Wednesday, February 28, 2018

Markets snap a 10 month winning streak

Dow dropped a very big 380 (at the lows once again), decliners over advancers 5-2 & NAZ lost 57.  The MLP index was down 5+ to the 357s.  Junk bond funds retreated & Treasuries were purchased, reducing the yield on the 10 year Treasury 4 basis points to 2.87%.  Oil fell to the 61s on increased supply (more below) & gold was flattish at 1318.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil61.65
-1.36 -2.2%

GC=FGold  1,318.90

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Stocks were mostly higher in PM trading, paring the worst monthly decline in 2 years, while Treasuries climbed with the $.  The S&P 500 rose but finished with a loss of 3% for Feb in one of the wildest months in years.  After a torrid Jan, equities sunk into a recession a week later only to claw back ½ of the rout just as quickly.  Trading was light in the final session, with the stock market benchmark swinging between gains & losses.  The 10-year Treasury yield held just below 2.9%, roughly where it began a month that saw it fall as low as 2.7% & come within 5 basis points of 3%, a level it hasn't touched in 4 years.  The $ added to its monthly gain yesterday, strengthening versus major peers including the € & £.  Crude slumped after an unexpectedly strong rise in inventories.  Equities resumed their climb one day after most major indices fell more than 1%  based on a generally upbeat assessment of the US economy from Federal Reserve Chairman Jerome Powell.  His comments left investors wondering if the central bank planned more interest rate hikes than expected in 2018.   US & European bond yields have soared in recent months amid speculation that the Fed's monetary policy will be tightened at a faster pace.  But in the equity markets that possibility is increasingly testing nerves, as traders try to divine how many increases are coming.

Stocks Mixed, on Pace for Worst Month Since 2016: Markets Wrap

US oil production reached a record high in Nov as the shale boom puts the nation among the world's biggest suppliers & upends global markets.  Once the world's largest importer of crude, the US is passing Saudi Arabia & closing in on Russia to become the world's largest producer.  Oil prices above $60 a barrel have lured companies to ramp up production.  Oil & gas exploration last year was a money-maker for the first time in more than a decade.  As a result, drillers in the US are using the most oil rigs since 2015.  Efforts by OPEC to trim output & tighten global markets has fueled a surge in exports, with the first supertanker leaving an American port earlier this month.  The current “explosive growth” in US oil output may extend beyond 2018, International Energy Agency Executive Director Fatih Birol said this week.  Shale's impact on the global market can be felt as OPEC's head plans to meet with shale producers in Houston, the 2nd consecutive year he's met with the group's biggest rivals.  Compliance by OPEC & its allies to their supply deal came in at 133% last month.  And even though non-OPEC decline rates accelerated last year, US shale supply will fill the gap.  Nationwide monthly crude production was revised to 10.057M barrels a day for Nov, the highest figure on record in monthly data collected since 1920, the Energy Information Administration reported in its Petroleum Supply Monthly report.  Daily output slipped back to 9.949M in Dec.  The EIA's crude-oil production data includes lease condensate.  Weekly crude oil production is proving irrepressible, rising to near 10.3M barrels a day & heading for 11M late this year.

Shale Surge Sent U.S. Oil Production to Record High in November

The US economy's growth rate last quarter was revised slightly downward as inventories subtracted more than previously estimated, Commerce Dept data showed.  GDP grew at a 2.5% annualized rate (matching est), revised from 2.6% & after 3.2% gain in prior qtr.  Consumer spending, the biggest part of the economy, grew an unrevised 3.8% (est 3.6%) after 2.2% gain in previous qtr.  Nonresidential fixed investment expanded 6.6%, revised from 6.8% gain; downward revision reflected smaller gain in intellectual property.  Inventories subtracted 0.7 percentage point from GDP, more than the 0.67 percentage point initially estimated (farm inventories were revised lower due to fresh data from Dept of Agriculture).  The latest results for GDP, the value of all goods & services produced in the US, show the economy ended the year on a solid note, despite the downward revision.  Household & business spending remained robust.  Consumer spending, which accounts for about 70% of the economy, was the biggest contributor of growth in Q4, adding 2.58 percentage points.  The report also showed wages & salaries were revised higher for Q3 & Q4.  Pay increased $97.4B in Q3, an upward revision of $18.3B.  Q4 wages were revised up to $91.3B.  Business outlays were also solid, contributing 0.82 percentage point to growth.  The latest results were boosted by residential investment & gov spending.  Final sales to domestic purchasers, which strip out trade & inventories, the 2 most volatile components of GDP calculation, climbed an unrevised 4.3%, the strongest since Q3-2014.  Price data in the GDP report showed inflation near the Federal Reserve’s 2%  goal.  Excluding food & energy, the Fed's preferred price index tied to personal spending rose an unrevised 1.9%.

Lowe's (LOW) recorded falling profits in Q4 despite a red-hot housing market.  Shares slid as healthy same-store sales were overshadowed by the profit miss & lower overall revenue.  The company reported a 16.4%  drop in EPS to 67¢.  EPS, adjusted for non-recurring costs, came to 74¢, which is still 14¢ short of expectations.  Revenue fell 1.8% to $15.49B, which edged out expectations.   Same-store sales, usually considered a measure of a retailer's health, rose 3.7%.  Mortgage rates have been creeping higher, hitting their highest level in 4 years during the most recent report a week ago.  That, coupled with rising home prices, could hamper what has been a persistently strong housing market.  For the full year, LOW reported EPS of $4.09 ($4.39 per share excluding certain costs) on revenue of $68.62B.  Looking ahead, the company expects its fiscal 2018 EPS to be $5.40-$5.50 & revenue to rise 4%.  Same-store sales are forecast to increase 3.5%.  The stock dropped 6.09 (6%).
If you would like to learn moire about LOW, click on this link;

Lowe's 4Q profit miss overshadows impressive store sales

This was a dreary month for stocks.  There was a major rebound in the last couple of weeks, but that was followed by selling this week.  That gave the Dow a drop of more than 1K, big by any standards!!  Economic data continues to come in strong, but the thought of higher interest rates is worrying investors & traders.  The first rate hike by the Fed this year is expected in 3 weeks & everybody is nervous.  Selling was substantial in the last 90 minutes.  Price swings at month's end are difficult to evaluate although yesterday also saw selling into the close.  Not a good sign for Mar.

Dow Jones Industrials

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