Friday, February 24, 2017

Markets pause after strong bi-weekly advance

Dow added 10 (helped by buying into the close), decliners slightly ahead of advancers & NAZ was up 9 after being in the red all day.  The MLP index dropped 4+ to the 325s & the REIT index was up 1+ to the 352s.  Junk bond funds barely budged & Treasuries had a strong advance, taking the yield on the 10 year Treasury down to 2.31%.  Oil dipped to 54 & gold gained to 1259.

AMJ (Alerian MLP Index tracking fund)

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Live 24 hours gold chart [Kitco Inc.]

Pres Trump signed an executive order requiring each federal agency to form a task force to review existing regulations & recommend whether to repeal or simplify those deemed to harm the economy & job creation.  He signed the order with a group of corp executives who have advised the administration on business issues.  Trump said the order, the text of which wasn't immediately released, would direct every federal agency to form "a real team of dedicated people to research all regulations that are unnecessary, burdensome and harmful to the economy and therefore harmful to the creation of jobs and business."  The pres signed the order shortly after a speech to the Conservative Political Action Conference, in which he criticized gov regulations & said that 75% of existing rules were unnecessary.  Yesterday, the administration convened meetings of a group of manufacturing executives to develop recommendations for improving the business climate, including by rolling back regulations that are already in place.

Trump Orders Federal Agencies to Identify Unnecessary Regulations

Oil prices slid nearly 1% as worries about rising US supplies outweighed OPEC pledges to boost compliance with output curbs.  But crude prices had a weekly rise of 1% as traders have begun to pull out barrels from pricey storage, with physical markets showing signs of tightening.  US drillers added oil rigs for a 6th consecutive week, extending a 9-month recovery.  Prices were also pressured by book squaring ahead of the weekend & ahead of upcoming Feb 28 expirations in Brent futures for Apr.  Prices have tumbled over the last 2 sessions after gov data showed US crude inventories rose last week for a 7th straight time.  But they have been supported within a tight $4-5 range since Nov, when OPEC & other producers agreed to cut production.  OPEC's record compliance with the deal has surprised the market,&  the biggest laggards, the UAE & Iraq, have pledged to catch up with their targets.  The International Energy Agency put OPEC's average compliance at a record 90% in Jan & based on an average of production surveys, it stands at 88%.  However, exports from the US, which is not part of the deal, hit a record high of 1.2M barrels per day (bpd) last week & production rose to above 9M bpd, the highest since Apr, the US Energy Administration Agency said.  Traders were draining the priciest US storage tanks & selling oil held in tankers due to rising prices of oil for near-term delivery.

Oil Slips Nearly 1% on Concerns Over Rising U.S. Output

China stocks were largely unchanged today, reversing earlier losses, as reform hopes underpinned the market, with the main indexes up for the 3rd straight week thanks to improving risk appetite.  The blue-chip CSI300 index was unchanged at 3473, while the Shanghai Composite Index added 0.1% to 3253.  For the week, CSI300 gained 1.5% while SSEC climbed 1.6%.  The main indices dropped for most of the day as resources shares dragged, but reversed losses in the PM after centrally-owned state companies jumped on reform hopes.  The director of China's state assets regulator said that the country should further deepen mixed-ownership Z& supply-side reforms.  Reflecting rising risk appetite, China's outstanding margin loans have risen for 4 consecutive days to exceed 900B yuan ($131B), as investors appear more willing to use borrowed money to buy stocks.

China Shares Up For 3rd Week

After advancing more than 700 in 2 weeks (to new daily records), the Dow has paused for a 2nd day.  It's entitled.  Euro stocks are doling very well & Chinese stocks, while lagging in the last year, found some buying in Feb.  Trump has been the main driving force since the election when the Dow has gained an enormous 2½K (14%).  But all good things have to come to an end &, as been said many times before, this market is vastly overbought.  For the time being, the bulls are in command.  But there will be a day of  reckoning.

Dow Jones Industrials

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Markets retreat on weaker economic data

Dow gave back 47, decliners over advancers 3-2 & the NAZ fell 16.  The MLP index dropped 3+ to the 326s (1 month low) & the REIT index was up pennies in the 351s.  Junk bond funds crawled higher & Treasuries rose, taking the yield on the 10 year Treasury down to 2.33%.  Oil was lower & gold rose to multi month highs

AMJ (Alerian MLP Index tracking fund)

Crude Oil Apr 17

Gold Futures,Apr-2017

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Consumer confidence fell for the first time since the election, as party lines divided Americans following a boost in enthusiasm for the new administration's economic policies.  The Univ of Mich final index of sentiment for Feb dropped to 96.3 from 98.5 in Jan, which was the highest since 2004.  That compares with the projection of 96 & a preliminary reading of 95.7.  While confidence is still above pre-election levels, Dems & Reps are sharply divided on whether they expect a boom or bust, with independent voters leaning more toward optimism to boost the broader gauge.  Dems were also more positive than Reps on their current financial situation; the opposite was the case for year-ahead views of finances.  “Since neither recession nor robust growth is expected in 2017, both extremes must eventually converge,” Richard Curtin, director of the consumer survey, said.  The current conditions index, which measures Americans' perceptions of their personal finances, rose to 111.5 from 111.3 in the prior month.  The preliminary reading was 111.2.  The gauge of expectations 6 months from now dropped to 86.5 from 90.3 in Jan & compared with a preliminary Feb measure of 85.7.  Respondents expected the inflation rate in the next year will be 2.7%, compared with 2.6% in the Jan survey.  Over the next 5-10 years, they project a 2.5% rate of price growth, after 2.6% in the prior month.

Michigan Consumer Sentiment Shows First Drop Since U.S. Election

Purchases of new US homes in Jan were slower than forecast, signaling an increase in mortgage rates may be giving some potential buyers pause.  Sales climbed 3.7% to a 555K annualized pace, Commerce Dept data showed.  The forecast called for a 571K rate.  Purchases in the previous & months were revised lower.  The figures indicate a more measured improvement in the housing market as buyers adjust to higher borrowing costs & prices.  At the same time, steady income & job growth remain sources of support as the spring selling season approaches.  The agency said there was 90% confidence that the change in purchases last month ranged from a 14.8% drop to a 22.2% increase, underscoring the volatility of the data.  The median sales price of a new house rose 7.5% from Jan 2016 to $313K.  New-home sales, which account for about 10% of the residential market, are tabulated when contracts are signed.  That makes them a timelier barometer than transactions on existing homes.  Sales of previously owned properties, tallied when contracts close, rose more than forecast in Jan to the highest level since Feb 2007, National Association of Realtors data showed Wed.  Inventory reported its 20th consecutive year-over-year decline.  Mortgage rates picked up since early Nov on speculation the economy will strengthen & Federal Reserve policy makers will keep raising interest rates this year.

Sales of New U.S. Homes in January Were Slower Than Forecast

JC Penney said it would close about 130-140 stores over the next few months & reported a bigger-than-expected drop in same-store sales for the holiday qtr.  The company will also initiate a voluntary early retirement program for about 6K eligible employees & close 2 distribution facilities.  The store closures come after larger rival Macy's (M) said in Nov it would shut 100 stores, as department stores struggle with weak demand for apparel & growing competition from online retailers.  "We believe closing stores will also allow us to adjust our business to effectively compete against the growing threat of online retailers," CEO Marvin Ellison said.  The stores being closed represent about 13-14% of the store base & account for less than 5% of annual sales.  The company expects annual savings of about $200M from the cost-cutting measures & would take a related pre-tax charge of about $225M in H1.  Sales at stores open more than a year fell 0.7% in Q4 ended Jan. 28, larger than the 0.5% drop estimated.  EPS was 64¢, beating the estimate of 61¢.  The stock fell 64¢ (9%).  If you would like to learn more about JCP, click on this link:

J.C. Penney to Shut 130-140 Stores; Sales Drop

J.C. Penney (JCP)

The stock market needed a breather after the Dow had reached 10 straight record highs.  Selling today is modest & does not change the market's overbought condition.  Trump is doing a lot in DC & has been the major driver for stocks since he was elected.  That will not change.  However sluggish retail sales is beginning to haunt the market.  But the bulls remain in command of the Trump rally.

Dow Jones Industrials

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