Friday, October 26, 2018

Markets tumble led by selling in tech shares

Dow sank 429, decliners over advancers by almost a staggering 7-1 & NAZ gave back 229.  The MLP index lost 4+ taking it to the 253s & the REIT index rose to the 346s.  Junk bond funds slid lower & Treasuries rallied as stocks were sold.  Oil fell to the 66s & gold went up 5 to 1238.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil66.89
 -0.44 -0.7%

GC=FGold   1,236.60
+4.20 +0.3%

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The US economy grew a robust 3.5% from Jul thru Sep as consumer spending & gov spending extended the nation's economic growth, the gov said.  The Q3 report follows the 4.2% growth in Q2 & is the last major window into the US economy before the midterm elections.  GDP Now, an up-to-date tracker monitored by the Federal Feserve Bank of Atlanta, had estimated Q3 growth of 3.6%.  The White House expected the economy to advance approximately 3.5%.  In addition, the Bureau of Economic Analysis left its 4.2% growth for Q2.  Although there was speculation that because of the 2017 Tax Cuts & Jobs Act, which slashed the corp tax rate to 21%  from 35%, GDP could grow as much as 5% each qtr, Hassett dismissed that.  “We were told we’d get 3 percent growth,” he said, adding, “That’s more than double the growth rate that President Trump inherited. That’s pretty good news, right?”  Hassett also estimated that capital spending will remain around 10%.  “We’ve got a sustained capital spending boom, and that gives you growth, because what’s going to happen now is all those new factories are going to start producing output in Q4 and Q1 of next year,” he added.

GDP jumps 3.5% in 3Q as consumers, government spending fuel economy

Consumer sentiment for Oct was weaker than anticipated in the latest survey result, although the index remained near historically high levels.  The Univ of Mich monthly survey of consumers hit 98.6 in the final reading of Oct, below the 99 expected.  The key economic indicator hit 100.1 in Sep's final reading.  “The Consumer Sentiment Index has been higher thus far in 2018 (98.5) than in any prior year since 2000, which was the last year of the longest expansion since the mid-1800s,” Richard Curtin, chief economist for the Univ of Mich survey, said.  “Importantly, stock price declines, rising inflation and interest rates, and the negative mid-term election campaigns, have not acted to undermine consumer confidence.”  “The data only indicate that the tipping point toward escalating pessimism has not been reached,” Curtin added.  “This resilience was primarily due to the prevailing belief that the economy would produce robust job growth during the year ahead, even if overall wage growth remained dismal.”  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 slips in October reading, remains near historically high levels

Cleveland Federal Reserve Pres Loretta Mester said that this month's market turmoil is a “risk” to the economic outlook, but it's not changing her mind on growth at this point.  “This is a natural thing that’s going on in the market,” Mester said.  ” “Of course it gets your attention, we monitor it, but right now I think of it as a risk to the outlook.”  Mester, who assumed her role in 2014, also expects GDP to slow “a bit” in 2019.  “We’re still going to be above growth trend in my forecast,” she added.  Mester, a voting member this year on the central bank's policymaking committee, appeared at a time of intense stock market turmoil & concerns about the path higher for interest rates.  On Wed, Mester said she has not adjusted her expectation of a gradual rise in rates & added that a “prolonged” market drop could be a “risk to the outlook” of the economy, but sees no signs thus far of pinched credit or a pending recession.  Earlier this month, the markets started going haywire after Fed Chair Jerome Powell said rates are a long way from neutral, a level neither accommodative nor restrictive to the economy.  Ever since, Pres Trump has repeatedly slammed Powell & the Fed, saying there’s no need to continue to increase rates because the stronger economy is not causing problematic inflation.  Mester said Fed officials try “to be very careful with our communication” & try to give the public “what we think of where we’re going with policy.”  She added that central bankers consider whether rate hikes are based on economic data, stressing the “neutral rate” is a moving target & can vary over time.  The Fed has raised rates 3 times this year to a range of 2-2.25%, with another 0.25% hike expected in Dec.

Tech shares are leading the stock market lower.  Amazon (AMZN), down 155, & Alphabet (GOOG), down 51, earnings disappointed & investors are reconsidering their high evaluations for tech shares.  The NAZ has been leading the overall stock market higher this year, &, in Oct, they are leading stocks lower.  The NAZ is barely in the black YTD while the Dow is in the red.  Many investors do not remember what gloomy times are like!!  Meanwhile safe havens such as gold & Treasuries are in demand.

Dow Jones Industrials

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