Tuesday, February 13, 2018

Markets rise, led by bank and tech stocks

Dow advanced 39, advancers over decliners 3-2 & NAZ added 31.  The MLP index gained 2+ to the 276s.  Junk bond funds were off a tad & Treasuries crawled higher.  Oil fluctuated in the low 59s & gold went up 5 to 1331.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

3 Stocks You Should Own Right Now - Click Here!

Federal Reserve Chairman Jerome Powell suggested that the central bank would push ahead with gradual interest-rate increases even as it remains on the lookout for threats to the financial system in the wake of the recent stock market rout.  “We are in the process of gradually normalizing both interest rate policy and our balance sheet,” he said at his ceremonial swearing-in speech, adding, “We will remain alert to any developing risks to financial stability.”  They were his first public comments since financial markets last week suffered their most severe bout of volatility in years, partly on concern that rising wages might spur inflation & prod the Fed into faster rate hikes.  While the new Fed chairman didn't specifically mention the steep fall in share prices, other central bank officials have played down its impact on the economy & the financial system.  Federal Reserve Bank of NY Pres William Dudley last week called the share shakeout “small potatoes,” while Cleveland Fed Pres Loretta Mester said today that the turmoil hadn't affected her economic outlook or her support for further interest-rate hikes.  “If economic conditions evolve as expected, we’ll need to make some further increases in interest rates this year and next year, at a pace similar to last year’s” when the Fed raised rates 3 times, she said.  In their last quarterly projection in Dec, Fed officials penciled in 3 rate hikes for this year.  They tacitly reiterated that view at their Jan meeting, when they said they expected “further gradual increases in the federal funds rate.”  Investors see a qtr percentage point hike at the central bank’s next policy-making meeting on Mar 20-21 as a virtual certainty, according to pricing in federal funds futures.  Powell said the Fed had made “great progress in moving much closer” to its goals of full employment & stable prices since he joined the central bank as a governor in 2012.  Unemployment is down to 4.1%, from 8.2% back then.  Inflation though remains below the Fed's 2% target, standing at 1.7% in Dec.  “Today, the global economy is recovering strongly for the first time in a decade,” Powell said.  He added that the Fed was moving to normalize monetary policy “with a view to extending the recovery and sustaining the pursuit of our objectives.”

Powell Suggests Fed to Go Ahead With Rate Hikes Despite Market Turmoil

Harley-Davidson's (HOG) CEO has a simple message for investors, be patient with his strategy to turn around the slump in demand for its iconic motorcycles.  Matt Levatich said the company is not exploring a merger with a rival or a private equity buyout, as some investors have speculated.  Instead, HOG is spending Ms on product development & marketing efforts, including promoting its learn-to-ride academies at showrooms, where HOG certified coaches provide riding & safety lessons.  Levatich said the ridership program would transform the motorcycle-maker into a "customer-creator."  But he does not have an answer when it will return the company to sales growth in the US, its biggest market.  "Mindset shifts are not something that happen overnight," he said.  "But that's very much core to the 10-year strategy for the company."  However, nearly 3 years into his tenure as CEO, investors are getting restless after.its stock has fallen 23% since mid-Mar last year.  Since Levatich came to the helm, the shares are down 14% & HOG is losing share in a declining market for motorcycles in the US.  Investors & execs have worried for years about what would happen in the future when the company's devoted Baby Boomer got too old to ride.  Now, HOG has reached that demographic cliff.  The company last month projected shipments to dealers could plunge to their lowest level in 8 years in 2018 after sales fell in every region last year.  Falling sales have made analysts speculate whether the company, which symbolized the counterculture movement of the 1960s, would seek refuge in a buyout or turn private to rework its product lines & branding without the pressure from shareholders to shield its profit margins.  Levatich, however, sees no alternative to the current ownership structure.  "The moment, however, we feel that the ownership structure of the company...is starting to dictate our strategy, that's the moment to consider whether that ownership model is the right model," he said.  "So, it is not the case. We are very clear in our strategy."  The stock fell 73¢.
If you would like to learn more about HOG, click on this link:

Harley CEO asks investors for patience as sales, stock slide

PepsiCo (PEP), a Dividend Aristocrat, sales topped forecasts in Q4, as higher demand at its snacks business that makes Doritos & Cheetos made up for a decline in sales of sugary drinks.  The company also announced a stock buyback of up to $15B & a 15% increase in its div payout.  Organic sales at its Frito-Lay division rose 5% in the qtr, buoyed by demand for salty snacks including Cheetos & Lay's.  Organic sales exclude the impact of currency, acquisitions & divestitures.  Organic sales at the North American beverages business that includes Mountain Dew & Gatorade fell 3% as US consumers continued to move away from sugary drinks.  Total revenue rose slightly to $19.53B, topping expectations of $19.39B.  PEP recorded a net loss of $710M, compared to a year-earlier profit of $1.4B, reflecting a $2.5B one-time charge related to new US tax laws.  Excluding one-time items, EPS was $1.31, edging past estimates of $1.30.  The stock  rose 21¢.
If you would like to learn more about PEP, click on this link:

PepsiCo revenue tops 4Q estimates

The Internal Revenue Service (IRS) announced that it intends to eliminate 298 tax regulations that it has deemed unnecessary in an effort to meet Pres Trump's demand to reduce the regulatory burden.  The action by the IRS follows a pair of exec orders issued by Trump last year.  One directed each gov agency to conduct a review of existing regulations, while another instructed the IRS to simplify the tax code through deregulation.  The regulations the IRS has identified for removal have “no current or future applicability and, therefore, no longer provide useful guidance,” the agency said.  The rules either apply to the old tax code, to provisions that have been significantly revised or are just no longer relevant.  Some of the laws identified for removal have been outdated for decades.  By eliminating these rules, the agency says it can both reduce the number of regulations taxpayers need to review & improve the “clarity” of the new tax law.  The pres has pushed deregulation as one of his administration's top priorities, asserting during his first State of the Union address last month that his team has “eliminated more regulations in our first year than any administration in history.”  The effort has not gone unnoticed.  According to a recent study by global financial services technology firm, 56% of execs at hedge funds & private equity firms believe regulatory enforcement has decreased under the new administration. 

Trump triggers IRS cut of 298 tax regulations

Bargain hunters returned in the PM to buy bank & tech stocks.  Given the strength of the latest selloff, it looks like this should be viewed as a welcome relief.  Of course it is not significant in the big picture.  The Dow's range today was "only" 280, small by recent standards, & the Dow finished not far below its highs.  But the bull market has suffered a major blow which is holding back new (& recently new) investors.  Dow is about 2K below its latest record high.

Dow Jones Industrials

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