Dow sank 148, decliners over advancers about 2-1 & NAZ lost 53. The MLP index was flat at 258 & the REIT index went up 4+ to above 330. Junk bond funds crawled higher & Treasuries rose, taking the yield on the 10 year Treasury down to 2.94%. Oil rose in the 68s (more below) & gold dropped 7 to 1315.
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](http://www.kitco.com/images/live/gold.gif?0.27605978737814607)
U.S. Pending Home Sales Increased Less Than Forecast in March
March pending home sales barely rose as buyers struggled to afford what little is available
Apr was another tough month for stocks, hurt by a continuing threat on the unknown of where trade negotiations are going. The Dow inched up slightly in the month while remaining in the red YTD. The days of the stock market rally seem like ancient history already. The US & global economies are generally strong. Confidence by consumers & business execs is quite high, a solid plus for stocks. The next rate hike may be a couple of months away. But trade negotiations are one huge question mark. Chances are that new rules for trade will turn out to be good. But the road is very bumpy, something investors do not like to see. Large price swings in trading can be expected for some time which will make it difficult to resume the stock market rally.
Dow Jones Industrials
AMJ (Alerian MLP Index tracking fund)
Stock indices were lower in the PM after an early burst of buying faded away. The
S&P 500 jumped at the open of trading following a series of buyout
deals & strong earnings reports. But the index sagged as noon
approached, weighed down by losses for telecom stocks & other areas of
the market. The S&P 500 was
down 14 (0.5%) at 2655.
It had been up 0.5% earlier. The Dow average fell 74 (0.3%) to 24,237 &
the NAZ was off 45 (0.6%) to 7074. Telecom stocks in the S&P 500 fell nearly 2% for
the largest loss among the 11 sectors that make up the index. McDonald's (MCD), a Dow Stock & Dividend Aristocrat, joined the wave of companies to report not only big earnings
growth for Q1, but bigger than analysts expected. Just
over ½ the companies in the S&P 500 have reported earnings
for the first 3 months & they're on pace to deliver
overall growth of 23%, the
strongest showing since the summer of 2010.
U.S. Pending Home Sales Increased Less Than Forecast in March
The Federal Reserve is all but sure to leave
interest rates unchanged this week, though steady economic growth &
inflation pressures will likely keep the Fed on a path toward further
rate hikes later this year. The central bank is
meeting as its board is undergoing a makeover, with a raft of new
appointees by Pres Trump who appear generally supportive of
the Fed's cautious approach to rates since the recession ended. Despite
Trump's complaints during the presidential race that the Fed was aiding
Dems in keeping rates ultra-low under Pres Obama, his
choices for a chairman & for other slots on the Fed's board have been
moderates rather than hard-core conservatives who would favor a faster
tightening of credit. The Fed does seem
inclined to continue raising rates modestly this year to reflect a
steadily improving economy & to keep inflation pressures under
control. Economic growth remains solid & most inflation gauges show
annual price increases finally moving close to the Fed's 2%
target level. But few analysts expect any aggressive pickup in the pace
of rate hikes. Most foresee either 2 or 3 additional increases in
the Fed's benchmark rate by year's end, coming after an earlier hike in
Jan. As
Jerome Powell, Trump's new Fed chairman, said at a news
conference after the most recent meeting in Mar, "We're
trying to take the middle ground, and the committee continues to
believe that the middle ground consists of further gradual increases in
the federal-funds rate." Bond investors are
signaling that they expect a pickup in US inflation, having bid up the
yield on the 10-year Treasury note last week above 3% before the
yield settled just below that by week's end. A year ago, the 10-year
yield was just 2.3%.
Fed is set to leave rates alone but to hike later in year
Chinese factory growth has slowed slightly,
according to a monthly survey that showed activity in
the world's #2 economy holding up despite worries over trade tensions
with the US. The purchasing
managers index came in at 51.4 for Apr, easing from 51.5 in the
previous month but still above the 50-point mark that separates
expansion from contraction on the index's 100-point scale. The
latest numbers come amid simmering trade tensions between Beijing & DC, with potential implications for China's sprawling
export-oriented manufacturing sector. The trade
conflict will be in the spotlight again this week as Treasury
Sec Steve Mnuchin leads a delegation to Beijing for talks aimed at
defusing the threat to economic relations between 2
largest economies. The China Federation of Logistics &
Purchasing's survey found that factory output was stable but new orders & new export orders weakened for the month, indicating waning demand. "Imports
and exports continued to maintain growth, (but) the growth rate has
slowed down," said Zhao Qinghe, senior statistician at the National
Bureau of Statistics. The
latest numbers assuaged fears about a slowdown in China's economy,
which grew at an unchanged 6.8% pace in Q1.
Forecasters are expecting growth to cool this year as Beijing tries to
rein in rising debt levels. Activity
in the rest of China's economy also held up fairly well, with further
growth in the services sector, which is playing an increasingly
important role as communist leaders in Beijing pivot the country away
from its agricultural & industrial roots. T he group's
non-manufacturing purchasing managers' index rose to 54.8 from 54.6 in
Mar.
China factory activity eases, service sector gains in April
Mar marked the official start of the spring, but it didn't cause more home buyers to leap into action. Signed contracts to purchase existing
home rose just 0.4% in Mar compared to Feb, according to a
monthly pending home sales index from the National Association of
Realtors (Feb's reading was revised down). These contracts are a
forward-looking indicator of closed sales in Apr & May. The index
was down 3% compared to Mar 2017, marking the 3rd straight
month of annual declines. "Healthy economic conditions are
creating considerable demand for purchasing a home, but not all buyers
are able to sign contracts because of the lack of choices in inventory,"
said Lawrence Yun, chief economist for the Realtors. "Steady price
growth and the swift pace listings are coming off the market are proof
that more supply is needed to fully satisfy demand." The biggest challenge in today's housing market
continues to be a severe shortage of homes for sale, especially at the
lower end of the market, where demand is highest. There were about 9% fewer homes on the market in Mar compared to a year ago,
pushing prices up 8%. Homebuilders are also
focused on the move-up, rather than entry-level market, as the cost of
construction continues to rise. Rents are also up 2.7% compared to a year ago, making it even harder for renters,
especially millennials, to save for a down payment on a home. "What continues to hold
back sales is the fact that prospective buyers are increasingly having
difficulty finding an affordable home to buy," Yun said. Yun's forecast is for existing-home sales in 2018 to total 5.61M, up 1.8% from 2017. The national median existing-home
price is expected to increase around 4.4%. In 2017, existing
sales increased 1.1% & prices rose 5.8%. Mar buyers got in just
before the jump in mortgage interest rates in Apr. Rates are now at
the highest level in 4 years, prompting more buyers to try to get in
before they move even higher.
March pending home sales barely rose as buyers struggled to afford what little is available
Oil prices climbed after Israeli Prime
Minister Netanyahu revealed documents that he said proves Iran
ran a secret nuclear weapons program. West
Texas Intermediate crude spiked as high as $69.55 a barrel following these remarks, which added to concern that Mideast turmoil will
curtail global supply. Oil was 1.2% higher at $68.88 in recent trading,
up from a session low of $67.17. The oil market
began to jump after Netanyahu's office said he would announce a
“significant development” related to the nuclear deal with Iran.
Pres Trump is facing a May 12 deadline to decide whether the
US will continue to waive sanctions as part of the nation's deal with
Iran, the 3rd-largest oil producer in OPEC. Under the 2015 deal, Iran
was allowed to restart oil exports. Netanyahu said the Iranian files he revealed show how Iran was seeking to develop nuclear weapons, which the
country had denied. “I’m sure [Trump will] do the right thing,” he added, referring to the nuclear deal.
Oil spikes after Netanyahu claims on Iran nuclear weapons
Apr was another tough month for stocks, hurt by a continuing threat on the unknown of where trade negotiations are going. The Dow inched up slightly in the month while remaining in the red YTD. The days of the stock market rally seem like ancient history already. The US & global economies are generally strong. Confidence by consumers & business execs is quite high, a solid plus for stocks. The next rate hike may be a couple of months away. But trade negotiations are one huge question mark. Chances are that new rules for trade will turn out to be good. But the road is very bumpy, something investors do not like to see. Large price swings in trading can be expected for some time which will make it difficult to resume the stock market rally.
Dow Jones Industrials
