Tuesday, February 13, 2018

Markets decline again in choppy trading

Dow sank 113, decliners over advancers better than 3-2 & NAZ lost 12.  The MLP index added 1+ to the 275s.  Junk bond funds did little & Treasuries inched higher.  Oil slid to the 58s & gold went up 1 to 1328.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil58.53

GC=FGold  1,327.40

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US equities dipped with European shares following a late downswing in Asia.  Assets seen as safe havens rallied as last week's surge in volatility continued to hang over markets.  The $ fell for a 3rd straight day & 10-year Treasury yields declined after touching a 4-year high yesterday.  The ¥ headed for the strongest close since Nov 2016 & the Swiss franc gained with gold.  The US equity retreat was broad, with just one stock gaining for every 4 that fell in the S&P 500.  Oil slumped & the Volatility Index crept higher.   A jump in global equities yesterday, capping the S&P 500's best 2-day performance in 18 months, wasn't enough to put traders' minds at ease that the volatility that wiped $2T from US stocks last week has come to an end.  Consumer-price data due tomorrow could give clues on where markets are heading, given that pressure on equities has been emanating from the outlook for inflation.  Stock trading is likely to remain volatile.  Hedge funds & other large speculators have boosted bets on Treasury futures to a record, indicating they expect the 2018 bond-market rout will resume in the days ahead.

U.S. Stock Recovery Falters

Optimism among small companies in the US rose more than forecast in Jan, fueled by a record number of owners who said now was a good time to expand, according to a National Federation of Independent Business survey.  Overall index rose by 2 points to 106.9 (est 105.3), close to the Nov 107.5 reading that was highest in monthly data to 1986.  32% said now was a good time to expand businesses, exceeding all monthly figures to 1986 & quarterly readings back to 1973.  Net 41% expect economy to improve, up from 37% month earlier.  6 of the 10 components that make up the small-business optimism index increased in Jan, producing one of the strongest readings in the 45-year history of the survey.  The figures show sustained, sturdy business sentiment since the 2016 election.  A measure of plans to boost capital spending in coming months increased by 2 points to 29%, consistent with other data indicating robust outlays for equipment.  One in 5 small companies said they plan to boost hiring, unchanged from the prior month, as finding qualified workers remains problematic & underscores a tight job market.  The new tax law “produced the most recent boost to small-business optimism,” the NFIB said in the report.   “And federal government-related cost pressures continue to abate, offering a more supportive business climate for small firms. Consumer spending remains supportive, and business spending and housing remain strong.”  34% of NFIB respondents reported job openings in Jan, up from 31% a month earlier.

Record Number of U.S. Small-Business Owners Say It’s a Good Time to Expand

Federal Reserve Chairman Jerome Powell said the central bank had made great progress in its pursuit of full employment & stable prices but was on the lookout for threats to the economy amid turmoil in financial markets.  “We will remain alert to any developing risks to financial stability,” he said in his ceremonial swearing-in speech in DC.  “We are in the process of gradually normalizing both interest rate policy and our balance sheet with a view to extending the recovery and sustaining the pursuit,” of its twin statutory goals.  Financial markets last week suffered their most severe bout of volatility in years on concern that rising wages might spur inflation & prod the Fed to raise interest rates at a faster pace than investors had anticipated.  Powell formally took the oath of office on Feb 5 to replace Janet Yellen as chair.  The ceremony was attended by family, friends & other Fed officials.

Powell Says Fed Will Be Alert to Any Developing Financial Risks

Higher stock prices in the last 2 days probably resulted from bargain hunting in a short term oversold stock market.  More important is the sharp decline from the peak on Jan 26.  That brought major damage to the rally which will take time to heal & time could easily be measured in months.  No way around that.  Choppy trading with high volatility will become common.  Investors will have to adjust & that takes time.  Fears about higher interest rates that could slow economic growth with higher inflation (even though execs are optimistic) will keep some investors away from investing in stocks.

Dow Jones Industrials

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