Thursday, February 22, 2018

Higher markets as Treasury yields decline

Dow jumped up 214, advancers over decliners better than 2-1 & NAZ gained 46.  The MLP index added 1+ to the 267s.  Junk bond funds rose & Treasuries climbed higher, reducing the yield on the 10 year Treasury to 2.9%.  Oil crawled higher in the 61s & gold lost 6 to 1323.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil61.92

GC=FGold  1,323.40

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Stocks rose for the first time in 3 days even as most global gauges slumped in the wake of Federal Reserve minutes that seemed to boost the prospect of tighter monetary policy.  The $ fell as Treasuries rose.  The moves in US assets reversed late-day action that saw the S&P 500 fall about 1% from its session high & the $ powered to a 4th straight gain following the minutes from the Fed's Jan Meeting.  Investors are now assessing whether recent signs of economic growth accompanied by a pickup in inflation will force the Fed to accelerate the pace of rate increases.  In Europe the Stoxx 600 Index slid as almost all the major national equity gauges in the region fell.  It was a similar picture across Asia, though China's market bucked the trend as it reopened after a holiday.  For now, markets remain fragile.  Feb is shaping up as one of the worst months for global equities in more than a year as concerns about a pick-up in inflation & expensive stock prices outweigh evidence of a buoyant US economy.  With recent data underpinning the view that inflation is no longer lagging, the OIS space shows traders pricing in just shy of 3 US rate hikes over the next 12 months.  Elsewhere, gold erased a drop to trade little changed as most commodities retreated.  The £ was weaker as data showed the UK economy expanded less than previously estimated in Q4 & the € edged up as minutes from the ECB showed officials continue to lay the ground for a shift in policy language in H1-2018.

U.S. Stocks Rebound, Dollar Stumbles With Yields: Markets Wrap

US filings for unemployment benefits fell to a 5-week low, suggesting tightening in a labor market already operating near full capacity, Labor Dept figures showed.  Jobless claims decreased 7K to 222K (est 230K).  Continuing claims fell 73K to 1.875M, a 6-week low, in the latest week, the biggest decline since mid-2015.  The 4-week average of initial claims, a less-volatile measure than the weekly figure, fell to 226K from the prior week's 228K   Claims are near the lowest level in almost 45 years, a reminder that employers are holding on to existing staff given shortages of qualified workers.  Applications below the 300K tally are considered consistent with a healthy labor market.  They've been under that figure every week for 3 years.  Analysts may pay extra attention to today's figures because they encompass the 12th of the month, the reference period for the Labor Dept surveys that produce the monthly employment figures.  The unemployment rate among people eligible for benefits fell to 1.3% from 1.4%.

U.S. Jobless Claims at Five-Week Low Amid Tight Labor Market

German business confidence dropped sharply in Feb amid increasing concerns about both domestic & intl risks.  The Ifo Institute said its business climate indicator fell to 115.4 in Feb from 117.6 in Jan, while noting it remained near historic highs.  New fears of a protectionist wave from the US as well as the US tax reform are beginning to take their toll.  The survey is based on about 7K responses from firms in manufacturing, construction, wholesaling & retailing.

German business confidence drops amid global, local concerns

The US economy will grow at an annual pace of at least 3% over the next decade after the benefits of tax cuts and regulatory changes exceeded expectations in 2017, the Council of Economic Advisers said in its annual report.  “The administration is predicting, on average, 3% annual growth through 2028 with the tax cuts & the administration’s full policy agenda, compared to an estimated 2.2% annual growth without them,” Kevin Hassett, chair of the council, said.  Hassett added that growth, over the long run, would be 3.8% larger if expensing provisions in the tax bill are made permanent & 2.9% larger if those provisions expire in 5 years.  GDP growth in 2017 averaged 2.3%, up from 1.5% in the year prior & boasted 2 consecutive qtrs of expansion above 3%.  Meanwhile, the US economy added 2.2M jobs, including 189K in manufacturing & 53K in mining.  “The primary components driving my administration’s pro-growth policy agenda—tax cuts, tax reform and smart deregulation—have inspired enormous confidence in the economy and optimism that it will continue thriving,” Pres Trump wrote in the foreword.  There's more economic expansion ahead, the White House said.  The optimism inspired by the corp tax overhaul, namely a 14-percentage-point reduction in the federal tax rate & allowing firms to expense investments fully, is expected to lift wages by $4K.  The Council of Economic Advisers also noted that as a result of the Tax Cuts & Jobs Act, 350 companies have already “announced billions in investments in plant and equipment in the United States,” along with efforts to implement new benefits for workers.  In addition to explaining the economic benefits related to the Tax Cuts & Jobs Act, the White House detailed future initiatives it expects to boost US growth, including its $1.5T infrastructure plan.  The federal gov recently said it would commit $200B to the effort & rely heavily on states to attract outside private investment to fund major projects.  The plan aims to streamline the permitting approval process to less than 2 years.  Ensuring fair & reciprocal trade deals, which include renegotiating NAFTA & the US-Korea Free Trade Agreement, is another top priority for the White House.  There was no allusion to a “reciprocal tax,” as mentioned by Trump last week.  Also high on the to-do list are improving cybersecurity & protecting intellectual property, theft of which amounts to losses of $185.7-$557.1B, according to the White House, shaving 1-3% off of GDP each year.

Trump’s pro-growth agenda to power US economy for a decade: White House

There is a lot of nervousness about the rate hikes coming from the Fed, but bargain hunters returned to buy stocks which have been sold.  Even Walmart (WMT), a Dow stock & Dividend Aristocrat, which has plunged in the last 2 days, finally went up (a meager 1½).  The Dow has gone over 25K again, but Feb is turning out to be a very choppy time for the stock market.  Fears of interest rate hikes by the Fed look to be the main obstacle for stock buyers.

Dow Jones Industrials

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