Wednesday, May 2, 2018

Markets retreat after Fed keeps interest rates steady

Dow dropped 174 from selling in the last 2 hours, decliners modestly over advancers & NAZ lost 29.  The MLP index fell 2+ to the 256s & the REIT index added 2+ to the 321s.  Junk bond funds fluctuated & Treasuries were slightly higher.  Oil rose in the 67s (more below) & gold added 1 to 1308.

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The Federal Reserve kept interest rates unchanged at its Mar policy meeting, as officials parse new data on rising inflation.  The central bank was widely expected to hold steady on interest rates this month, despite recent data showing that inflation hit the Fed's target of 2% annual growth.  Core prices, which exclude food & energy, climbed 1.9% thru Mar compared to 1.5% in Dec.  In a statement following the 2-day meeting, the Federal Open Market Committee said overall inflation & core prices “have moved closer to 2%,” signaling a more hawkish view compared to previous meetings.  Combined with US economic growth & low unemployment, stronger inflation growth will likely encourage the Fed to maintain its pace of gradual rate increases this year.  Rate hikes are seen as likely in Jun & Sep, while the market is split on whether the Fed will lift its benchmark rate for a 4th time in 2018 before the end of the year.  Investors have placed 40% odds of a rate hike in Dec, but 41.9% expect the Fed to stay the course & enter 2019 with a target range of 2-2.25%.  Likewise, some Fed officials favor 3 additional rate hikes instead of 2, the central bank's current forecast.

Fed holds rates steady as inflation picks up

Small business hiring picked up moderately last month as owners held to their strategy of cautiously adding to their payrolls.  That report comes from payroll company ADP, which counted 62K new jobs at its customers with up to 49 employees.  The Apr number rebounded from a downwardly revised 42K in Mar.  Small company owners are hiring more cautiously than companies overall.  Businesses of all sizes added a robust 204K jobs last month, the 6th straight month that 200K or more jobs were created.  Small businesses have added an average of nearly 66K jobs over that time, but since the start of this year, they've averaged more than 56K as hiring slowed.  In the same period a year earlier, they created on average 82K jobs a month.  The slower hiring isn't a sign of trouble at small businesses, but instead a change in strategy from before the last recession.  More than a decade ago, owners' philosophy was to hire in anticipation of new business.  Today, many won't hire until they have enough new revenue to justify taking on more workers.  Surveys taken recently by banks & small business advocacy groups show that at most, 1/3 of small businesses plan to expand their staffs in the next 12 months.

ADP: Small business hiring picked up moderately in April

CVS Health (CVS) posted a better-than-expected Q1 profit, helped by higher sales of prescription drugs at its stores & lower tax rates.  Overall revenue from the company's retail business increased 5.6% to about $20.4B.  The increase was primarily due to an increase in same store prescription volume of 8.5%.  Same-store sales at its over-the-counter retail business increased 1.6%, partly driven by a severe flu season.  The company is in the process of buying health insurer Aetna (AET) for $69B in a move that will shake up the US pharmacy business.  Excluding items, EPS was $1.48, beating the estimate of $1.41.  EPS rose to 98¢ from 92¢ a year earlier.  Net revenue rose 2.6% to $45.69B.  The stock dropped 2.06.
If you would like to learn mroe about CVS, click on this link:

CVS beats on profit as prescription sales surge

Oil-importing countries in the Middle East & Central Asia region are to beat their oil-exporting counterparts in the growth stakes in coming years, according to the IMF in its latest regional outlook.  In its report on the Middle East, North Africa, Afghanistan & Pakistan (MENAP) region, the IMF said oil exporters in the region should see a 2.8% growth in 2018 & 3.3% in 2019.  Oil importers, however, were predicted to see a 4.7% growth in 2018 & 4.6% in 2019.  "The good news of this recovery this year is that the outlook is positive for both oil-importing countries and oil-exporting countries," the IMF said.  "Oil-exporting countries bottomed out in 2017 when growth was 1.7 percent, but this year it's expected to be 2.8 percent. For oil-importing countries we expect growth this year to be 4.7 percent, coming up from 4.2 percent last year. And over the next three years we expect it to be 5 percent."  "This is good, but it's not enough for them to sustainably address the issues they're dealing with, inclusion, job creation and sustainable growth," the IMF added.

Middle East oil importers to beat exporters in growth, IMF says

Oil prices popped as the $ fell from its high for the year after the Federal Reserve left its benchmark interest rate unchanged.  The rising value of the $ since mid-Apr & soaring US supplies have helped check further oil price gains.  A weaker greenback makes commodities priced in $s, including crude oil, more affordable to holders of other currencies.  West Texas Intermediate (WTI) crude futures finished up 68¢ (1%) at $67.93 per barrel.  Brent crude oil futures were up 22¢ at $73.35 per barrel.  The market mostly shrugged off a surprise build in US crude inventories because the move was largely concentrated on the West Coast.  Crude stockpiles posted a surprise build of 6.2M barrels in the latest week, according to the Energy Information Administration.  Nearly 5M barrels were concentrated on the West Coast.  US production has jumped by a qtr in the last 2 years to 10.6M bpd.  The US has overtaken Saudi Arabia to become the world's 2nd-biggest crude producer after Russia.  Concerns that the US will reimpose sanctions on Iran continue to underpin the market.  Oil prices spiked on Mon after Israeli Prime Minister Netanyahu pressured the US to scrap the 2015 Iran nuclear deal, but fell sharply on yesterday as the $ rose & the market's jitters over Netanyahu's speech eased.

US crude jumps 1%, settling at $67.93, as dollar drops after Fed leaves rates unchanged

Selling kicked in after the Fed announcement.  Leaving the rates unchanged was expected but when the Fed pointed to higher inflation, traders became nervous.  The Dow sank 300 in the last 2 hours, bringing it back below 24K (where it was at the end of Nov on the way up).  The jobs report on Fri is the next economic biggie & that should not disturb the stock market.  Then trade negotiations, especially with China, will take center-stage.  And where they go is one enormous unknown.

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