Tuesday, April 24, 2018

Markets plunge after some of the biggest companies disappoint

Dow tumbled 424 (but finishing off the lows), decliners over advancers about 2-1 & NAZ sank 121.  The MLP index fell 5+ to the 256s & the REIT index was a litttle higher in the 321s.  Junk bond funds drifted lower & Treasuries continued to be sold with the yield on the 10 year Treasury around 3%.  Oil dropped to the 67s & gold jumped up 9 to 1333 while stocks were being sold.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Stocks tumbled as a rout in the shares of industrial & technology companies deepened, sending major indexes spiraling lower amid a raft of earnings & renewed selling in the bull market's biggest winners.  The 10-year Treasury yield pierced 3% for the first time in 4 years.  The Dow slumped over 2%, the biggest decline in more than 2 weeks.  Shares of industrial bellwether Caterpillar (CAT & a Dow stock) quickly turned negative during the earnings conference call after management said that Q1 was its "high water mark" for the year.  The NAZ 100 Index slumped more than 2%, with Alphabet's (GOOG) rise in capital spending sending its shares lower by more than 4%.  Investors also focused on the rising 10-year yield & its implications for other assets.  The $ weakened after hitting the highest since Jan, while crude slipped back toward $67 a barrel.  Gold rallied.  Investors are weighing the implications of climbing bond yields that have been spurred in part by higher commodity prices & concern surrounding their inflationary impact on the wider economy.  But volatility in interest-rate markets remains low & equity price swings are well off the highs seen earlier this year, indicating investors believe rising borrowing costs may not be enough to cause outsized pain to equities -- for now.

U.S. Stocks Plunge; Dow Drops More Than 2%

Pres Trump complimented Kim Jong Un as “very honorable” so far & said he hopes to hold his summit with the North Korean leader “very soon.”  The praise for the North Korean leader is a dramatic shift for the US, which has long condemned the Kim family dynasty for brutality & deceit.  Trump last year derided Kim as “Little Rocket Man” & said it is “hard to believe his people, and the military, put up with living in such horrible conditions.”  "We’re having very good discussions,” Trump told reporters at the White House Tuesday during a meeting with visiting French President Emmanuel Macron. “Kim Jong Un -- he really has been very open and I think very honorable from everything we’re seeing.”  An annual human rights report released last week by the State Dept cited North Korea for “egregious human rights violations” including “extrajudicial killings; disappearances; arbitrary arrests and detentions; torture; political prison camps in which conditions were often harsh, life-threatening, and included forced and compulsory labor.”  Trump expressed optimism about the potential for a breakthrough on North Korea's nuclear weapons program when he and Kim meet.  “I think we have a chance of doing something very special with respect to North Korea -- good for them, good for us, good for everybody,” Trump added.  But, he said, if Kim doesn't agree to something “fair and reasonable and good, I will, unlike past administrations, I will leave the table.”  Trump said in preparations for the summit the US has “been told directly that they would like to have the meeting as soon as possible."  Trump last week applauded as “big progress” a pledge by Kim to halt nuclear testing, a largely symbolic gesture that appeared aimed at softening the ground for the talks.  Kim told a ruling party meeting in Pyongyang his regime would suspend tests of atomic bombs & intercontinental ballistic missiles after achieving its goal of building a nuclear arsenal.  North Korea will shutter its Punggye-ri test site, a secluded mountain facility believed to be damaged after a hydrogen bomb test in Sep.

Trump Praises North Korea's Kim as ‘Very Honorable’

French Pres Macron said he wants to negotiate a new agreement with Iran that would curb its development of ballistic missiles & contain its involvement in regional wars, in addition to halting its nuclear program.  Macron's remarks, at a White House news conference with Pres Trump, came after Trump earlier warned Iran not to restart its nuclear program even if the US withdraws from the 2015 nuclear accord with the Islamic Republic.  One of Macron’s priorities for the state visit to the US this week is to persuade Trump to remain in the agreement but add to it.  “I have said for several months it’s not a sufficient accord,” Macron said.  “We want a new accord with Iran.”  He later said in response to a question that the 2015 agreement “is the first pillar of the framework I’ve just described. I’m not saying we’re moving from one deal to another. I’m saying it’s one aspect of the problem.”  Macron said an additional Iran agreement should curb the country's nuclear activities beyond 2025, end its ballistic missile program & contain Iranian influence in Iraq, Syria, Lebanon & elsewhere in the region.  “It’s not about tearing something apart, it’s about building something new that will cover all of our concerns,” Macron added.  Trump began the state visit by saying in the Oval Office that the Iran deal was “insane, ridiculous, should never have been made.”  The US pres also threatened Iran if it resumes its nuclear program, even if the international accord collapses & US sanctions are re-enacted.  “If they restart their nuclear program, they’re going to have bigger problems than ever before,” Trump said.  Macron's office later issued a statement characterizing Trump’s remarks as “‘the expression of strong positions.”  “We knew the topic was sensitive and was among the priorities of this state visit,” the statement said. It added that France would defend its and Europe’s positions on the Iran nuclear agreement, “which are -- we believe -- not incompatible with the U.S. concerns.”

Macron Says He Wants ‘New Accord’ After Trump Threatens Iran

American consumers were feeling more confident in Apr, rebounding to a level close to the 18-year high it had reached 2 months ago.  The Conference Board said  that its confidence index rose to 128.7 in Apr, up from a Mar level of 127.0.  The Mar level was just below the 130.0 hit in Feb, which had been the highest since 2000.  The business research group's index measures consumers' assessment of current conditions & their outlook for the next 6 months.  Conference Board economist Lynn Franco said the strength in the confidence survey suggest that the economy will continue to expand at a solid pace in the months ahead.  Consumers' assessment of current economic conditions improved somewhat, with consumers rating both business & labor market conditions favorably.  Analysts said the strength in confidence reflects a strong labor market with unemployment at a 17-year low, as well as the impact of the $1.5T in tax cuts approved in Dec, which began showing up in paychecks earlier this year.  That confidence was also helped by less stock market volatility in recent weeks and a lessening of worries about a full-blown trade war erupting in response to the Trump administration's tougher policies.  But some analysts said the high confidence levels may be over-stating the potential for consumer spending growth in coming months.

US consumer confidence rebounds in April

Verizon Communications (VZ & a Dow stock) reported better-than-expected Q1 results as the #1 US wireless carrier lost fewer monthly phone subscribers than feared.  VZ lost 24K phone subscribers who pay bills on a monthly basis while analysts expected it to lose 69K subscribers.  EPS rose to $1.11 from 85¢ a year earlier.  On an adjusted basis, the EPS was $1.17.  Total operating revenue rose to $31.77B from $29.81B a year earlier.  Analysts had expected adjusted EPS of $1.10 on revenue of $31.26B.  Q1 EPS included approximately 21¢ due to tax reform & accounting changes for revenue recognition.  The company expects savings from tax reform will generate a net $3.5-4B uplift to cash flow from operations in 2018, resulting in an 55¢-65¢ increase in 2018 EPS.  The stock rose 1.01 in a down market.
If you would like to learn more about VZ, click on this link:

Verizon's quarterly profit rises 32%

United Technologies (UTX, another Dow stock) quarterly profit topped the estimate with higher demand for its spare parts & services from airlines, & the company raised its full-year earnings & revenue forecasts.  The maker of Otis Elevators, Pratt & Whitney aircraft engines & Carrier air conditioners, forecast 2018 adjusted EPS of $6.95-7.15, up from $6.85-$7.10 previously.  The company said it now expects full-year sales of $63-64.5B, up from $62.5-64.0B.  UTX is benefiting from strong demand for commercial air travel, & is speeding up production of its fuel-saving turbofan engines that power Airbus' newest narrow-body jet, A320neo & Bombardier's CSeries aircraft.  The company's net income attributable to shareholders fell to $1.30B in Q1 from $1.39B last year.  The year-earlier period included a one-time gain of 25¢ per share.  On a per share basis, EPS was $1.62 in the latest qtr.  On an adjusted basis, EPS was $1.77.  Net sales rose to $15.24B from $13.82B.  Analysts had expected EPS of $1.52 on revenue of $14.64B.  The stock gave back 1.36.
If you would like to learn more about UTX, click on this link:

United Tech beats profit estimates, raises 2018 forecasts

Alphabet (GOOG) tumbled, down a whopping 47, after noisy earnings & a lot of capital spending.  CAT sank 9+ after an unsatisfactory earnings call.  These are biggies.  When they don't perform, the stock market is in serious trouble, as shown today.  The Dow is back to hugging 24K, unable to make any kind of significant advance.  If these are the best of the earnings reports, stocks are in trouble.  The 3% yield on the 10 year Treasury only makes matters worse.  Buying into the close doesn't change the outlook.  The high volatility is because market players remain very nervous & that will not change over the short term.

Dow Jones Industrials

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