Friday, October 12, 2018

Markets rebound on bargain hunting

Dow rose 257, advancers over decliners 5-2 & NAZ recovered a big 154.  The MLP index added 1+ to the  273s & the REIT index dropped 9 to the 332s.  Junk bond funds bounced back from recent selling & Treasuries were sold again, bringing higher yields.  Oil went up pennies in the 71s & gold retreated 5 to 1222.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil71.33

GC=FGold  1,224.20
  -3.40  -0.3%

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Stocks opened higher, as strong bank earnings & bargain hunting set markets up for a rebound from 2 days of massive declines.  JPMorgan Chase,(JPM - a Dow stock), Citigroup (C) & Wells Fargo (WFC) released their latest quarterly results & their shares rose on strong results.  Stocks on Wed & Thurs suffered their worst declines since Feb.  Despite stocks rise today, the Dow was pacing for its 3rd straight week of losses.  Other factors playing into the rebound include reports that Pres Trump & his Chinese counterpart Xi Jinping may meet at the Group of 20 summit in Argentina in late Nov.  The aim would be to find a way out of the impasse over trade that has led both countries to impose penalty tariffs on $B of each other's exports.  However, China reported today an unexpected acceleration in export growth in Sep & a record trade surplus with the US, which could exacerbate an already-heated dispute.  There have also been reports that the Treasury Dept will not call China a currency manipulator in its upcoming semiannual report.  Stocks were whipsawed for a 2nd straight session yesterday, a day after the Dow registered its 3rd-largest point drop in its history.  The blue-chip index tumbled about 546 (2.1%) as investors continued to trade on concerns over rising interest rates.  The Dow lost 832 in Wed trading.  The broader S&P 500 dipped 57 (2%) while the NAZ was down 93 (1.3%).

US stocks rebound, Dow surges more than 300 points

Consumer sentiment in Oct fell just short of expectations, but the survey revealed American confidence in US economic policy is at a 15-year high.  The Univ of Mich monthly survey of consumers hit 99 in its preliminary reading for Octr, below the 100.4 expected.  The index remained just below Sep's reading of 100.1.  "Confidence in the government's economic policies rose in October to its highest level in the past fifteen years (see the chart), reflecting the strong performance of the national economy," Richard Curtin, chief economist for The Univ of Mich survey, said.  The index has slumped since Mar when it reached its highest level since 2004 with a reading of 101.4. 
The survey considers 500 consumers' outlook on economic prospects, accounting for sentiment on personal finances, inflation, unemployment, gov policies & interest rates.

Consumer sentiment falls shy of expectations, but confidence in economic policy is at a 15-year high

Treasury Secretary Steve Mnuchin said this week's stock market plunge was a "natural correction."  "Markets tend to go too far in both directions," he said.  He also said the US economic story is "incredibly positive" and inflation is under control.  "The fundamentals are still very strong," Mnuchin added from Bali, Indonesia, where the IMF & World Bank were holding their annual meetings.  "The U.S. economy is strong. U.S. earnings are strong. I see this as just a natural correction after the markets were up a lot."  There's really "no new information in the market" on inflation, interest rates or trade, he continued in the interview.  Global finance leaders are trying to make sense of the US stock market rout that took the Dow down another 545 points on yesterday for a 2-day plunge of nearly 1400 (5.2%).  The S&P 500 & NAZ suffered similar percentage declines.  This week's decline in stocks, the worst since late Mar, was fueled by concern the Federal Reserve might raise interest rates more than forecast.  Pres Trump has repeatedly slammed Fed Chair Jerome Powell, saying the central bank is increasing rates too quickly & that stronger economic growth won't lead to problematic inflation.  The Fed has not been damaged by any comments by Trump, Mnuchin said.  "The president has been clear, he likes low rates," the Treasury secretary added, stressing the White House respects the independence of the central bank.  "[Trump] doesn't feel that he has to attack at all," Mnuchin said.  "The president is concerned about the Fed raising interest rates too much and slowing down the economy. And those are, obviously, natural concerns."  Mnuchin said Powell is doing a "good job" & "understands the regulatory environment" around the financial industry.  "We took bank regulations too far in the other direction" since the 2008 financial crisis.

Treasury's Mnuchin: Trump thinks the Fed should not hike rates when inflation is 'under control'

The recent slide in stocks has not persuaded Chicago Federal Reserve Pres Charles Evans that the central bank should stop raising interest rates.  In an interview today, Evans said the economy still looks strong, & he & his fellow policymakers on the FOMC should continue to gradually normalize rates.  "After many, many years of accommodative policy, which I have supported strongly because inflation's now up at 2 percent, it's time to readjust the policy stance at least to neutral," he said.  "Let's see how the economy is performing at that point and then we might have to do a little more after that."  Evans spoke at a delicate time for the Fed: Pres Trump has ripped the central bank in recent days for raising interest rates as the economy continues to strengthen but market volatility rises.  The Fed has pumped the target for its benchmark rate up to 2-2.25%, hiking 6 times since Trump has become pres.  Like his fellow officials, Evans wouldn't be drawn into the controversy.  He stressed that the Fed remains independent and is comfortable with the direction of monetary policy, though he conceded that "it's a fair question" of why rates are being pushed higher despite little threat from inflation.  "I can't answer that," when asked whether he thought it was appropriate for the pres to openly criticize the Fed, "but I will say that the Federal Reserve, you know, has a large amount of autonomy that is granted us by Congress and the president."  "The natural adjustment of policy up a little bit above some benchmark that might be viewed as neutral I think is just what we do, and you know we let people comment," he said.  That question of what the Fed views as "neutral" — neither accommodative nor restrictive — has been critical for markets as of late.  Fed Chair Jerome Powell helped ignite the recent sell-off by saying Oct 3 that the Fed is "a long way" from neutral.  The comment sparked worries that the Fed would continue hiking rates beyond what the market expects, & Evans' interview today did little to dispel the notion that central bank officials are willing to go beyond the neutral rate as unemployment continues to fall.  Fed officials worry that waiting too long to increase rates could cause financial imbalances like those that have led to previous bubbles & subsequent economic downturns.  "I would say that with the unemployment rate headed to three and a half percent, we're in a more normal environment where an accommodative stance of policy, when we've got procyclical fisacl policy and a very strong economy, we probably need to be a little bit on the above-neutral side, but I don't know that we need to be a lot," Evans said.  "At the moment [the economy] looks really good," he added. "Fundamentals are strong."

Fed's Evans says it's time to 'readjust the policy stance' and keep raising rates

Stocks are on track for the worst week since Mar.  The Dow began the day strong, but is more than 100 below early session highs.  Dow is remembered for some of the ugliest days in stock market history & this week's performance reminds traders of that thought.  The Dow is already down 1200 in Oct.

Dow Jones Industrials

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