Wednesday, May 30, 2018

Markets rebound led by a higher financial sector

Dow rebounded 143, advancers over decliners about 4-1 & NAZ went up 43.  The MLP index gained 2+ to the 264s & the REIT index continued rising, up 1+ to the 336s.  Junk bond funds crawled higher & Treasuries were sold, taking the yield  on the 10 year Treasury up 6 basis points to 2.83%.  Oil bounced back to the 67s & gold added 1 to 1301.

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CL=FCrude Oil67.25

GC=FGold  1,305.00

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Stocks opened higher as investor worries about how Italy's political turmoil could hurt the European economy began to ease.  In early session action, the Dow rose 0.7%, the S&P 500 climbed 0.6% & NAZ added 0.5%. Financial stocks, which led the retreat yesterday, are helping to lead today's turnaround.  Rising Treasury yields were also giving the sector a boost.  Small-cap stocks benefited from trade uncertainty, with the Russell 2000 up more than 1%, hitting an all-time high.  Before the market opened, the gov reported that US economic growth slowed slightly more than expected in Q1 amid downward revisions to inventory investment & consumer spending.  Also, American businesses added 178K jobs last month, according to a survey, below the average monthly gains accumulated over the winter.  The gains today began reversing yesterday's losses that stemmed from concerns that a populist gov in Italy could attempt to stop using the €, something that would destabilize European markets &, likely, affect US equities.  Italian Pres Sergio Mattarella decided Sun to block the formation of a euroskeptic gov, bringing the country closer to a repeat election & reviving longstanding worries about the stability of the eurozone.  As a result, the major averages tumbled on weakness in financial stocks.  Asian stocks fell yesterday on renewed US–China trade war fears.  China's Shanghai Composite closed down 2.5% to a 19-month low.  Hong Kong's Hang Seng index dropped 1.4%. Japan's Nikkei closed at a 6-week low, declining 1.5%.

US stock market up as worries over Italian political turmoil ease

US economic growth slowed slightly more than initially thought in Q1 amid downward revisions to inventory investment & consumer spending, but income tax cuts are likely to boost activity this year.  GDP increased at a 2.2% annual rate, the Commerce Dept said in its 2nd estimate of Q1 GDP, instead of the previously reported 2.3% pace.  The economy grew at a 2.9% rate Q4.  There are signs GDP growth gathered momentum early in Q2, with solid consumer spending, business investment on equipment & industrial production in Apr.  But the housing market appears to have taken a further step back.  Economists expect a $1.5T income tax cut package, which came into effect in Jan, will spur faster economic growth this year & lift annual GDP growth close to the administration's 3% target.  Economists had expected Q1 GDP growth would be unrevised at a 2.3% pace.  The gov also reported that after-tax corp profits surged at a 5.9% rate last qtr after increasing at a 1.7% pace in Q4, the fastest pace of growth in profits since Q1-2016 & reflected a boost from the reduction in the corp tax rate to 21% from 35%.  According to the Commerce Dept, taxes on corp income decreased $117.4B in Q1.  The tax code revamp also bolstered divs received from the rest of the world.  Wages & salaries increased $119.5B in, an upward revision of $3.1B from earlier estimates.  As a result, gross domestic income (GDI) an alternate measure of economic growth increased at a 2.8% rate in the Jan-Mar qtr.  GDI rose at a 1.0% pace in Q4.  The average of GDP & GDI, also referred to as gross domestic output & considered a better measure of economic activity, increased at a 2.5% rate, following a 2.0% rate of growth in the prior period.  Growth in consumer spending, which accounts for more than 2/3 of US economic activity, braked to a 1.0% rate in Q1, rather than the previously reported 1.1% pace.  That was the slowest pace since Q2-2013 & followed the Q4''s robust 4.0% growth rate.  Inventories increased at a $20.2%, rather than the $33.1B pace estimated last month.  Inventory investment contributed 0.13 percentage point to GDP growth instead of 0.43 percentage point.  The smaller inventory accumulation bodes well for GDP growth in Q2.  The trade deficit in Q1 was a bit bigger than initially thought.  Trade was neutral to GDP growth.  It was previously reported to have contributed 0.20 percentage point to output.

US economy grows less than expected in first quarter

US businesses added 178K jobs in May, according to a survey, a solid total but below the average monthly gains accumulated over the winter.  Payroll processor ADP said that hiring was strong in construction, education & health care, & professional & business services, which includes accounting, engineering & legal services.  Retailers cut jobs.  The figures suggest companies are hiring at a healthy pace but may be pulling back as the number of unemployed dwindles, making it harder to find workers to fill jobs.  From Nov thru Mar, monthly job gains averaged well over 200K.  The report arrives 2 days before the gov releases the official monthly employment figures.  The forecast for that report will show employers added 190K jobs

US employers add 178,000 jobs in May

Today's bounce may not last.  Bank stocks are finding buyers, but fundamental problems flowing from chaos in Italy are not going away.  Then there are intl trade negotiations, still stuck in the mud.  REITs have been doing well in the last week because they are largely unaffected by intl trade worries.  The Dow remains in its sideways pattern which has lasted months.

Dow Jones Industrials

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