Monday, February 5, 2018

Markets plunge with stocks broadly lower

Dow tumbled 1175 (somewhat off the lows), decliners over advancers a massive 7-1 & NAZ sank 273.  The MLP index retreated a big 5+ to the 276s.  Junk bond funds dropped & Treasuries had a modest rally, bringing the yield on the 10 year Treasury down to 2.79%.  Oil lost 1+ to the 63s & gold went up only 5 to 1339.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Stocks resumed their downward trajectory after selloff on Fri, while European & Asian equities also slumped.  Treasury yields fell & the $ stabilized.  Oil dropped & copper rose.  The Dow fell below 25K, while sectors on the broader S&P 500 Index declined across the board.  The Stoxx Europe 600 retreated for a 6th day, its longest losing streak since Nov, following similar moves across Asia as both regions took their cue from the US rout on Fri.  Yields on core gov bonds in Europe fell, as did those of 10-year Treasuries.  The £ slumped & the € declined.  Equity investors are looking for confirmation that recent declines represent the healthy correction many had expected after the stellar start to the year.  The downward move was sparked by US wage data that pointed to quickening inflation, which would lead to higher rates &, in turn, rising borrowing costs for companies.

Dow Average Plunges 520 Points to Fall Below 25,000

Exxon Mobil (XOM), a Dow stock & Dividend Aristocrat, had its steepest 2-day stock rout in almost 2½ years.  The plunge follows Q4 that missed expectations on Fri, disappointing investors who had hoped the oil giant would have cashed in more from crude's rally.  Additionally, the company said share buybacks that were halted in 2016 remain suspended. Its slump is the driller's steepest 2-day plunge since Aug 2015 & trading volume exceeded the 3-month daily average by more than 25%.  XOM has an “aggressive” growth strategy in each of its upstream, downstream & chemicals businesses that will be detailed to investors in a month, Jeff Woodbury, VP of investor relations, said today.  Key to its upstream expansion is a more than 3B barrel discovery in Guyana, a ramp up in US shale fields plus recent acquisitions in Mozambique & Papua New Guinea, he added.  The stock dropped 4.81 (6%).
If you would like to learn more about XOM, click on this link:

Exxon Stock Rout Deepens to Worst Since 2015 After Earnings Miss

The acceleration in US wage growth doesn't support faster interest-rate increases yet, Federal Reserve Bank of Minneapolis Pres Neel Kashkari said.  “On Friday, with the jobs report, we saw a little hint that wages might finally be rising,” Kashkari said.  Still, it’s “not yet” enough, he said, adding that “it could be a blip, but let’s not ignore it.”  The Labor Dept reported on Fri that average hourly earnings rose 2.9% in Jan from a year earlier, marking the fastest growth since Jun 2009.  The news contributed to investor concern that the Fed would accelerate the pace of interest-rate increases, helping spur the biggest decline in the Dow since Jun 2016.  Fed officials have penciled in 3 rate hikes this year & analysts expect growth to pick up amid US tax cuts & an improved global economy.  Kashkari in 2017 spent his first year as a voter on the FOMC arguing against higher rates, dissenting against all 3 increases on the grounds that inflation was too low.  He isn't a voter this year.  “It seems like people are pricing in that the tax cut is going to have more of a near-term stimulative effect than maybe we appreciated a few months ago,” Kashkari said.  “Certainly valuation does seem on the high end, in terms of the stock market. We’ll see. Maybe this tax cut will lead to stronger earnings growth.”

Fed's Kashkari Says Wage Gains Not Enough for Faster Hikes Yet

As economists ponder how much additional growth is in store for the US economy following the implementation of Pres Trump's wide-reaching tax reform, the ECB says the consequences for its own jurisdiction “are highly uncertain and complex.”  The tax burden on US corp income will fall significantly to a level close to that in a number of euro-area economies, the ECB said in a report.  That could overhaul the way companies choose to invest or shift profits.  “The reform risks intensifying tax competition worldwide, entailing a possible erosion of tax bases in EU countries,” the bank added.  Prior to the reform, the US corp tax rate stood above the rates of all large euro-area countries, the ECB said.  While the reform could carry some positive macroeconomic spillovers if a stronger US economy raises demand for euro-area goods & services, “the overall size of the effect is likely to be rather small.”

ECB Sees Risk of Tax Race to the Bottom Following U.S. Reform

The Dow had one of its worst days in history.  At its lows, it was below 24K, down more than 1500!!  In the last hour computer selling hammered stocks, but buyers returned to reduce the loss.  Then there was added selling into the close.  Now the Dow is in the red YTD!!  That easily qualifies as UGLY.  As pointed out previously, all news is viewed as negative.  The US & global economy data are doing well.  However the prospect of higher interest rates is spooking investors, especially the new guys who have little or no experience going thru down markets.  If the main Fed interest rate is one percentage point a year from now, it will still be below traditional rates that were common in the past.  Business can hand that.  Another factor which I don't take seriously is the collapse of the Bitcoin.  It's speculative fervor took it up to almost 20K in Dec.  Now its below 7K.  This commodity brought in plenty of new guys who think "the sky is the limit."  While not the only factor, these amateurs must be bailing out of stocks for a variety of reasons -- adding to selling pressure on stocks.  At the market close, chaos continued to ride hide.  Calm thinking is needed by investors.  As said many times, this time should be used to research quality stocks with solid & growing divs.  When they reach targeted buying points, investments should prove rewarding. 

Dow Jones Industrials

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