Friday, February 2, 2018

Markets tumble again while interest rates keep rising

Dow plunged 273, decliners over advancers a depressing 6-1, & NAZ sank 56.  The MLP index was off 3+ to the 287s.  Junk bond funds fell & Treasuries were heavily sold along with stocks.  Oil fell more than 1 to the 64s & gold dropped a big 16 to 1331.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil64.73
-1.07  -1.6%

GC=FGold  1,333.40

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The selloff in US assets picked up steam as strong jobs data increased the likelihood the Federal Reserve will lift rates next month.  Equities headed for the worst week in 2 years & Treasuries tumbled to a 4-year low.  The S&P 500 slump in the 5 days surpassed 2.5% after the 10-year Treasury yield popped above 2.85% for the first time in e Jan4 years.  The NAZ 100 Index slipped, even as Amazon (AMZN) rallied to a record on earnings.  Apple (AAPL), a Dow & NAZ stock, lost over 1.2% amid a disappointing sales forecast, while Alphabet (GOOG) sank more than 5% as earnings missed.  US hiring picked up in Jan & wages rose at the fastest annual pace since the recession ended, as the economy's steady move toward full employment extended into 2018.  Equities are being tested by the surge in bond yields, with some fund managers saying 3%, US 10-year rates would signal a bond bear market.  The level is seen by many stock-watchers as a potential trigger for a correction in equities.  In Europe, a bond selloff deepened across the continent & equities dropped for a 5th straight day, the longest streak since Nov.  Disappointing results from companies led to losses, with Germany's DAX giving up the year's gains, capping the worst weekly decline since 2016.  Bund yields reached a fresh 2-year high, while the € &£ weakened.  Japanese debt gained & the ¥ declined after the Bank of Japan intervened to stem the rise in rates.  Oil edged lower, though still trading near its highest level since 2015.

Treasury Rout Sinks Stocks

US hiring picked up in Jan & wages rose at the fastest annual pace since the recession ended, as the economy's steady move toward full employment extended into 2018.  Nonfarm payrolls rose 200K, compared with the estimate for a 180K increase, after an upwardly revised 160K advance, Labor Dept data showed.  The jobless rate held at 4.1%, matching the lowest since 2000, while average hourly earnings rose a more-than-expected 2.9% from a year earlier, the most since 2009.  Treasury yields & the $ gained, while stock futures remained lower, as the data reinforced the Fed's outlook for 3 interest-rate hikes this year under incoming Chairman Jerome Powell, including one that investors expect in Mar.  The figures may also add to the likelihood of a 4th rate increase in 2018.  The report puts the nation closer to maximum employment, one of the goals of the Federal Reserve, & sets a solid tone for hiring this year following continued gains in payrolls in 2017.  That could be starting to generate a long-awaited, sustained pickup in wages & boost demand in this expansion, which may also get a lift this year from tax-cut legislation signed by Pres Trump.  Average hourly earnings rose 0.3% from the prior month following an upwardly revised 0.4% gain.  The 2.9% advance from a year earlier, which partly reflected a downward revision to the Jan 2017 wage figure, compared with projections for a 2.6% increase.  The Dec gain was revised upward to 2.7%.  Given the extent of revisions to past data, it may take some more time to determine whether wages, which have been the soft spot of an otherwise strong job market, are undergoing a more durable acceleration.  During most of this expansion, businesses across the economy have largely resisted giving out more generous paychecks even as labor-market slack continued to diminish.

U.S. Adds 200,000 Jobs; Wages Rise by Most Since Recession

Exxon Mobil (XOM), a Dow stock & Dividend Aristocrat posted a lower-than-expected quarterly profit because of falling production & weakness in its chemical & refining operations.  The company saw a $5.9B non-cash benefit related to recent US tax reform to revalue deferred taxes.  Without the tax reform accounting changes, XOM would have lost money in the US.  The rare earnings miss from XOM comes as the company tries to bolster reserves around the world while also cementing its position as one of the largest producers of oil & natural gas in the US.  XOM said earlier this week it would triple its Permian shale production to about 600K barrels of oil equivalent per day by 2025, part of a plan to invest $50B in the US thanks to tax reform.  "The impact of tax reform on our earnings reflects the magnitude of our historic investment in the U.S. and strengthens our commitment to further grow our business here," CEO Darren Woods said.  Q4 EPS was $1.97, compared with 41¢ in the year-ago qtr.  Excluding that tax change & other one-time items, EPS was 88¢, below the forecast of $1.04.  The stock dropped 5.04 (6%).
If you would  like to learn more about XOM, click on this link:

Exxon profit misses expectations; sees $5.9B tax gain

This is another dreary day in what has been a dreary week for stocks.  Dow sank more than 700 already this week & that is putting the long term bull market at risk.  Most scary is that all news is considered bad, a very negative sign going forward.  Even gold, the classic alternative to stocks, was hit with major selling.  With a background of a robust economy & tax reform adding to that strength, this decline has to be disturbing for the staunchest bulls.  The relative good side is that falling prices allow investors to buy quality stocks at better prices with higher yields.  Investors will need to adjust to higher yields which are not all negative.  Dividend Aristocrats, with a history of raising annual divs annually for at least 25 years, should be getting more attention.

Dow Jones Industrials

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