Friday, June 29, 2018

Markets rise on last day of trading in Q2

Dow bounced back 256, advancers over decliners about 3-1 & NAZ gained 61.  The MLP index was steady at 261 & the REIT index inched higher in the 352s.  Junk bond funds hardly budged & Treasuries were steady today.  Oil rose over 64 & gold added all of 1 to 1252.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil74.12

GC=FGold 1,252.00

3 Stocks You Should Own Right Now - Click Here!

Today marks the last full-trading day of Q2.  Markets were influenced by geopolitics with trade & tariffs taking center stage while oil saw a big rally as the US moved to increase sanctions on Iran while Venezuela's production challenges continued.  As of today, the Dow was on track to close fractionally higher this qtr & even though the gain will likely be less than a full %, it will be the biggest gain for the Dow since Q4-2017.  For the month of Jun, the Dow is on track to finish at a loss. The S&P 500 Index could close up 2.9% this qtr, & if so, it would be the largest one qtr point & percentage gain since Q4-2017.  The top performing sector of the S&P 500 should be energy, which was up by more than 10% currently.  Consumer discretionary & info tech stocks were also big gainers.  So far, financials & industrial were laggards.  The solid showing in the tech sector is apparent when looking at NAZ.  It is on track to finish up over 6%, its largest one qtr point gain since Q1-2017.  The NAZ has posted gains for 8 consecutive qtrs.  The Russell 2000 Index, which is comprised of small cap companies could finish the quarter up over 7.5%, its largest one qtr percentage gain since Q4-2016.

Small companies rule the second quarter

US consumers only modestly increased their spending in May despite improved incomes, as year-over-year inflation posted its largest increase in over 6 years.  Personal consumption expenditures, a measure of household spending on everything from gasoline to coffee machines, increased a seasonally adjusted 0.2% in May from the prior month, the Commerce Dept reported.  Personal income, reflecting Americans' pretax earnings from salaries & other sources including investments, rose 0.4% in May.  The forecast called for a 0.4% rise in both incomes & spending.  Americans moderated their spending in May after 2 strong months of growth, as the 0.2% increase was the weakest since Feb.  Apr's spending was revised to a 0.5% increase from a earlier 0.6% reading, while Mar spending was revised higher to 0.6%.  Consumer spending accounts for more than 2/3 of US economic output.  The report showed inflation firmed.  The price index for personal consumption expenditures, the Fed's preferred inflation measure, rose 0.2% in May & was up 2.3 % from a year earlier.  Excluding volatile food & energy costs, prices rose 0.2% in May from Apr & 2% from a year earlier.  Both year-over-year inflation measures posted their largest increase in more than 6 years, since Mar 2012.  The Fed targets 2% year-over-year inflation & has been raising short-term interest rates to prevent the economy from overheating.  Officials voted earlier this month to increase their benchmark federal-funds rate by a qtr percentage point to a range of 1.75-2.00%.  Officials have penciled in 2 further qtr-point rate increases for 2018.  The Commerce Dept said lower spending on services like household utilities in May was partially offset by more spending on goods, particularly on recreational goods & vehicles.  Outlays for goods rose 0.4%.  Spending on durable goods - expensive items like cars & appliances - rose 0.1%, while spending on services also rose 0.1%.  Today"s report followed a strong reading on the labor market in May.  Earlier this month, the Labor Dept said US employers added 223K jobs last month & the jobless rate in May ticked down to a seasonally adjusted 3.8%, the lowest since 2000.  Average hourly earnings edged up 2.7% from a year earlier.

U.S. consumer spending rose 0.2% in May

While the White House's chief economic adviser wouldn’t go as far as to say that President Trump's steel & aluminum tariffs are a negotiating tactic to gain leverage for a free trade system, he did acknowledge that the pres has a vision of free & open trade.  “As someone who has followed this for a very long time, the world trade system is broken. China is probably the biggest offender, but others are guilty, too,” Larry Kudlow, director of the National Economic Council, said.  “We should be able to do business. We should be able to come through with successful deals.”  The pres spurred what some say is akin to an intl trade war with traditional American allies – Canada, Mexico & the EU – as well as with China when he announced the tariffs in Feb.  Since then, Trump has pushed forward with tariffs, including a 25% tariff on $50B  worth of Chinese goods containing “industrially significant technologies.”  His decision brought swift retribution, with Beijing responding in kind by slapping tariffs worth $34B on 545 American goods.  Its tariffs, in total, will be worth about $50B.  Trump has repeatedly argued that tariffs will eliminate the $370B trade deficit with China & stop Beijing's theft of US intellectual property, which he's said costs the US B$ each year.  In May, China agreed to “significantly reduce” the deficit by boosting the number of American goods it buys.  “The system is broken. The tariff walls and the non-tariff barriers and the subsidies have gone up around the world,” Kudlow said.  “And his vision has always been a free trade vision. But to get there -- as he said in the G-7 meetings -- let’s be tariff free, let’s be non-tariff, barrier free.’

Trump wants ‘free and open trade’, but tariffs have an end goal: Kudlow

Japan's gov warned that a higher US tariff on auto imports could backfire, jeopardizing hundreds of thousands of American jobs created by Japanese auto-related companies, raising prices for US consumers & devastating the US & global economy.  Japan submitted a position paper to the Dept of Commerce.  In May, Trump ordered the dept to conduct an investigation to determine if higher tariffs on foreign-made vehicles & auto parts were justified on national security grounds.  The move outraged Japanese automakers, which have invested B$ in US plants that directly employ tens of thousands of workers.  Any trade restrictions, if imposed, would increase costs for US consumers & "could seriously affect" the jobs, the report said.  It added the measures would put a brake on global trade, seriously disrupt the market and put global free trade "at great risk."  It said US automakers would lose competitiveness & export markets would shrink, affecting US auto-related industries in & outside the country, & "eventually undermine the entire U.S. economy."  Japan said up to 624,K people could lose their jobs in the US if a 25% tariff were levied on automobiles & auto parts & other countries took retaliatory measures.  Already hit by increased US steel & aluminum tariffs, Japan has told the World Trade Organization it may levy retaliatory tariffs on US goods totaling about ¥50B ($450M) a year.  Japan alleged that "broad trade restriction measures on automobiles and auto parts in the name of security raise serious questions about the compliance with the WTO agreements."  Possible rebalancing or retaliatory measures from other countries could also damage US manufacturing & agricultural industries, it said.  The report added Japanese auto-related companies have played a vital role in contributing to the growth of the US manufacturing base since the 1980s.  They have created over 1.5M jobs across America & produce about 3.8M cars in the US.  Japanese companies have invested over $48B in the US, sustaining jobs, developing human resources & competitiveness, & contributing to American society like any US company, the report said.

Japan to US: Auto tariff would damage US, world economy

It looks like trading will close the qtr on a positive note.   But it has been a very volatile time for the stock market, especially for investors who have gotten used to a pretty much a rally mode for years with only minor dips along the way.  Trade wars conducted by announcements & retaliation to those announcements could last for some time.  That would make for a bumpy road ahead.

Dow Jones Industrials

No comments: