Tuesday, October 17, 2017

Mixed markets on early earnings

Dow rose 23, decliners over advancers 3-2 & NAZ gave back 3.  The MLP index was fractionally lower to the 279s & the REIT index fell 1 to the 355s.  Junk bond funds inched higher & Treasuries were flat.  Oil pulled back in the 51s & gold

AMJ (Alerian MLP Index tracking fund)

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US factory production rose last month for the first time since Jun, a sign the industry is starting to regain its footing after the damage from hurricanes Harvey and Irma, Federal Reserve data showed.  .Factory output increased 0.1% (est. 0.2% gain) after falling 0.2%.  Total industrial production, which also includes mines & utilities, rose 0.3% (matching est.) after a revised 0.7% drop.  Capacity utilization, measuring the amount of a plant that is in use, inched up to 76% (est. 76.2%) from 75.8%.  Harvey, Irma combined effect trimmed industrial production growth by 0.25 percentage point.  The report showed broad-based gains in consumer durables and non-durables, as well as business equipment & construction.  For Q3, industrial production fell 1.5% at an annual rate.  Without the impact of the hurricanes, the index would have climbed at least 0.5%.  As volatility from the hurricanes dissipates, economists expect manufacturing will keep humming along as household demand, business investment and improving overseas markets help to lift production.  History shows economic activity that’s initially subdued due to major storms tends to get a boost amid rebuilding in later months.  Recent data have indicated manufacturing is expanding steadily.  The Institute for Supply Management’s manufacturing index showed factories expanded in Sep at the fastest pace in 13 years.   Supplier delivery times lengthened & some ISM survey respondents reported getting new orders because of the hurricanes.

U.S. Manufacturing Output Rises as Impact From Hurricanes Fades

A rebound in homebuilder confidence to a 5-month high indicates concern over fallout from major hurricanes has been alleviated, according to the National Association of Home Builders/Wells Fargo.  Housing Market Index rose to 68 (est. 64) from an unrevised 64 in Sep.  The measure of 6-month sales outlook rose 5 points to 78, matching highest level since 2005.  Current sales index increased to 75 from 70.  The housing market is on track to return to its pre-storm state, marked by steady demand & rising prices that are nevertheless putting purchases out of reach for some first-time buyers.  Developers will probably get a boost from recovery efforts in the coming months as rebuilding efforts intensify in Texas & Florida, where many homes were flooded or destroyed.  At the same time, the continued strength of the job market & still-low mortgage rates point to underlying support for residential real estate.  “With a tight inventory of existing homes and promising growth in household formation, we can expect the new home market continue to strengthen at a modest rate in the months ahead,” the NAHB, said.  “Builders need to be mindful of long-term repercussions from the storms, such as intensified material price increases and labor shortages,” NAHB Chairman Granger MacDonald, a homebuilder & developer said.  The gauge of prospective buyer traffic rose to 48 from 47, first increase since Mar.

U.S. Homebuilders Gauge at Five-Month High Shows Storm Recovery

UnitedHealth (UNH), a Dow stock, Q3 earnings rose 26% to beat expectations as the nation's largest health insurer sold more coverage to retirees & continued to grow its business outside insurance.  The company gained nearly 1M more customers compared to last year's quarter, largely due to growth in its Medicare & retirement business (UNH is the nation's largest provider of Medicare Advantage plans).  That gain more than countered a revenue hit the insurer took from the deferral of an insurance tax & the company's decision to scale back its presence on ObamaCare insurance after booking big losses.  Operating earnings grew 14% to $2.4B for its main business, health insurance, as total enrollment topped 49M.  The Optum segment also saw earnings increase, to $1.7B.  Optum provides pharmacy benefits management & technology services & also operates clinics & doctor's offices.  Overall, the company earned nearly $2.49B  as revenue grew 9% to $50.32B.  Adjusted EPS was $2.66.  Analysts expected EPS of $2.56 on $50.35B in revenue.  UNH expects 2017 EPS to approach $10, up from a forecast it made in Jul for $9.75-9.90.  Analysts expect $9.86.  The stock jumped up 10+ to the 203s.  If you would like to learn more about UNH, click on this link:

UnitedHealth beats 3Q forecasts, helped by Optum growth

The stock market has high expectations for earnings.  The early reports are looking good, highlighted by UNH.  But sometimes good earnings are just not good enough.  Economic data shows the economy is doing well.  After the storms, business is picking up.  Dow is flirting with 23K while market breadth is weak.  The goings on in DC will also move markets.

Dow Jones Industrials


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