Tuesday, February 6, 2018

Higher markets after a wild ride in trading

Dow finished up 567 (not far from the highs), advancers over decliners about 5-2 & NAZ rose 148.  The MLP index gained 4+ to the 281s.  Junk bond funds were higher & Treasuries rallied.  Oil declined to the 63s & gold fell 7 to 1329.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Stocks bounced in & out of negative territory, advancing in a volatile session that since the open saw big swings between gains & losses.  The blue-chip index had fluctuated 934 points from peak to trough in a see-saw morning.  The mixed session came after a big sell-off yesterday, when the Dow closed down 1175 (4.6%).  It was the largest point decline for the Dow on record & the largest percentage decline in 7 years.  The market sell-off started late last week & analysts attributed the start of it to climbing Treasury yields on the prospect of accelerating inflation.  As markets have slipped, volatility has spiked.  The Volatility Index (VIX), a measure of volatility, spiked above 50 for the first time since Aug 2015, the day of the infamous Flash Crash.  Commenting on the recent fall in the stock market, Treasury Secretary Steve Mnuchin said that the Trump administration is monitoring the stock markets & added they are functioning "very well."

Stock markets fluctuate amid extreme volatility

The US gov sees nationwide oil production jumping above 11M barrels a day much quicker than anticipated.  After oil output already topped 10M barrels a day in Nov, output will climb above the 11M mark this Nov, the Energy Information Administration (EIA) said in its monthly Short-Term energy Outlook after previously forecasting production above that level in Nov 2019.  Nationwide output will average 10.59M this year & 11.18M  next year, up from prior forecasts of 10.27M & 10.85M , according to the EIA.  With West Texas Intermediate crude holding above $60 a barrel since late last year, the prospect of pumping in this price environment is seen enticing drillers to pick up the pace.  The US oil rig count posted the biggest 2-week gain since June, according to the latest Baker Hughes data.  WTI crude will average $58.28 a barrel this year, up from last month's estimate of $55.33, & $57.51 in 2019, higher than $57.43.  The global benchmark Brent is forecast to average $62.39 in 2018, up from $59.74, & $61.51 in 2019 versus $61.43. WTI is trading at $63.59, while Brent was at $66.91.  “EIA’s forecast expects Brent crude oil prices to be in the $62 per barrel range in 2018 and 2019. That’s down a bit from current levels, as strong U.S. production growth is expected to help moderate global prices,” the Energy Information Administration said.  The EIA increased its estimates for global production & demand in 2018.  Output is seen at 100.4M barrels a day, up from 100.3M previously, with demand at 100.2M, compared with 100.1M.  For 2019, world supply is seen at 102.17M &demand at 101.95M.  The EIA painted a rosy picture for crude in its 2018 annual forecast.  The agency projects that continued shale development & low demand will transform the US into a net energy exporter by 2022 & a net petroleum exporter by 2029.  Crude output growth will be driven by Texas's Permian Basin, with gains in the Dakotas & Rocky Mountain region.  Meanwhile, production in Gulf Coast region will flatten out after 2025, as drilling in the Eagle Ford becomes less productive.  By 2050, EIA projects that Brent will reach $114 a barrel in 2017 $s, with prices rising faster in the short-term because of weak near-term investment & stronger demand.

U.S. Crude Output to Jump Above 11 Million Barrels a Day Sooner Than Expected

The House of Representatives was set to vote today on a short-term budget measure that would avert a rerun of last month's three-day partial gov shutdown, as lawmakers continued to grapple with divisive immigration measures.  The stop-gap measure drafted by House Reps would extend funding thru Mar 23, as well as provide for a year of funding for defense & 2 years of funding for community health centers, lawmakers said last night.  But Senate Dems are likely to balk at the House spending bill, likely requiring a last-minute retooling before existing money for gov agencies runs out on Thur.  Reps also control the Senate, but with a slim 51-49 majority they need some Dem support to pass spending bills.  To avert another shutdown, both the House & the Senate must pass at least a short-term spending bill, the latest in a series of such temporary measures that have become entwined with a months-long debate over protections for young "Dreamer" immigrants.  Senate Majority Leader Mitch McConnell suggested yesterday increasing defense appropriations thru Sep 30 while continuing negotiations on spending for non-defense programs.  But Dems have rejected that idea.  If the House passes a short-term funding measure with long-term defense funding it would fail in the Senate, Dem Senate Leader Chuck Schumer has said.  Lawmakers have also been struggling to reach a deal on an immigration bill, despite broad public support for helping Dreamers.  Pres Obama enacted the Deferred Action for Childhood Arrivals (DACA) program to provide temporary protections for Dreamers, allowing them to study & work without fear of deportation.  Those protections were thrown into doubt last year when Pres Trump ordered DACA halted on Mar 5, saying Congress should come up with a legislative solution.  A federal court blocked the Trump administration last month from ending the program & the administration's appeal is pending before the Supreme Court.  Dems & Reps in Congress are struggling to agree on bipartisan legislation that would protect Dreamers & boost border security.  Trump has said any deal must also include funding for his long-promised wall along the US-Mexico border, which Dems strongly oppose.

US House to vote on government funding as immigration battle simmers

General Motors (GM) posted quarterly results that beat expectations as cost-cutting & higher vehicle prices offset a double-digit decline in US sales volume, & said it expected 2018 would be a strong year globally & in North America.  Speaking to reporters, CFO Chuck Stevens said that despite recent stock market volatility due to concerns that the US economy may be overheating, the #1 US automaker is "not overly concerned about inflation."  "Our forecast is premised on continued growth in the U.S. economy," Stevens said.  He added that GM expects interest rates to rise 75 basis points in 2018.  GM results came despite selling 135K fewer vehicles to dealers in North America in Q4 & nearly 450K fewer in the full year than in 2016.  Thanks to cost-cutting & higher transaction prices for its more popular, & higher-margin, SUVs & pickup trucks in North America, the automaker's global pre-tax margin rose to 8.2% in the qtr versus 6.5% in the same qtr in 2016.  EPS was $3.46, compared with EPS of $1.36 a year earlier.  Excluding one-time items, EPS was $1.65.  On that basis analysts had expected $1.38.  The automaker said it will record a $7.3B non-cash charge for its Q4 earnings related to deferred tax assets that will lose their value because of the lower US corp tax rate.  Revenue for the qtr fell to $37.7B from $39.9B a year earlier.  Analysts expected $36.6B.  The stock rose 2.32 (6%).
If you would like to learn moire about GM, click on this link:

GM posts loss on non-cash charge, but beats estimates

This was another unusually wild day in the stock market.  The Dow opened down sharply, then fluctuated not too far from even & finished the day with buying in the last hour (shown below).  But the market breadth was not impressive all considered.  REITs have been hit hard on thoughts of higher interest rates.  They rebounded only about 1% today.  That's relatively modest following recent selling because investors remained worried about high interest rates, which are coming.  There is plenty for investors to digest, making it difficult for even experts to understand what it driving these wild swings.  And there are many new guys who have not tasted a down market.  For the time being try to keep cool & learn about quality stocks paying solid divs for future purchases.  Now those guys in DC (remember them?) have to figure out how to fund the gov by Thurs.  The clock is ticking.

Dow Jones Industrials

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