conference” if the GOP doesn’t include some kind of spending cuts as conditions, he added.  The split could lead to a rocky period next month, when Congress returns from its summer recess.  Lawmakers will have only a few weeks to act & GOP leaders may find it harder than they expect to shepherd through a debt ceiling hike without spooking the markets.  The Treasury Dept, which is already employing extraordinary measures to avoid a default, hasn't said exactly when the final deadline is for raising the debt limit.  Treasury Sec Steve Mnuchin told House Speaker Paul Ryan that Congress needs to act before Sep 29 to raise the debt limit & he has said he prefers a bill without strings attached.  Since a deal to raise the debt ceiling will need at least 8 Dems in the Senate, the minority party has leverage to block any spending cuts or other policy changes that Reps may try to add.  Even in the House, where the GOP has a wider majority, there will be enough Rep holdouts who are ideologically opposed to raising the debt limit to force leaders to rely on Dem votes.

House Conservatives Split Over Debt Ceiling

Fed Bank of Dallas Pres Robert Kaplan said the US has benefited from immigration & the nation's historic openness to newcomers is a vital competitive edge that it needs to preserve its lead in the economic race against China.  “Culturally, we are receptive historically to immigrants -- that’s one of the things that differentiates us from Japan and China,” Kaplan said.  “Let’s make sure we’re very careful about undermining those things that made us great.”  His comments come in stark contrast to the tone struck by Pres Trump's administration, which has focused on limiting immigration as a way to protect American jobs as part of a broader campaign of economic nationalism spearheaded by Kaplan's former colleague Steve Bannon.  Kaplan called immigrant integration one of the “great distinctive competencies” of the US.  The Dallas Fed chief frequently says the US needs to boost its workforce to improve economic growth, including thru immigration.  China has “a worse aging problem than we do. Why’s that important? It means they’ve got a workforce growth problem and they’re trying to fix it but it’s going to take 20-25 years,” Kaplan said.  That’s because it means China would need to raises its birth rate, while the US has historically also been able to rely on immigration. “You don’t like to screw up your distinctive competencies. That’s one of ours.”

Fed's Kaplan Says Immigration Key to U.S. Economy Beating China

Deere's (E) fiscal Q3 profit topped estimates, buoyed by improving farm & construction equipment markets.  But its adjusted revenue missed estimates.  The agricultural equipment maker had EPS of $1.97 versus $1.55 last year.  The results beat expectations as.analysts were looking for EPS of $1.93.  Revenue rose to $7.81B from $6.72B.  Adjusted revenue was $6.83B, which was short of the $6.88B that was expected.  Going forward, DE. foresees fiscal 2017 net income of about $2.08B while.  Analysts are predicting net income of $2.06B.  The stock sank 6.66 (5%).  If you would like to learn more about DE, click on this link.

Deere 3Q profit up, construction equipment market improves

Foot Locker (FL) shares tumbled after the sports apparel company missed profit & sales estimates for Q2.  EPS dropped to 39¢ from 94¢ in the year-earlier period.  Adjusted per-share EPS came to 62¢, well below the 90¢ estimate.  Sales fell 4.4% to $1.7B, also below the consensus of $1.8B.  Same-store sales fell 6%, compared with an estimate for a gain of 0.8%.  "Sales of some recent top styles fell well short of our expectations and impacted this quarter's results," CEO Richard Johnson said, describing the results as disappointing.  "At the same time, we were affected by the limited availability of innovative new products in the market. We believe these industry dynamics will persist through 2017, and we expect comparable sales to be down three to four percent over the remainder of the year."  The stock plunged 13.33 (28%).  If you would like to learn more about FL, click on this link.

Foot Locker shares tumble 15% after profit and sales fall short of estimates

Oil prices rose as the stock market strengthened & the $ weakened, but US crude futures remained on track to close the week down as investors remained worried about the global oil glut.  The week's trading was defined by bearish data about Chinese oil demand & rising crude production in the US.  WTI crude futures for Sep rose $1.18 to $48.27 a barrel, a 2.5% gain.

Oil jumps more than 2 percent as Wall Street up, dollar down

Steve Bannon has been controversial, not any more.  Congress has a lot do get done next month, starting with raising the debt ceiling & setting a spending budget for the new year.  And that will be very difficult in very divided DC & the stock market is finally sensing that.  Dow is down about 600 from its recent highs.

Dow Jones Industrials


Markets slide lower while gold rises to 1300

Dow dropped 65, decliners over advancers 3-2 & NAZ was off 8.  The MLP index lost 2+ to the 267s & the REIT index fell 2+ to the 345s.  Junk bond funds were mixed & Treasuries went higher (only modestly).  Oil was down pennies (more below) & gold jumped up to 1300 on growing uncertainties round the world.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil46.91

GC=FGold  1,302.50

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US stock-index benchmarks opened lower, extending the prior session's selloff that was partially fueled by a terrorist attack in Barcelona & rumors that an economic adviser to Pres Trump might resign.  The retrenchment for stocks comes after one of the sharpest downturns of 2017, when the S&P 500 index slumped 1.5% for its biggest one-day percentage drop in 3 months. The Dow & NAZ ended down 1.2% & 1.9%, respectively.  The benchmarks are now on track for weekly losses around 0.5%. & the Dow is on pace for its largest 2-week percentage decline since mid-Sep last year, while the NAZ is flirting with its longest weekly losing streak since May 2016 (it has fallen for 4 weeks in a row).  Market participants are still focused on the terror attack in Spain, which happened yesterday, killing at least 14 people & injuring scores.  Islamic State has claimed responsibility for the terror attack.  Hours after the Barcelona incident, police killed 5 alleged terrorists following a separate attack that hurt seven people in Cambrils, a Spanish town southwest of Barcelona.

Stock market extends losses after worst one-day tumble in 3 months

Consumer sentiment climbed in Aug to a 7-month high as a measure of the outlook for the US economy & personal finances registered the largest one-month advance since the end of 2011, according to Univ of Mich survey data.  Sentiment index rose to 97.6 (est. 94) from 93.4 in Jul & the expectations measure jumped to 89 from 80.5 the prior month.  The 8.5 point increase in consumer expectations was the biggest in 6 years.  The current conditions gauge, which measures Americans' perceptions of their finances, fell to 111 from 113.4.  Half of all consumers in each of the last 3 Mich surveys reported that their finances had recently improved, the best reading since 2000, the report showed. Americans were also upbeat about their financial prospects in the year ahead.  Stronger household views about their financial well-being probably shows consumer spending will continue to expand & power the economy.  A robust labor market remains a primary driver behind the improving attitudes about the economy.  A favorable outlook for the economy was anticipated by 55% of all respondents, the highest share in 2 years.  The caveat is that most Rep households expected gains, while most Dems forecast declines.  The report showed an interesting change in how people are approaching their spending decisions.  Confidence in the job market & incomes are playing a greater role, rather than low prices & borrowing costs.  Consumer sentiment has recovered following a 2-month slide as Pres Trump's legislative agenda ran into several roadblocks.  The partisan divide on economic outcomes has continued to increase as a series of foreign & domestic policy difficulties has refocused attention from plans for infrastructure spending and tax reform.   “The precautionary mood of consumers had required price discounts and low interest rates to offset their economic uncertainties, now consumers are more likely to base their spending decisions on a renewed confidence in their jobs and incomes,” Richard Curtin, director of the survey, said.  “To be sure, attractive prices & interest rates are still required, but the basic motivation has begun to shift toward a more confident buyer.”

Surge in Expectations Drives Gain in U.S. Consumer Sentiment

Oil headed for a 3rd weekly drop as US crude output rose to a 2-year high & Chinese refining slowed, signs that the world's 2 biggest consumers may stymie OPEC-led efforts to trim a global glut.  Futures were little changed today, but down 3.3% for the week.   US production had the biggest weekly advance since Jun, according to Energy Information Administration data, offsetting the largest decline in stockpiles in almost a year.  Oil processing in China fell in Jul, the biggest decline for that particular month in 3 years, figures from the National Bureau of Statistics.  Oil this month has fluctuated in the tightest range since Feb as production cuts by OPEC & its allies drain a surplus more slowly than expected.  West Texas Intermediate for Sep delivery was at $47.29 a barrel, up 20¢.  Prices rose 31¢ (0.7%) to $47.09 on Thurs, the first gain in 4 sessions.  US crude output rose by 79K barrels a day to 9.5M a day last week, the highest since Jul 2015, the Energy Information Administration reported.  Stockpiles have declined for a 7th week to 466M barrels.

Stocks have been rattled by all that is going on in the last couple of weeks.  Dow has fallen more than 500 from its recent record high.  While gold has been in heavy demand, Treasuries, another safe haven for nervous investors, have had only limited gains.  US consumer confidence is still riding high, although that will be vulnerable when the update is done in a couple of weeks.  A major worry for the stock market today is for Trump to get new legislation passed which is key for economic growth.  That includes adopting a FY 2018 budget for the gov, raising the debt ceiling & major tax reform.  As said yesterday, that (along with other bills) has to be considered "iffy" binging on greater demand for gold, the prime safe haven investment.

Dow Jones Industrials