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



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