Thursday, August 3, 2017

Markets pull back on mixed economic data

Dow added 9, decliners over advancers almost 3-2 & NAZ dropped 22.  The MLP index sank 6 to the 293s & the REIT index was off 1+ to the 351s.  Junk bond funds were flattish & Treasuries went up in price.  Oil fell on profit taking & gold was a little lower (more on both below).

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US services firms grew last month at the slowest pace since Aug 2016, a performance consistent with only modest economic growth.  The Institute for Supply Management said that its services index slipped in Jul to 53.9 from 57.4 in Jun.  It was the lowest reading since the index registered 51.7 in Aug 2016.  Still, anything above 50 signals growth & American services companies are on a 91-month winning streak.  Production, new orders, hiring & export orders all grew more slowly in Jul.  The index came in lower than expected & below the 55.9 average over the past 12 months.  Anthony Nieves, chair of ISM services survey committee, said the Jul reading is consistent with overall US economic growth of 1.9% a year, a mediocre pace & about what the economy has averaged so far this year.  Growth picked up to a 2.6% annual pace from Apr - Jun after getting off to a slow 1.2% start in Q1.  Still, Nieves suspects the slowdown just reflects the summer doldrums & noted that respondents to the survey "project that things will pick up going into the fall."   Services are an important component of the economy.  Private service-sector workers, from cashiers to stock brokers to nurses, hold more than 70% of American jobs.  Consumer spending on services, which accounts for nearly ½ of economic activity, rose at a 1.9% annual pace in Q2, the slowest pace since Q1-2016, the Commerce Dept reported.

US services firms register slowest growth in nearly a year

Factory orders jumped 3% in Jun, the first gain after 2 consecutive monthly declines, the Commerce Dept reported.  The forecast was for a gain of 2.9% for overall factory orders.  Analysts had anticipated the increase because of strong demand for planes in the month.  Aircraft orders pushed up orders for durable goods to a revised 6.4% gain in Jun compared with the prior estimate of a 6.5%.  Orders excluding transportation orders slipped 0.2% in Jun & orders for nondurables fell 0.3%.

U.S. Factory Orders Rise 3% In June On Solid Aircraft Orders

Oil prices fell, as cautious buying dried up after US crude rose to near $50 a barrel, with concern about high crude supplies from producer club OPEC offsetting the previous day's data showing record US gasoline demand.  US crude traded at a session high of $49.96 a barrel.   OPEC crude oil exports rose to a record high in Jul, driven largely by soaring exports from the group's African members. US light crude has remained below $50 a barrel, capped by robust domestic supplies.  Strong demand in the US has been supporting prices.  The US Energy Information Administration reported record gasoline demand of 9.84M barrels per day (bpd) for last week & a fall in commercial crude inventories of 1.5M barrels to 481.9M barrels, below levels seen this time last year, an indication of a tightening US market.  But high production by OPEC was limiting price gains.  OPEC & other producers including Russia have promised to restrict output by 1.8M bpd until the end of Mar 2018 to help support prices & draw down inventories.  Yet OPEC output hit a 2017 high of 33M bpd in July, up 90K bpd from the previous month, led by a further recovery in supply from Libya, one of the countries exempt from the deal.  Ample supply is likely to keep a lid on prices.

Oil retreats on concerns about OPEC oversupply

Gold prices settled lower for a 2nd day in a row as investors awaited jobs data that could offer insights on the pace of inflation & possible interest-rate hikes this year.  Gold for Dec delivery declined $4 (0.3%) to settle at $1274 an ounce, 2 days after touching a nearly 8-week high.

Gold Settles Lower For 2nd Day Ahead Of Jobs Report

Aetna's (AET) Q2 profit jumped 52% to top expectations & the nation's 3rd-largest health insurer raised its 2017 forecast again, this time well beyond analyst projections.  Investors responded by pushing company shares to another all-time high price.  The company added some Medicare customers & grew the health coverage it provides for large employers, but a pullback from ObamaCare health insurance exchanges also helped its business improve compared to last year's qtr.  Its health care costs fell & the percentage of premiums it pays in medical claims improved as AET slashed its participation in the law's exchanges to 4 states from 15 last year.  The insurer still expects to lose more than $200M before taxes this year on ObamaCare-compliant coverage it sells on & off the exchanges.  That's better than the approximately $300M it lost last year.  The company once covered more than 900K thru the exchanges, which amount to a small slice of its overall business.  But the company has scaled back their presence in the law's marketplaces, where they have struggled with a sicker-than-expected patient population & not enough healthy customers, among other challenges.  AET covered about 180K people through the exchanges at the end of Q2 & intends to completely leave that market next year.  AET easily beat Q2 expectations & hiked its 2017 forecast.  Adjusted EPS totaled $3.42 & revenue excluding capital gains came to $15.5B.  Analysts expected EPS of $2.37 on $15.24B in revenue.  It also said that it now expects adjusted EPS of $9.45-9.55 for the year, a big hike from its previous forecast for $8.80-9.00.  It's also well above industry per share projections of $3.83.  The stock rose 3.90.  If you would like to learn more about AET, click on this link

Aetna trumps 2Q expectations after scaling back ACA coverage

Stocks did not do very much today.  Dow stayed close to breakeven while NAZ remained down around 20 for much of the day.  Tomorrow's jobs report before the opening is looming large, although it will probably not have great surprises.  Then again, there is always DC providing a large supply of news stories, some real & others are fake.

Dow Jones Industrials


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