Tuesday, May 1, 2018

Markets struggle for gains on a volatile day

Dow fell 64 (well off the morning lows), advancers slightly ahead of decliners & NAZ added 64.  The MLP index was fractionally higher in the 258s & the REIT index slid back to 329.  Junk bond funds were mixed & Treasuries declined in price, taking the yield on the 10 year Treasury up to 2.98%.  Oil lost 1+ to the 67s & gold tumbled 14 to 1305.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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US construction spending down 1.7% in Mar, with biggest drop in home building in 9 years.

US construction spending down 1.7 percent in March, with biggest drop in home building in 9 years

Aetna (AET) made $1.21B & beat earnings expectations in the Q1, as the health insurer moved closer to sealing its roughly $69B combination with CVS Health (CVS).  The nation's 3rd largest insurer said that it swung to a profit after booking a loss in Q1-2017 due to costs from another deal, its failed bid to acquire rival Humana (HUM).  Several months after regulators rejected that combination, CVS said it would buy AET.  Shareholders of both companies approved that deal earlier this year & company leaders expect it to close in H2 . But it still needs gov approval.  In Q1, AET booked EPS of $3.19 when adjusted for non-recurring gains.  Revenue excluding investment gains & interest income slipped 2% to $15.22B, mainly due to the sale of some businesses in last year's Q4.  Analysts expected EPS of $2.97 on $15.32B in revenue.  Health insurance is the main product, & most of its enrollment comes from commercial coverage sold thru employers or directly to individuals.  Total enrollment slipped less than 2% to 22.1M due mainly to declines in Medicaid coverage & insurance sold through ObamaCare's health insurance exchanges.  AET & other insurers have backed away from that market after absorbing heavy losses from a sicker-than-expected patient population &  facing other challenges.  Leaving the exchanges also helped drop the benefit expense nearly 8% to $10.57B.  CVS wants to use the AET acquisition to move deeper into managing customer health, mostly thru the company's nearly 10K retail stores.  The stock lost 34¢. 
If you would like to learn more about AET, click on this link:

Health insurer Aetna swings to a first-quarter profit

Under Armour(UAA) on reported a loss of $30.2M in Q1.  The company said it had a loss of 7¢ per share.  Earnings, adjusted for restructuring costs, came to less than a penny on a per-share basis.  The estimate was for a loss of 5¢.  The sports apparel company posted revenue of $1.19B in the period, also surpassing forecasts.  Expectations were for $1.12B.  UAA expects full-year UAA of 14-19¢.  The stock went up 27¢.
If you would like to learn more about UAA, click on this link:

Under Armour tops revenue estimates on overseas sales

US Trade Representative Robert Lighthizer said it was not his objective to change China's economic system, but he would try to find ways to limit the damage it causes to the US & open it further for US companies.  Ahead of his participation in a Trump administration trade delegation to China later this week, Lighthizer said he wants to introduce more foreign competition into the Chinese economy.  "It is not my objective to change the Chinese system," Lighthizer said.  "It seems to work for them ... But I have to be in a position where the United States can deal with it, where the United States isnt the victim of it and thats where our role is."

U.S. Trade Representative Lighthizer wants to open China, not change its economic system

US factory activity slowed for a 2nd straight month in Apr, weighed down by shortages of skilled workers & rising capacity constraints, but strengthening global demand continues to support manufacturing.  The Institute for Supply Management (ISM) survey also showed a jump in the cost of raw materials, with prices for steel & other materials increasing because of tariffs imposed by the Trump administration.  The ISM said its index of national factory activity dropped to a reading of 57.3 last month from 59.3 in Mar (a reading above 50 in the ISM index indicates growth in manufacturing, which accounts for about 12% of the US economy).  The survey's prices index increased 1.2 points to 79.3, the highest reading since 2011.  Last month, price increases occurred across 17 of 18 industry sectors.  Rising raw material costs are the latest indication that inflation pressures are building & could attract the attention of Federal Reserve officials who were due to start a 2-day policy meeting today.  Data yesterday showed a jump in annual inflation rates in Mar.  In addition, wages grew at their quickest pace in 11 years in Q1.  The ISM's measure of factory employment dropped in Apr & the ISM said there were indications that labor & skill shortages were affecting production output.  "Demand remains robust, but the nation's employment resources and supply chains continue to struggle," said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.  Pres Trump imposed tariffs on steel & aluminum imports in Mar.  However, today he postponed imposition of the tariffs on Canada, Mexico & the EU.  Manufacturing remains underpinned by a firming global economy as well as a weakening $, which is boosting the competitiveness of American-made goods on the global market.

Manufacturing activity continues to decline in April; construction spending stumbles in March

If the Trump administration decides to slap steel & aluminum tariffs on some allies, it will have to do so "very soon," Commerce Secretary Ross said.  Yesterday the White House said it extended the May 1 deadline for tariff exemptions on allies such as the EU, Canada & Mexico for another 30 days.  Ross said the White House has "no intention of protracted extensions" & wants to make a decision soon to curb alleged trade abuses.  "If we're going to impose it, we're going to have to do it pretty soon, or else people will start gaming the system," he added.  The US & EU have held "potentially fruitful discussions," & Ross said he hopes the entities can potentially avoid tariffs.  The Trump administration has already permanently exempted South Korea from tariffs because the country agreed to quotas under a new trade deal.  It could also exempt countries such as Argentina, Australia & Brazil due to a separate agreement to address trade practices.  Trump has contended intl dumping of steel & aluminum has hurt American producers of the metals.  He proposed the tariffs in part to follow thru on campaign promises to crack down on what he calls unfair trade practices.  Ross is part of a US delegation of top economic officials heading to China this week for trade discussions.  Trump has criticized the US trade deficit with China & pledged to fight alleged intellectual property theft by Chinese companies.

Commerce Secretary Ross: White House won't keep extending tariff exemptions

This was another day not for those feint of heart.  From a deep loss, buyers returned in the last 2 hours, buying stocks (especially tech stocks).  The Dow finished with a modest gain & NAZ was higher, although market breadth, while improved from the AM, was still weak.  Trade talks in China are big, but they have been pushed to a back burner until traders hear from the Fed tomorrow.  The Dow finished above 24K, but not by much.  These remain troubled times for stocks highlighted by uncertainties on where trade negotiations will go.

Dow Jones Industrials

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