Friday, February 9, 2018

Markets rebound in the last 2 hours after another day of wild trading

Dow roared back with a 330 gain, decliners modestly ahead of advancers & NAZ gained 97.  The MLP index fell 4+ to the 265s.  Junk bond funds drifted lower & Treasuries were up slightly.  Oil dropped 2+ to 59 (more below) & gold lost 2 to 1316 (lowest in a month).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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US equity markets took investors on a wild ride, swinging between big gains & 3-month lows & rattling investors who'd grown accustomed to tranquility before turmoil set in last week.  Late day buying brough a major rebound.  After approaching its 200-day moving average, the S&P 500 Index erased a loss of almost 2%, while Treasury yields fluctuated as traders sought a haven from the turmoil.  After pushing above 40, the Volatility Index declined below 36.  Commodities including oil, gold & industrial metals pushed lower.  Europe & Asia weren't spared from the drama that’s afflicted global stocks in the 5 days.  The Stoxx Europe 600 Index clocked its worst week since 2016, losing almost ½ a year's gains.  China’s benchmark fell the most in almost 2 years earlier, while the MSCI World Index had its biggest weekly drop since 2011.  A measure of US bond-market volatility soared, as core European bond yields dropped.

Stocks Swing Back After Hitting Three-Month Low

US oil explorers increased the number of drilling rigs this week by the most in almost ½ a decade as domestic crude production roared toward unprecedented highs.  Working rigs drilling for American crude rose by 26, bringing the total to 791, the biggest one-week increase since Apr 2013, according to Baker Hughes.  Despite the worst weekly drop in crude prices in almost a year, prices remained close to $60 a barrel, high enough to entice drillers to boost production & use financial instruments to lock in future profits.  US oil output topped 10M barrels a day last week for the first time in decades, challenging Saudi Arabia & Russia for dominance in the world crude market & American explorers are expected to break thru the  11M mark later this year.

Oil Explorers Expand U.S. Drilling by Most in Almost Five Years

Crude tumbled below $60 a barrel for the first time this year as the worst equities collapse since the financial crisis compounded concern over unprecedented supply growth from US oil fields.  Futures sank over 3½%, heading for their steepest weekly drop since in 2 years.  The widespread equities rout adds selling pressure at a time when American crude output is soaring so fast that the US is on the verge of elbowing Saudi Arabia & Russia aside as the dominant supplier.  Oil has tumbled almost 9% so far this month.  Even as OPEC & Russia curtailed output to prop up prices, production has continued escalating in the US.  Traders who divine market momentum from charting & technical signals were also closely watching NY crude's 50-day moving average because a settlement below that level for several days in a row would be regarded as bearish.  West Texas Intermediate crude for Mar delivery slid $2.19 to $58.96 a barrel.  Brent for Apr settlement declined $2.02 to $62.79.  Equity traders have yet to get comfortable with the jump in benchmark US 10-year yields & worries over unwinding bets against volatility in stocks continue to cast a shadow over markets.  Oil & gas companies are feeling the pain.  The S&P 500 Energy Index had an 11% drop this week, the largest on a weekly basis 2011.  Exxon Mobil (XOM), a Dow stock & Dividend Aristocrat, the world's biggest explorer by market value, lost $43B in market value during the week.  The volatility in equity markets has carried over into the oil market as well.  The CBOE/Nymex Oil Volatility Index rose for a 6th day to the highest level since Jul.

General Mills (GIS) reported a smaller-than-expected quarterly profit, hurt by lower sales of its yogurts & cereals in North America.  Its US yogurt sales recorded a double- digit drop as demand for Yoplait Greek & Yoplait Light products remained weak.  Net sales in its US cereal operating unit fell 7%, reflecting a reduction in customer inventory levels.  US packaged food makers have been facing falling demand as consumers increasingly prefer fresh, organic products over packaged & frozen food.  The sector is expected to come under renewed pressure with the entry of online retailers into the brick-&-mortar grocery stores.  Net income attributable to GIS fell to $404.7M in fiscal Q1 from $409M a year earlier.  But EPS rose to 69¢ from 67¢.  Excluding one-time items, EPS was 71¢.  Net sales fell 3.5% to $3.77B.  Analysts had expected adjusted EPS of 76¢ on sales of $3.79B.  The stock went up 73¢.
If you would like to learn more about GIS, click on this link:

General Mills shares fall as profit misses on weak yogurt, cereal sales

This has been a memorable 2 weeks to say the least.  The Dow lost a startling 2500 when unprecedented wild swings dominated trading.  Much of the selling is based on the fear about 3 interest rates coming from the Fed.  With a strong economy, a 4th will be considered.  This is not the end of the world for investing.  Rates will still be modest relative to historical standards.  Added to investment fears are the new guys in the stock market.  Since the recession, there have no significant corrections & new guys have been learning how to deal with that in the last 2 weeks.  The experience has been very painful.  Investors need to be patient & ride out the storm which will not last.  Wild gyrations will not disappear shortly.  Stock buying in the last 2 hours of trading looks like short covering going into the weekend, but that was followed by selling into the close.  Go figgah!!  Hang on for another highly choppy week.

Dow Jones Industrials


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