Friday, November 17, 2017

Markets slip lower on concerns about tax reform

Dow fell 73, advancers ahead of decliners 4-3 & NAZ was off all of 1.  The MLP index was fractionally lower in the 259s & the REIT index retreated 1+ to 360.  Junk bond funds were mixed & Treasuries crawled higher.  Oil climbed 1+ to the 56s (more below) & gold gained 7 to 1285.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil56.04

GC=FGold   1,284.60

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US new-home construction rebounded in Oct to the fastest pace in a year, partly reflecting recovery efforts in the hurricane-stricken South, gov figures showed.  A pickup in permit applications for one- family dwellings indicates building will remain firm in coming months.  Residential starts rose 13.7% to a 1.29M annualized rate (est. 1.19M) after upwardly revised 1.14M pace in prior month.  Single-family home starts rose 5.3% & multifamily jumped 36.8%.  Permits, a proxy for future construction of all types of homes, rose 5.9% to 1.3M rate (est. 1.25M) from a 1.23M pace.  Building permits for single-family homes improved in Oct to an 839K annualized pace, the fastest in 10 years.  Construction spending, which subtracted from GDP in Q2 & Q3, may add to economic growth in Q4 on the heels of rebuilding efforts.  New construction in the southern US rose 17.2%, the most since Jan, including the biggest gain for single-family starts since Jul 2014.  Areas in the South were hit particularly hard in Sep by 2 hurricanes, which caused flooding & delayed beginning home construction.  Activity typically rebounds in later months as rebuilding efforts begin in the affected regions.  A gauge of homebuilders' confidence surged in Nov to an 8-month high, indicating optimism about the outlook amid sustained demand, boosted by the steady job market & relatively low mortgage costs.  At the same time, the industry is dealing with a shortage of workers, higher materials prices & difficulty finding ready- to-build lots.  Economists expect residential construction will keep expanding gradually.  Single-family home starts rose to a 877K rate, the fastest since Feb, from 833K in the prior month & houses under construction totaled 1.1M, the most in a decade.

U.S. Home Starts Reach Highest Level in a Year, Permits Rise

Stocks edged lower after the best rally in 2 months, while Treasuries advanced as investors assessed the prospects for corp tax cuts.  The $ dropped as the € & ¥ gained.  The S&P 500 dipped after bouncing back yesterday from a bout of selling that saw the Volatility Index (VX) spike to the highest since Aug. The greenback remained linked to political developments in DC, where the Senate girded for negotiations on its version of tax reform & news swirled around Special Counsel Robert Mueller's investigation into Russian election tampering.  In Europe, equities headed for a 2nd weekly decline, while the euro € for the first time in 3 days after ECB Pres Mario Draghi said he was optimistic about wage growth in the region.  Japanese shares ended fractionally higher as the ¥ jumped to the strongest in 4 weeks.  Equities in Hong Kong & Australia rose, while Chinese stocks traded in Shanghai fell.  It has been tumultuous week in the US as shares saw the biggest gain & the largest drop in 2 months after touching records a week earlier.  Investors are trying to gauge whether benchmarks will continue a march to all-time highs on strong earnings &and faster growth spurred by corp tax cuts or if they will be pulled down amid lofty valuations, nearly the flattest yield curve in a decade & a selloff in junk bonds.  Commodities bounced after the recent selloff. West Texas crude jumped to around $56 a barrel as Saudi Arabia moved to dispel doubts over Russia's readiness to extend output curbs.

U.S. Stocks Decline With Dollar as Treasuries Rise: Markets Wrap

Oil climbed, paring losses earlier this week, as Saudi Arabia moved to dispel doubts over Russia's readiness to extend output curbs.  Futures rose almost 2%, trimming the weekly decline to 1.3%, after Saudi Arabia's Energy Minister Khalid Al-Falih said OPEC should announce an extension of output curbs when it meets on Nov 30.  Russia is said to be hestant to commit to a decision so soon, suggesting the group wait until closer to the deal's expiration at the end of Mar.  US crude output gained this week to the highest in more than 3 decades, according to gov data.  Oil rose to the highest in more than 2 years last week amid near certainty that OPEC & its allies would prolong the output deal & heightened geopolitical tension in the Middle East.  Prices retreated in the last few days after the International Energy Agency said milder-than-normal winter weather is putting a break on demand growth.  While Russia's reluctance is causing concern, Saudi Arabia's Al-Falih is trying to reassure the market the deal will be extended.  West Texas Intermediate for Dec delivery was at $56.01 a barrel, up 87¢.  Brent for Jan settlement was 62¢ higher at $61.98 a barrel.  Prices are down 2.4% this week & headed for the first weekly drop since the start of Oct.  The global benchmark was at a premium of $5.81 to Jan WTI.

Stocks are floundering while traders are watching the chaos in DC over tax reform.  There is not much investors can do but wait & see what those guys come up with.  Even those at the center of discussions have no idea how this will turn out.  If they come up empty handed, stocks will be sold.  That's scary & gold is on the rise again!

Dow Jones Industrials


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