Markets gain on Powell's optmistic comments about the economy

Dow went up 55, advancers over decliners about 3-2 & NAZ advanced 49.  The  MLP index declined 1+ to the 263s & the REIT index fell 2+ to the 351s.  Junk bond funds were little changed & Treasuries slid back a tad.  Oil finished about even in the 68s (more below) & gold continued weak, down 11 to 1228,

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Fed Chair Jerome Powell, discounting the risk that a trade war may throw a global recovery off track, said the economy is on the cusp of "several years" where the job market remains strong & inflation stays around the Fed 2% target.  In testimony to be delivered to the Senate Banking Committee, he signaled not just that he believes the economy is doing well, but that an era of stable growth may continue provided the Fed gets its policy decisions right.  "With appropriate monetary policy, the job market will remain strong and inflation will stay near 2 percent over the next several years," Powell said in one of the strongest affirmations yet that the Fed is within reach of its dual policy targets more than a decade after the US endured a deep financial crisis & recession.  The Fed "believes that, for now, the best way forward is to keep gradually raising the federal funds rate" in a way that keeps pace with a strengthening economy but does not raise rates so high or so fast that it weakens growth, Powell added.  He did not address his views on the appropriate pace of tightening or whether he thinks, as some of his colleagues have argued, that the Fed should pause its rate hike cycle sometime next year if inflation remains under control.  The central bank is expected to raise rates 2 more times this year from the current target level of 1.75-2%.  Powell and other Fed officials have in recent remarks pointedly declined to declare "victory" in their effort to hit the 2% inflation target, though most have acknowledged that, with joblessness at 4%, their employment goal has been reached.  But the Fed's preferred measure of inflation hit 2.3% in May & was right at 2% after excluding more volatile food & energy prices.  Inflation is "close" to the Fed's target & "the recent data are encouraging,"  Powell said as he laid out the reasons why he felt the US' near decade-long expansion was set to continue.  Still-low interest rates, a stable financial system, ongoing global growth & the boost from recent tax cuts and increased federal spending "continue to support the expansion" Powell added.  After a solid start to the year, growth appears to have accelerated as "robust job gains, rising after-tax incomes, and optimism among households have lifted consumer spending in recent months. Investment by businesses has continued to grow at a healthy rate," Powell said.  Powell did nod to the uncertainty surrounding the administration's trade policies, which organizations like the IMF have warned could curb global growth if ongoing rounds of US tariffs & retaliation by other countries raise prices, lower demand & disrupt global business supply chains.  But "it is difficult to predict the ultimate outcome of current discussions over trade policy," he said. Overall the risks to the economy were "roughly balanced," with the "most likely path for the economy" one of continued job gains, moderate inflation, & steady growth.

Fed's Powell: 'Several years' of strong jobs, low inflation still ahead

UnitedHealth Group's (UNH), a Dow stock, Q2 earnings beat expectations, helped by a surge in gov-funded coverage & the nation's largest health insurer hiked its 2018 forecast again.  UNH expects adjusted EPS of $12.50-12.75, up from a forecast for $12.40-12.65 that the company laid out in Apr.  The hike marked the 3rd increase for the year.  Analysts expect EPS of $12.63.  In Q2, UnitedHealth added 450K more customers to its Medicare Advantage business, which provides privately run versions of the federal Medicare program & another 330K to its UnitedHealthcare Community & State business.  That segment runs state- & federally funded Medicaid coverage for the poor & people who have disabilities.  The insurer's total enrollment advanced nearly 5% to 48.8M.  Health insurance is the biggest revenue generator for UNH.  But it also has been pouring resources into its Optum segment, which generates a larger operating margin which provides pharmacy benefits management & technology services.  It also runs a growing number of clinics & urgent care & surgery centers.  The insurer said that operating earnings from Optum grew more than 21% to $1.8B in Q2.  Overall adjusted EPS totaled $3.14 & total revenue grew 12% to $56.09B.  Analysts had expected EPS of $3.03, matching expectations.  Shares slipped, attributed to the insurer's higher-than-expected medical loss ratio of 81.9%.  That measures the portion of premiums paid out in medical claims.  The stock lost 6.69.

If you would like to learn more about UNH, click on this link:
club.ino.com/trend/analysis/stock/UNH?a_aid=CD3289&a_bid=6ae5b6f7

UnitedHealth puts up big profit numbers in 2Q

US homebuilders are heartened by the strong demand & tight supply in the housing market, but they still can't meet that demand as much as they might like.  Consequently, their level of confidence is stuck in neutral.  A monthly sentiment survey from the National Association of Home Builders was unchanged in Jul, standing at 68.  Anything above 50 is considered positive sentiment.  The survey was at 64 in Jul of 2017 & hit a cyclical high of 74 in Dec.  “Consumer demand for single-family homes is holding strong this summer, buoyed by steady job growth, income gains and low unemployment in many parts of the country,” said NAHB Chairman Randy Noel.  But homebuilders are facing rising costs for land, labor & materials, especially with new tariffs on Chinese steel & aluminum in addition to duties imposed on Canadian lumber last year.  The price of lumber spiked to a record high a few months ago & is still up over 50% in the past year.  “Builders need to manage these cost increases as they strive to provide competitively priced homes, especially as more first-time home buyers enter the housing market,” said the NAHB.  Homebuilders today continue to focus on the move-up & luxury sectors, & not on the entry level, where demand is strongest.  Sales of newly built homes are still not even close to their historically normal levels, but prices continue to rise.  Builders should be benefiting from the severe shortage of existing homes for sale, but weakened affordability stands in the way of higher sales.  Of the NAHB index's 3 components, current sales conditions remained unchanged at 74.  Sales expectations in the next 6 months dropped 2 points to 73 & the metric charting buyer traffic rose 2 points to 52.

Homebuilder sentiment, still high, stalls as tariffs, labor and land drive up costs

Goldman Sachs (GS), another Dow stock, profits jumped in Q2 compared with a year ago, driven by the investment bank's core franchises: advising companies on mergers, acquisitions & other deals, & its trading business.  GS also said that CEO Lloyd Blankfein will retire on Sep 30 & be replaced by David Solomon, the pres & COO.  Blankfein has been CEO since 2006.  The bank earnings reached $2.35B, compared with $1.63B a year earlier.  EPS was $5.98, compared with $3.95 a share a year earlier & beat the forecast for $4.65.  Nearly all of its businesses saw double-digit growth in Q2.  Trading was particularly strong. The institutional client services division, which contains the firm's trading operations, posted net revenues of $3.57B, up 17% from a year earlier.  Trading performance can be fickle, driven by whether the market was volatile that qtr & whether the right sort of securities saw the right sort of movement.  Like its competitors, GS has been looking to diversify its businesses, moving in recent years into consumer lending & consumer banking.  The investment banking business also had a solid qtr, posting net revenues of $2.05B, up 18% from a year earlier.  The firm saw both higher underwriting revenue, as well as revenue for advisory services.  The return on equity ratio, a closely watched performance gauge which measures how much money the bank earned with the money investors have lent it, was 12.8% in the qtr.  Banks try to keep that figure above 10%.  Company-wide net revenues were $9.4B, also beating expectations.  The stock fell 42¢.

If you would like to learn more about GS, click on this link:
club.ino.com/trend/analysis/stock/GS?a_aid=CD3289&a_bid=6ae5b6f7

Goldman Sachs' 2Q profit up 44 pct; CEO Blankfein to retire

US crude oil futures fell as worries over supply disruptions eased & the focus moved to increasing domestic production & potential damage to global growth from the US-China trade dispute.  West Texas Intermediate crude (WTI) was 81¢ lower at $67.26 a barrel after losing 4.2% yesterday.  Brent futures rose 9¢ to $71.93 a barrel, after earlier trading as low as $71.35 a barrel, its lowest since Apr 17.  Brent fell 4.6% yesterday.  Oil prices have fallen by almost 10% over the last week as crude export terminals in Libya have reopened & exports from other OPEC countries & Russia have increased.  Production from 7 major US shale oil formations is expected to rise by 143K bpd to a record 7.47M bpd in Aug, the US Energy Information Administration said yesterday.  Output is expected to rise in all 7 formations. 

Oil slips as focus turns to surplus from shortage

The popular indices began the day in the red but buyers returned around midday & continued to support the stock market for the rest of the day.  Techs are doing well with the NAZ reaching another record.  The Dow is also doing fairly well, up substantially since the election, but can not break out of the sideways rut it has been stuck in since late Jan (shown below).  Powell's testimony about the economy was well received.

Dow Jones Industrials