Friday, September 29, 2017

Markets close the month and quarter on an up note

Dow gained 23, advancers over decliners better than 4-3 & NAZ jumped up 42.  The MLP index added 1 to the 283s & the REIT index was fractionally higher to 350.  Junk bond funds clawed their way higher & Treasuries continued to be sold.  Oil inched up pennies (more below) & gold drifted back 3 to 1285.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Senate Reps unveiled a budget plan that lays the groundwork for overhauling the tax system, the top legislative priority for Pres Trump & the GOP.  House & Senate passage of the budget blueprint is required in order to allow Reps to pass follow-on tax legislation later this year.  The ambitious tax plan would lower rates for businesses & individuals. Trump described it as a "giant, beautiful, massive, the biggest ever in our country, tax cut."  The Senate Budget Committee release comes in advance of a committee vote next week.  In the House, a companion measure is headed for a floor vote next week as well.  The new budget plan permits the upcoming tax measure to add $1.5T over the coming decade to the $20T national debt.  The 2-step process is the only way, under byzantine rules, for the tax package to pass thru the Senate without fear of Dems blocking it with a filibuster.  Reps used the same process earlier this year in failed attempts to repeal ObamaCare.  Despite those failures they're trying the same process on taxes, with the budget laying the groundwork to push thru a bill in the Senate with only GOP votes & no Dem participation.  "This budget is especially important because it will allow us to get to work on our pro-growth, pro-family, pro-jobs tax reform plan," Senate Majority Leader Mitch McConnell said.  "Without it, Democrats will continue to play partisan politics and obstruct our efforts to get our economy flourishing and growing at its full potential."  More broadly, the Senate plan promises a balanced budget over the coming decade, but it relies on rosy projections of economic growth & spending cuts that Reps have no plans to deliver to do so.  It keeps Pentagon spending mostly frozen at current levels, rather than the almost $90B increase demanded by GOP military hawks.

New Senate GOP budget would pave the way for tax rewrite

The number of rigs exploring for oil & natural gas in the US increased by 5 this week to 940, up from the 522 rigs that were active a year ago.  750 rigs sought oil & 189 explored for natural gas (one was listed as miscellaneous).  Among major oil-& gas-producing states, Utah gained 4 rigs & Louisiana increased by 2.  New Mexico & North Dakota each gained one.  Oklahoma lost 3 rigs & Texas shed 2.  The rig count peaked at 4530 in 1981 & bottomed out in May of 2016 at 404.

US rig count increases by 5 this week to 940

Oil edged higher as tensions around Iraqi Kurdistan threatened the region's crude supplies, helping Brent prices to their strongest Q3 performance since 2004.  Global benchmark Brent crude was up 17¢ at $57.58 a barrel, notching up a Q3 gain of around 20%.  The contract had reached its highest in more than 2 years earlier in the week, resulting in a 5th consecutive weekly gain.  This performance is Brent's longest weekly bull run since Jun 2016.  US crude traded up 9¢ at $51.65 a barrel, on track for its strongest Q3 in 10 years & its longest streak of weekly gains since Jan.  Iraq's Kurds endorsed secession by 9-1 in a referendum on Mon that has angered Turkey, the central gov in Baghdad & other powers, who fear the vote could lead to renewed conflict in the oil-rich region.  Turkish President Tayyip Erdogan called the vote illegitimate & has threatened to break with past practice & deal only with the Baghdad gov over oil exports from Iraq.  Iran has banned transportation of oil products by Iranian companies to and from Iraq's Kurdistan region.  Most oil that flows thru a pipeline from Iraq to Turkey comes from Kurdish sources & a cut-off would severely damage the Kurdish Regional Gov, which relies on sales of crude for almost all its hard currency revenues.  So far, oil flows thru the pipeline have been normal.  Oil price gains have also been supported this month by anticipated renewed demand from US refiners that were resuming operations after shutdowns due to Hurricane Harvey.  Even more bullish views have already started to appear in the oil options market that has seen a spike in activity at $100 a barrel, indicating some oil bulls are betting the price could trade around that level by this time next year.  Analysts also slightly lifted their 2017 price forecasts but were more skeptical of further gains in 2018.  However, Middle Eastern oil producers are concerned the recent price rise will incentivise more US shale production & push prices lower again.

Bullish oil streak propels Brent to strongest 3Q in 13 years

The S&P 500 & NAZ rose to record levels, buoyed by gains in tech stocks, while each of the major indices closed out the qtr with solid gains.  Tech was the best performing of the major S&P sectors, up 0.6% & the index was poised for its 4th straight day of gains to recover from a selloff earlier in the week.  Both the S&P & NAZ touched intraday records for the 3rd straight day, with the S&P index posting its 6th straight month of gains.  Financials received a brief lift & hit their session high after reports Pres Trump with former Federal Reserve Governor Kevin Warsh to discuss his potential nomination as Fed chairman.  Rising expectations for another interest rate hike by the year-end & Trump's tax-cut plan have dominated markets for most of the week.  Data today showed US consumer spending barely rose in Aug but the report did little to change expectations that the central bank would raise interest rates again in Dec.  Another report showed the Chicago purchasing management index, which gauges factory activity, came in better than expected for Sep.  The S&P & the Dow recorded 8 straight qtrs of gains, while NAZ was rose for 5.

Tech gains lift S&P 500, Nasdaq to records; Dow slips

Stocks had another excellent qtr, with the popular averages at or near record highs.  The Dow is up an impressive 4K since the election & its 1 year chart below looks magnificent.  With tax reform & cuts in the air, the bulls want to take stocks higher.  Meanwhile, safe haven gold has pulled back from recent highs around 1350.  Risk investments are welcomed by investors.  Trump understands the business world & Congress appears interested in passing a tax package, key to more stock advances.

Dow Jones Industrials



Markets little changed after consumer confidence data

Dow lost 15, advancers over decliners 3-2 & NAZ went up 19.  The MLP index rose 1+ to the 283s & the REIT index was even in the 349s.  Junk bond funds inched higher & Treasuries remained weak.  Oil slid lower in the 51s & gold was flattish at 1288.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil51.47

GC=FGold  1,286.60

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Concern over the fallout from a pair of late-summer hurricanes caused US consumer sentiment to dip in Sep, though Americans remain relatively optimistic about the direction of the economy, a Univ of Mich survey showed.  Sentiment index fell to 95.1 (est. 95.3) from 96.8 in Aug.; preliminary reading for Sep was 95.3.  The current conditions gauge, which measures Americans' perceptions of their finances, rose to 111.7 from 110.9 & the expectations measure decreased to 84.4 from 87.7.  Confidence in the economy has waned slightly following Hurricanes Harvey & Irma, which caused more than $100B in damage, pushed up gas prices & spurred a jump in unemployment filings.  At the same time, confidence remains high by historical standards, & respondents later in the month indicated less of an impact from the storms, a sign of consumer resilience.  Overall, the share of consumers expecting good times financially in the economy fell to 47% from 54% in Aug.  Pres Trump & congressional Reps unveiled a long-awaited framework for cutting taxes this week, which could further support the economy & boost an already-tight labor market, trends that would likely sustain sentiment.  “In the past year, there has been a long list of issues that could have derailed the overall level of consumer confidence, including the unprecedented partisan divide, North Korea, Charlottesville, and the hurricanes,” Richard Curtin, director of the consumer survey, said. “Confidence has nonetheless remained very favorable, moving sideward in a very narrow positive range.” 

U.S. Consumer Sentiment Cools as Storms Deliver Hit to Outlook

US consumer spending cooled in Aug on a cutback in auto purchases that partly reflected less demand linked to Hurricane Harvey, Commerce Dept figures showed.  Purchases rose 0.1% from prior month (matching est.) after a 0.3% increase in Jul &  Incomes rose 0.2% (matching est.) after a 0.3% gain.  Price gauge tied to consumption rose 0.2% from previous month (est. 0.3%); was up 1.4% from year ago (est. 1.5%).  Excluding food and energy, prices rose 0.1% (est. 0.2% rise) & core was up 1.3% from year ago (est. 1.4%).  Adjusted for inflation, purchases declined 0.1%, the first decrease since Jan.  The latest results indicate household spending, which accounts for about 70% of the economy, may struggle to match the momentum of Q2.  Inflation-adjusted income, after taxes, dropped 0.1%  in Aug, the first decrease this year.  The report said that the spending & income data reflect the effects of Harvey, which made landfall later in the month.  While the Aug results were held back by fewer outlays for motor vehicles after the industry reported the slowest pace of sales since Feb 2014, purchases may increase in coming months as households in hurricane-stricken areas replace cars & trucks that were destroyed by flooding.  Wages & salaries were little changed in Augt after robust gains in the prior 2 months.

U.S. Consumer Spending Cools on Drop in Vehicle Purchases

Pres Trump is open to negotiating on the deduction individuals take for state & local taxes, his top economic adviser Gary Cohn said.  While the tax framework would eliminate that deduction, the provision isn't a red line, according to Cohn, the director of the National Economic Council.  The deduction is used extensively in high-tax states like NY, NJ & California.  Eliminating it would raise an estimated $1.3T that could be used to offset the plan’s proposed tax cuts.  “We are willing to work with the tax writers on the other dials that we have in the system,” Cohn said.  He added that the pres isnt open to negotiating on the corp tax rate, which the framework calls for cutting to 20%, down from 35%.  Also, Trump isn't flexible on a provision cutting the rate for pass-through businesses like partnerships & limited liability companies to 25%.  The current rate on pass-through income can be as high as 39.6%.  The framework lacks extensive details about offsetting its rate cuts with additional revenue.  It says most itemized deductions for individuals should be eliminated, without providing specifics, while calling for mortgage-interest & charitable-giving deductions to be preserved.  But it does single out the state & local tax deduction for elimination.  That break tends to benefit high-income filers in Dem states, but the move to abolish it would face resistance from some Rep House members in districts that use the deduction heavily.

Cohn Says Ending State, Local Tax Deduction Up for Negotiation

With the month closing, there is little exciting data & news to inspire stock traders.  Just a lot to talk about tax reform.  However since that remains a work in progress, words do not mean much.  Dow is up over 400 in what has traditionally been its worst month, quite a good performance!

Dow Jones Industrials