Tuesday, January 30, 2018

Markets tumble as selling is extended for a second day

Dow sank 362, decliners over advancers 3-1 (a little better than the AM posting) & NAZ lost 64.  The MLP index declined 5+ to 291.  Junk bond funds continued to be sold & Treasuries retreated once again.  Oil is back in the 64s (more below) & gold lost 3 to 1337.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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The Dow tumbled amost 400 points, putting US stocks for the biggest 2-day decline since Aug, while yields on benchmark gov bonds touched Apr 2014 highs as caution crept into markets after one of the best starts to a year in recent history.  Screens flashed red across most asset classes, with investors on edge ahead of a slew of earnings, a US rate decision, Trump's address to Congress & major economic data.  All major US equity indices sank for a 2nd day, with investors pocketing profits from a 4-week rally that greeted 2018.  The 10-year Treasury yield pushed above 2.73%, the highest since Apr 2014.  Commodities retreated, led by crude & industrial metals.  Gold turned lower, while the $ fluctuated.  Equities took a series of blows that added to the selling.  Among corp announcements, Apple (AAPL), a Dow & NAZ stock (also with the world's largest company by market value), sank to a 3-month low amid reports of a gov inquiry & as concern mounts that its latest iPhone isn't selling briskly.  Energy producers slumped with the price of crude.  Equity markets are showing signs of wariness at the end of a hectic month as surging rates on gov bonds test appetite for stocks at elevated valuations.  Investors are weighing whether stronger corp earnings, a pick-up in economic growth & optimism over tax cuts can continue driving up prices in markets that recently touched their highest on record;  The anxiety spread to Asia & Europe, with euro-zone stocks falling the most since Nov & Japan's Topix wiping out gains for the year.   Emerging-market stocks tumbled 1.7%, the most in 2 months, & gold futures lost 0.4%.

Dow Sinks Over 350 Points

One of Trump's campaign promises was to revive US manufacturing & in the run-up to his first State of the Union address the industry is optimistic.  “I think [2017] was generally a positive year for manufacturing, [and] I think 2018 could be even better,” Scott Paul, pres of the Alliance for American Manufacturing, said.  Under Trump, manufacturing jobs jumped by 196K in 2017 from the prior year, when the sector saw a loss of 16K jobs (the biggest increase since 2014).  Manufacturing was boosted by a growing global economy.  In addition, a drop in the $, the first in about 5 years, helped make US exports more competitive.  Manufacturers are hopeful that the tax overhaul will allow them to expand plants, invest in new equipment & hire more workers, Paul said.  Optimism among industry executives reached an all-time high in Q4 as progress was made on the tax legislation, according to a survey from The National Association of Manufacturers.  In addition to a potential bump from the tax bill, a pending $1T infrastructure plan promises to buoy US manufacturing.  Paul said that the initiative will provide a direct jobs boost & that transportation improvements will allow companies within the industry to become more efficient.  The administration has also encouraged the implementation of training programs to help companies find qualified applicants.  In the construction sector, for example, jobs offering 6-figure 6-figure salaries are going unfilled.  Trump said last year he wants to create 5M new apprenticeships over the coming ½-decade.  There is one area that Paul saw as a “blemish” in 2017, & that was trade.  While the pres has popularly railed against US trade deficits, particularly with countries like China, the US deficit widened in 2017.  With China alone, the deficit had grown to nearly $342B as of Nov 2017.  “The administration’s actions in 2017 on trade were mostly rhetorical,” Paul said.  “A lot of ‘we’re going to do this, we’re going to do that.’ Hopefully, 2018 is the year action occurs.”  Between the infrastructure overhaul, trade negotiations & the tax bill, Paul said 2017 was the year of promises & he's hopeful 2018 will be the year those promises are delivered on.

Manufacturers optimistic ahead of Trump's first State of the Union

Pfizer's (PFE), a Dow stock, Q4 profit soared to $12.3B thanks to a huge tax benefit related to the US tax system overhaul.  The biggest US drugmaker an $11.34B benefit, mainly from recalculating deferred tax liabilities.  PFE will also take a charge of approximately $15B, payable to the Treasury over 8 years, to cover taxes on up to $24.2B in cash & investments held overseas that it plans to bring back to the US.  The company plans to invest roughly $5B in capital projects in the US over the next 5 years, including upgrading & expanding medicine factories, including adding the capability to make gene therapies.  "The tax change is likely to influence where we invest in the future," CEO Ian Read said.  That could mean more investment in the US.  PFE also plans to spend about $100M as a one-time bonus for non-exec employees & to make a $500M payment to its US pension fund.  The company issued a forecast for adjusted 2018 EPS of $2.90-$3, higher than in the past couple of years, with revenue of $53.5-$55.5B.  Due to the tax overhaul, the company said it expects a tax rate of about 17% in 2018, well below prior estimates.  PFE said it's on track to decide this year whether to keep its consumer health business or sell off all or part of it.  EPS for Q4 amounted to $2.02, well above 13¢ a year earlier.  Adjusted for one-time items, EPS amounted to 62¢, 6¢ better than the projection.  EPS was boosted by a low 8.6% effective tax rate on Q4 adjusted EPS.  "We saw continued growth of new brands and received a record number of new approvals," Read said.  PFE won 10 approvals from US regulators last year for additional uses for existing drugs & for new medicines, including new diabetes drug Steglatro & 2 combo drugs including Steglatro.  PFE posted revenue of $13.7B in Q4, up 1% & above expectations of $13.6B.  The stock lost 1.24.
If you would like to learn more about PFE, click on this link:

Pfizer, riding tax changes, puts up huge 4Q profit

Harley-Davidson (HOG) forecast that motorcycle shipments would drop this year & reported that they barely met the bottom of its 2017 target.  Shipments in 2017 were the lowest in 6 years.  Worldwide retail motorcycle sales were down 6.7% last year from a year ago.  In the US, its biggest market, sales dropped 8.5% year on year.  The figures underscored its challenges as its core customer base gets older & younger customers, more sensitive to pricing, remain lukewarm to its brand.  The company expects to ship 231K-236K motorcycles this year after shipping 242K vehicles in 2017 (versus its forecast of 241K-246 units).  Amid its problems, HOG said it will consolidate its motorcycle assembly plant in Kansas City into the one in York, Pennsylvania, incurring a restructuring cost of $170-200M thru 2019.  "The decision to consolidate our final assembly plants was made after very careful consideration of our manufacturing footprint and the appropriate capacity given the current business environment," said CEO Matt Levatich.  The company expects to save $65-$75M annually after 2020, it added.  The company has chalked out a turnaround strategy, hoping to attract 2M new riders in the next decade by introducing new models.  HOG said it will invest "more aggressively" to develop electric motorcycle technology & was on target to launch its first electric motorcycle within 18 months.  The stock dropped 4.45 (8%).
If you would like to learn more about HOG, click on this link:

Harley-Davidson forecasts drop in shipments this year, shares drop

Oil fell below $69 a barrel for the first time in 6 days, driven by rising US output & as a strengthening $ dented risk-linked assets.  Brent crude futures fell 26¢ on the day to $69.20 a barrel, having touched a session low of $68.75, while West Texas Intermediate futures dropped 50¢ to $65.06 a barrel.  European stock markets were firmly in negative territory after a recovering $ & a drop in shares of Apple (AAPL) sent stocks to the largest one-day fall in 5 months the previous day.  With oil's negative correlation to the $ reaching its strongest in a month, even ongoing signs of robust demand for crude were not enough to ward off profit taking following last week's rise to 3-year highs.  Oil's inverse relationship to the $, whereby a stronger currency makes it more expensive for non-US investors to buy $-denominated assets, has reasserted itself this week.  Expectations for US inventories to rise for the first time in 11 weeks may also be keeping oil under pressure, according to a preliminary poll.  US production is already on par with that of Saudi Arabia, the biggest producer in OPEC.  Only Russia produces more, averaging 10.98M barrels per day (bpd) in 2017.  US output has jumped more than 17% since mid-2016 & is expected to exceed 10M bpd soon.  The rising tide of US oil output comes after prices rose following an agreement by OPEC producers, along with Russia & other countries, on output curbs.

Oil falls below $69 as stronger dollar dents risk assets

The stock market dropped over 500 in the last 2 days, making for a very ugly period.  For the time being good news is hard to find or being ignored.  Trump's speech tonight will drive the stock market tomorrow in the AM & later Janet will speak.  That could be a telling day.  If selling persists, the long rally (which is vastly overbought) could be in  trouble.  However, economic fundamentals remain strong which should limit damage done by selling.

Dow Jones Industrials

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