Tuesday, January 16, 2018

Markets pull back after a wild day in the stock market

Dow fell 10 in an usually volatile day, decliners over advancers about 2-1 & NAZ lost 37.  The MLP index was off 1+ to the 298s.  Junk bond funds slid lower & Treasuries remained slightly higher.  Oil fell to the 63s & gold went up another 4 to 1339.

AMJ (Alerian MLP Index tracking fund)

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US consumer expectations for wage growth rose in Dec to the highest level in 3 years, according to a Federal Reserve Bank of NY survey.  The pickup accompanied an increase in expected inflation to the highest level since Apr & the share of respondents who reported personal finances being in better shape than a year earlier, at 37%, was the highest in the survey's history, which dates to mid-2013.  A surprise moderation in consumer price inflation in 2017 has raised concern among Fed policy makers that low expected inflation may be preventing actual inflation from rising to the central bank's 2% target, which it has undershot for most of the last 5 years.  The NY Fed survey results mirror a recent rise in breakeven inflation rates derived from Treasury Inflation Protected Securities (TIPS) & could allay some of those worries if the momentum is sustained.  Despite the concerns about low inflation, forward interest rates suggest investor expectations for the amount of Fed policy tightening over the next year is at the highest level in 10 months, in part thanks to a tighter labor market & rising consumer confidence.  Fed officials penciled in 3 interest-rate increases this year in quarterly forecasts updated last month.

U.S. Consumers See Higher Wage Growth, Inflation in Fed Survey

Stocks turned lower, retreating from all-time highs as commodities,  producers & industrial shares took a hit with oil & metals dropping.  Treasuries rose amid Congressional talks to averta a gov shutdown Fri. The Dow fell a whopping almost 400 points from its intraday high of 26,086 after blowing past the round-number milestone early in the session.  The S&P 500 drop left it more than 1% lower than its session high & the $ also was down after an earlier gain.  The Stoxx Europe 600 Index climbed, tracking an advance in the MSCI Asia Pacific Index after Hong Kong stocks hit a record.  Emerging-market stocks jumped, consolidating at the highest level in almost a decade.  The recent climb by equities, spurred in part by synchronized global economic growth, has some investors wondering if there's too much short-term froth in the market.  Investors clearly are increasingly on alert for potential threats to the risk-on mood.  As earnings season picks up steam, corp results are set to be the big focus in Europe ahead of central bank meetings in the US, Japan & Europe before the end of the month.

Stocks Fall, Reversing Gains After Record Surge: Markets Wrap

US e-commerce sales reached new heights during the 2017 holiday season, as mobile transactions through smartphones & tablets drove a record haul for online vendors.  Shoppers spent $108B in online transactions from Nov-Dec, up nearly 15% compared to the same period one year ago, according to Adobe Analytics, which tracks the e-commerce marketplace.  A 3rd of digital holiday spending occurred through mobile platforms, which also accounted for more than ½ of the traffic to retail sites.  Sales on Cyber Monday, the first Mon after Thanksgiving, accounted for $6.6B of the holiday season tally.  That total marked the largest single-day online shopping haul in US history.  Low unemployment nationwide & US stock market's strong performance in recent months likely drove holiday spending, according to Adobe.  Online sales reached record levels even as brick-&-mortar retailers struggle to maintain foot traffic at their stores.  Retail bankruptcies reached a 6-year high in 2017 & the sector is expected to be similarly challenged this year.  Despite the retail industry headwinds, combined in-store & online sales rose 5.5% during the holidays, according to the National Retail Federation.

US shoppers spent record $108B online during holiday season

Citigroup (C) posted an $18.3B quarterly net loss on one-time tax charges, but said adjusted income rose 4% from a year earlier as consumer businesses made up for lower revenue from bond & currency trading.  The loss for Q4 was due to a $19B write-down on the value of deferred tax assets left from losses in the financial crisis & $3B of expenses for the new US tax on past profits earned & kept abroad.  Adjusted to exclude the major tax items, EPS rose to $1.28 from $1.14 a year earlier.  Excluding the major tax charges, analysts had expected EPS of $1.19 (it was not immediately clear if the results were comparable).  Citi expects to benefit in future qtrs from the new tax law as its tax rate falls to about 25% in 2018 from 30% 2017.  Analysts expect Citi to generally benefit less than other banks as the NY-based bank earns about ½ of its profits overseas, where corp tax rates are mostly lower than the US.  The stock rose 27¢.
If you would like to learn more about Citi, click on this link:

Citi profit tops estimates; books $22B tax charge

FedEx (FDX) CEO Fred Smith said tax reform will boost the balance sheets of American businesses & stimulate investment in the US.  “It will allow us to put more money into the business with less risk,” Smith said.  Many companies are giving back by raising pay & doling out employee bonuses, as a result of the tax bill.  While Smith was unsure what the company will do with the extra profits, he said it will deliver nearly $1½B worth of higher earnings.  “We have a board meeting next week. We tell our board what the tax bill means to us. It passed in between our board meetings and I’m sure we are going to be doing a lot of things as a result of this tax bill because it was very, very good policy,” he said.  The company anticipates spending $5.9B on capital expenditure (capex) in 2018 & only expects that number to increase as a result of the tax legislation.  “It means that the risk of investment is lower and almost certainly American business, including FedEx, will respond to it with higher investment,” Smith said.  The courier delivers 13M shipments per day, who expects to “easily deliver 15 million a day,” as a result of increased investment capacity created by the bill.  The stock declined 2.27.
If you would like to learn more about FDX, click on this link:

FedEx CEO on tax bill: I’m sure we will be doing a lot of things as a result

Surging shale production is poised to push US oil output to more than 10M barrels per day, toppling a record set in 1970 & crossing a threshold few could have imagined even a decade ago.  And this new record, expected within days, likely won't last long.  The US gov forecasts that the nation's production will climb to 11M barrels a day by late 2019, a level that would rival Russia, the world's top producer.  The economic & political impacts of soaring US output are breathtaking, cutting the nation's oil imports by a 5th over a decade, providing high-paying jobs in rural communities & lowering consumer prices for domestic gasoline by 37% from a 2008 peak.  Fears of dire energy shortages that gripped the country in the 1970s have been replaced by a presidential policy of global "energy dominance."  US energy exports now compete with Middle East oil for buyers in Asia.  Daily trading volumes of US oil futures contracts have more doubled in the past decade, averaging more than 1.2B barrels per day in 2017.  The US oil price benchmark, West Texas Intermediate crude, is now watched closely worldwide by foreign customers of US gasoline, diesel & crude.  The question of whether the shale sector can continue at this pace remains an open debate.  The rapid growth has stirred concerns that the industry is already peaking & that production forecasts are too optimistic.  The costs of labor & contracted services have recently risen sharply in the most active oilfields; drillable land prices have soared; & some shale financiers are calling on producers to focus on improving short-term returns rather than expanding drilling.  But US producers have already far outpaced expectations & overcome serious challenges, including the recent effort by OPEC to sink shale firms by flooding global markets with oil.  The cartel of oil-producing nations backed down in Nov 2016 & enacted production cuts amid pressure from their own members over low prices, which had plunged to below $27 earlier that year from more than $100 a barrel in 2014.  Shale producers won the price war thru aggressive cost-cutting & rapid advances in drilling technology.  Oil now trades above $64 a barrel, enough for many US producers to finance both expanded drilling & divs for shareholders.  Efficiencies spurred by the battle with OPEC - including faster drilling, better well designs & more fracking - helped US firms produce enough oil to successfully lobby for the repeal of a ban on oil exports.  In late 2015, Congress overturned the prohibition it had imposed following OPEC's 1973 embargo.  The US now exports up to 1.7M barrels per day of crude & this year will have the capacity to export 3.8B cubic feet per day of natural gas.  Terminals conceived for importing liquefied natural gas have now been overhauled to allow exports.  That export demand, along with surging production in remote locations such as West Texas & North Dakota, has led to a boom in US pipeline construction.  Firms added 26K miles of liquids pipelines in the 5 years between 2012-2016, according to the Pipeline & Hazardous Materials Safety Administration.  Several more multi-billion-dollar pipeline projects are on the drawing board.  US drillers say they can supply plenty more.

U.S. oil industry set to break record, upend global trade

The Dow had an enormous trading range, almost 400,  After surging over 26K the Dow pulled back taking it into the red where it finished.  With this rally, it's easy forget selling can kick in at any time with the stock market heavily overbought.  The economy continues to be strong & the tax cuts add to the market's strength.  The rally engine is still pulling this market higher.  However, haunting the market advance is gold as it keeps climbing.  Now 26K will be a significant ceiling for the Dow to break thru.

Dow Jones Industrials


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