Wednesday, April 18, 2018

Markets mixed as IBM drags the Dow lower

Dow fell 24, advancers over decliners 2-1 & NAZ added 11.  The MLP index was fractionally fractionally higher to the 262s & the REIT index gained 4 to the 329s.  Junk bond funds did little & Treasuries pulled back in price.  Oil shot up to the 68s & gold added 13 to 1356 (very near recent highs).

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil67.77

GC=FGold  1,354.10

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Stocks fluctuated as investors assessed a mixed bag of earnings amid signs of dissipating geopolitical tensions.  Treasuries fell.  The S&P 500 was mixed as technology shares were under pressure as IBM (IBM) tumbled after posting weak results. Oil surged 2% to boost energy producers.  10 year Treasury yields rose toward 2.84%, while the $ held near Mar lows after the US said it's already started direct talks with North Korea & Russian leader Valdimir Putin was said to be seeking to dial down tensions with America.  Turkey's lira extended gains after Prime Minister Recep Tayyip Erdogan called for snap elections.  There’s once again no shortage of catalysts for investors across the globe, from corp fundamentals & geopolitics to simmering trade tensions & growth concerns.  For now the bulls appear to have the upper hand as the earnings season ramps up.  Still, nickel surged to the highest in more than 3 years on worries that the metal used in stainless steel could be caught in the crossfire of any further sanctions against Russia.  Elsewhere, the Swiss franc fell & Europe's common currency briefly wobbled after euro-area inflation data was revised downward.  The sterling dropped as UK price growth slowed to the weakest level in a year.  In Asia, Japanese shares outperformed amid gains across the region, boosted by a drop in the ¥ as Pres Trump met Japanese Prime Minister Abe.  China’s 10-year bond yield tumbled after the People's Bank of China cut the reserve-requirement ratio for banks, part of its efforts to support credit amid a crackdown on shadow lending.

U.S. Stocks Mixed as Treasuries Fall, Dollar Rises: Markets Wrap

Europe's top trade official said that new US steel & aluminum tariffs are distorting global trade & could damage hopes for economic growth.  Cecilia Malmstrom, the EU's trade commissioner, also said the bloc would not offer any concessions in order to be exempt from the US import duties ahead of a May 1 deadline in talks.  "We are a seeing a recovery and a potential growth in trade and global growth but it is threatened by these tariffs," she told reporters.  "We can see already tendencies of distortion of trade that affects the EU as well."  Last month, Pres Trump slapped tariffs on steel imports & imported aluminum, but granted the EU a temporary exemption until May 1.  He also temporarily exempted big steel producers Canada & Mexico, provided they agree to renegotiate a North American trade deal to his satisfaction.  The EU has drawn up a list of "rebalancing" duties worth some €2.8B ($3.4B) to slap on US products if it is not permanently excluded.  Describing the US tariffs as "pure protectionism," Malmstrom said the EU would not be strong-armed into giving up any sweeteners in exchange for a permanent exemption, amid rumors that Brussels might be preparing some kind of trade offer.  "We have not offered the U.S. anything. We are not going to offer them anything to get exceptions from tariffs that we consider are not in compliance with the WTO," she said, referring to global trade's governing body, the World Trade Organization.  "We expect to be permanently and unconditionally exempted from these measures," said Malmstrom.  She added that talks in DC are continuing but that the EU has received no guarantees yet.  Malmstrom also expressed concern about trade tensions between the US & China, describing a possible escalation as "something that could be very worrisome for the global economy."  Her remarks came as the European Commission announced that it had wrapped up negotiations with Japan & Singapore on major trade & investment deals.  It hopes the new pacts can be endorsed by EU countries & enter force by late next year.  EU Commission Vice President Jyrki Katainen hailed them as a victory for rules-based trade & the multilateral system.  "It's always worrisome if any of our partners are willing to take unilateral action against us, or against any of us," he said, but noted that "support for multilateralism has strengthened recently because of unilateral actions."

EU says US tariffs are 'distorting' global trade flows

IBM posted profit margins that fell short of expectations, a sign that its reinvention was taking time.  Shares fell even as it reported Q2 revenue growth after a near 6-year streak of declines.  IBM has in recent years shifted its focus to higher-margin businesses such as cloud computing, cybersecurity & data analytics, to counter a slowdown in its legacy hardware & software businesses, but the move is not going as fast as some shareholders had hoped.  While revenue & profit beat expectations, adjusted gross profit margin fell to 43.7% from 44.5% a year earlier.  The company said the decline in gross margin was mostly due to "significant" one-time charges.  CFO James Kavanaugh said the company cut costs & took a $610M charge in Q1, though he did not give details.  This announcement follows expectations of layoffs as IBM, under its CEO Ginni Rometty, tries to offset declines from its legacy businesses.  The company had a tax benefit of $810M, due to changes in the US tax law.  In addition, IBM said it continues to expect full-year adjusted EPS of at least $13.80, while analysts were expecting more, with the consensus at $13.83.  "We delivered exactly what we said 90 days ago. The $13.80 is an 'at least' and it's up 1 to 2 percent year over year," Kavanaugh said.  Revenue grew 5% to $19.07B in the qtr with 65% growth in sales from security services & cloud revenue grew 25%.  EPS fell to $1.81 from $1.85 per share a year earlier.  Excluding items, EPS was $2.45, beating the estimate of $2.42.  "We feel very comfortable as we enter the second quarter and the remainder of the year that we can actually deliver moving forward," Kavanaugh said.  The stock sank 11 (7%).
If you would like to learn more about IBM, click on this link:

IBM 1Q margins miss estimates, shares fall

This is a day for churning in the stock market.  IBM is a big drag in the Dow, otherwise it would be higher.  But there are plenty of uncertainties are out there.  Trade talks are at the top of the list & look to be going nowhere fast.  More favorable earnings reports should take stocks higher even with dark clouds in the sky.  If the Dow can top 25K, the bulls will be feeling more confident.  However that's over 200 away while gold remains in demand.

Dow Jones Industrials

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