Monday, October 29, 2018

Higher markets as they try to recover sharp losses in October

Dow shot up 234, advancers over decliners almost 4-1 & NAZ gained 85.  The MLP index add 1+ to the 255s & the REIT index fell to the 337s.  Junk bond funds hardly budged in price & Treasuries were sold, taking the yield on the 10 year Treasury up 3 basis points to 3.11%.  Oil slid lower in the 67s & gold lost 2 to 1233.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil66.96-0.63-0.9%

GC=FGold   1,232.00

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Stocks were higher with traders looking to leave a rollercoaster trading week behind & focus on more big earnings names & the Oct employment report on Fri.  Traders also digested the latest economic data which included personal income & spending.  The 12-month gain in core personal consumption expenditures, a measure of inflation, was flat at 2% in Sep.  Consumer spending edged up 0.4% in Sep while the US savings rate dropped to 6.2% from 6.4% in Aug.  Stocks continued a week of see-saw trading Fri as falling shares of major tech companies offset optimism over a strong Q3 GDP report.  The selling was led by large-cap tech companies which posted mixed quarterly results.  The Dow fell 296 (1.2 %) though stocks pared much of their losses from earlier in the session.  At its intraday low, the blue-chip index was down 539.  The broader S&P 500, which briefly dipped into correction territory, declined about 1.7%.  The tech-heavy NAZ slid 2.1%.  Earnings overshadowed a strong read on the US economy, which grew a robust 3.5% from Jul-Sep as consumer spending & gov spending extended the nation's economic growth, the Bureau of Economic Analysis said.  Q3 earnings season is almost ½ over & so far 57% of the companies in the S&P 500 have beaten their revenue forecasts.  That's a sharp decline from this point in Q2 earnings season, just 3 months ago, when 72% of S&P 500 firms had topped revenue estimates.  In Asian market trading today, China's Shanghai Composite finished the session 2.2% lower.

Stocks higher to start the week

Angela Merkel said she will not seek a 5th term as chancellor, effectively beginning the winding down of her time as German leader.  She will not be seeking any political posts after her term as chancellor ends in 2021 & added that she will also not stand for re-election as chairwoman of her Christian Democratic Union party when it holds an election for the post in Dec.  “This term is my last as chancellor,” she said.  “I will not be seeking re-election as a CDU lawmaker. I will not be seeking any political posts after the current terms ends in 2021,” she added, in what was the first confirmation from the German leader that she will step down after being in power since 2005.  The announcement follows a disappointing regional election in the state of Hesse yesterday.  Merkel will continue to lead the country even without being the head of the party.  Another chair at the helm of the CDU would then have time to try to build up a popular presence with voters ahead of the next federal election in 2021.  Alluding to the fractious coalition gov she leads, Merkel said the party would have secured better results in Hesse had it not been for the situation at the federal level.  “The government has lost credibility,” Merkel said.  ‘Break with her previous position’  Vacating the party leadership is seen by some as a move to placate those within her party that might have sought to oust Merkel before her 4th term ends.

Angela Merkel: I'm not running for a fifth term as German chancellor

Kevin Hassett economic advisor to Pres Trump said that he expects economic growth to slow again in Q4 but still finish the entire year over 3%.  “There was a big inventory build in the third quarter, so it makes me think it’s closer to 3 [percent] than to 4 [percent] in the fourth quarter,” Hassett added.  “I think you lose about a half a percent.”  On Fri, the gov's first estimate of Q3 GDP showed a faster-than-expected annual growth rate of 3.5%.  The data revealed that growth was powered in part by stronger-than-expected consumer spending, which helped cover for stagnant capital spending.  Asked whether that’s a sign of %-plus growth nearing an end, Hassett gave a definitive, “No.”  But sustainable growth, he contended, must be supported by business investments because consumption is “less durable.”  If Hassett’s estimates for Q4 hold, GDP growth for all of 2018 would amount to about 3.2%.  The economy posted advances of 2.2% & 4.2% respectively in the first & 2nd qtrs.  As the Federal Reserve considers raising interest rates for a 4th time this year, investors have grown apprehensive about a possibly more aggressive tightening path next year.  In turn, the stock market has suffered wild swings.  While starting the week adding to Fri's strong rally, the S&P 500 still stands to suffer a rough Oct unless there is a strong rebound by the end of the month.  Hassett, himself a former senior economist for the Fed, refused to offer advice about how the central bank should act.  Yet, he did offer some general insight.  “When you have a lot higher economic growth, those natural rate of interest models tend to give you higher interest rates as well,” he explained.  “But where it all ends up, that’s up to the Fed.”

Trump economic advisor Hassett: Growth may slow a bit more in Q4 but still exceed 3% for 2018

US consumer spending rose by an inflation-adjusted 0.3% in Sep, led by increased spending on health care services & motor vehicles.  The Commerce Dept also says that the Federal Reserve's preferred measure of inflation returned to the central bank's 2% annual percent target after having been slightly elevated in prior months.  In addition, personal incomes rose 0.2% in Sep, the smallest gain since Jun 2017, & roughly ½ of that increase was wiped out by inflation.  The Fed's preferred inflation metric, personal consumption expenditures, found that prices ticked up just 0.1% in Sep.  The personal savings rate slipped to 6.2% in Sep, the lowest level in 2018.

US consumer spending increased 0.3% in Sept, while personal income edged up 0.2%

The bulls are back hoping their enthusiasm will spread to more investors.  This has been an unusually volatile month stocks  & more wild price swings can be expected for the rest of the month, if not longer.  Presently the Dow is down 1.5K in Oct.

Dow Jones Industrials

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