Monday, October 15, 2018

Mixed markets after retail sales data

Dow crawled up 14, advancers modestly ahead of decliners & NAZ fell 58.  The MLP index rose slightly to the 261s & the REIT index gave back 1 to the 331s.  Junk bond funds did little & Treasuries were slightly lower.  Oil inched up pennies in the 71s following last week's sharp decline & gold jumped up 11 to 1233.

AMJ (Alerian MLP Index tracking fund)

stock chart
CL=FCrude Oil71.16
  -0.18  -0.3%
GC=FGold  1,234.00
+12.00 +1.0%

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Stocks were little changed, with traders taking a cautious tone to start the week, following last week's performance when equities had their worst 5 days in 7 months.  Shares have been battling a flurry of threats such as trade wars, rising Treasury yields, a slowdown in China & European political woes.  Q3 earnings season begins in earnest this week with 53 companies in the S&P 500 (11% of the benchmark's components) posting their Q3 results.  There will also be numbers from 7 of the 30 Dow  companies.  In corp news, Sears Holdings (SHLD) it official, announcing the retailer has filed for Chapter 11 bankruptcy protection.  Banks have agreed to provide Sears with a loan & Eddie Lampert's hedge fund will provide $300M in bankruptcy financing.  Lampert will also step down as CEO but remain chairman.  Commodities were mostly higher.

Stocks flat to start the week

The IMF kicked off its annual gathering this past week with a stern warning about protectionism, downgrading its global growth outlook in part because of trade conflicts.  But it ended it with central bankers & finance ministers taking a much less dire & confrontational tone than America's trading partners had after previous intl meetings.  Earlier meetings came against the backdrop of tough rhetoric from DC about the trading practices of US allies & open threats of new tariffs on cars.  This time, officials gathering in Bali took some comfort from progress resolving many trade disputes even as a standoff between the US & China has escalated.  Speaking to reporters before departing Indonesia on Sat, German Bundesbank Pres Jens Weidmann said he had seen "a certain change in mood," & recent breakthroughs like the trade agreement between US, Canada & Mexico "have made this scenario of an uncontrolled escalation a bit less probable."  The tone was a sharp change from the Jun meeting of the G-7 group of industrialized nations, which ended with a strong, joint condemnation of the US by the other 6 members of the club, including Germany.  Since then, the US has wrapped up negotiations with Mexico & Canada over a new trade deal to replace Nafta, has put auto tariffs on hold while it holds talks with the EU, has agreed to enter bilateral talks with Japan & has finalized a free-trade deal with South Korea.  In addition, Pres Trump appears on track to meet Chinese Pres Xi Jinping at another intl gathering in Nov, raising hopes that the escalating dispute between the US & China could be blunted if not resolved.  German Finance Minister Olaf Scholz expressed optimism Fri about the state of Europe's talks with the US, which began in Jul, telling reporters that he thinks talks will "not lead to the expectation of a trade escalation" & added there is trust on both sides.  On Saturday, Bank of Japan Governor Haruhiko Kuroda expressed similar sentiments about the outlook for trade disputes more broadly.  "Since trade protectionism or trade conflict or trade war would be bad for all some stage, this will be stopped," he said.  Yet in an indication such optimism is as much hope as prediction, he added that he didn't know how or when.  The US's aggressive use of tariffs has shaken the community of gov officials who have spent years voicing support for more open trade.  Criticism of the US has been a common theme of intl gatherings over the past year & few dispute the IMF's conclusion that the imposition of tariffs has damaged the global economy.

'A change in mood:' Allies soften tone on US trade policy

US retail sales barely rose in Sep as a rebound in motor vehicle purchases was offset by the biggest drop in spending at restaurants and bars in nearly 2 years.  But other details of the report from the Commerce Dept were upbeat & suggested that consumer spending ended Q3 with strong momentum, which should provide a boost to economic growth despite anticipated drags from weak exports & a struggling housing market.  Retail sales edged up 0.1% last month after a similar gain in Aug.  The forecast called for retail sales increasing 0.6%  in Sep & rose 4.7% from a year ago.  Excluding automobiles, gasoline, building materials & food services, retail sales jumped 0.5% last month.  These core retail sales correspond most closely with the consumer spending component of GDP.   Data for Aug was revised down to show core retail sales were unchanged instead of the previously reported 0.1% gain.  Consumer spending, which accounts for more than 2/3 of US economic activity, is being driven by a robust labor market, with the unemployment rate near a 49-year low of 3.7%.  Tight labor market conditions are gradually pushing up wage growth.  Solid consumer spending should help to offset the impact on the economy from a widening trade deficit & persistent weakness in the housing market.  Growth estimates for Q3 are above a 3.0% annualized rate.  The economy grew at a 4.2% pace in Q2.  Strong economic growth likely will keep the Federal Reserve on course to raise interest rates in Dec.  The central bank hiked rates last month for the 3rd time this year.  The $ dropped against a basket of currencies & prices of Treasuries slightly pared losses after this data.  Last month, auto sales surged 0.8% after declining 0.5% in August.  Receipts at clothing stores rebounded 0.5% after tumbling 2.8% in Aug.  Online & mail-order sales soared 1.1% in Sep after rising 0.5% in the prior month.

US retail sales rise slightly; consumer spending strong

Bank of America (BAC) beat the estimate for Q3 profit & revenue as the nation's 2nd-largest bank set aside less than expected for loan losses.  EPS was 66¢, a 43% increase from a year earlier, exceeding the 62¢  estimate.  Revenue rose by a more modest 4%, to $22.8B, compared with the $22.67B estimate.  The bank's provision for credit losses decreased $118M to $716M, well below the $964M estimate.  Meanwhile, the bank managed to cut expenses 2% to $13.1B, matching expectations.  CEO Brian Moynihan has focused on cutting costs while looking for profit opportunities that fit his "responsible growth" mantra. Increasingly, that means avoiding what management deems unnecessary risks. The bank was the first major wirehouse to ban the purchase of penny stocks at its Merrill Lynch brokerage.  "Responsible growth, backed by a solid U.S. economy and a healthy U.S. consumer, combined to deliver the highest quarterly pre-tax earnings in our company's history," Moynihan said.  It was the 15th straight qtr the bank was able to improve operating leverage by cutting expenses, he added.  The bank pledged to keep expenses at their current level of roughly $53B per year for the next 2 years while continuing to invest in technology & people.  They will do that by cutting employees, reducing the number of branches & consolidating technology like data centers, Moynihan said.  The migration of bank customers to digital channels like mobile banking is helping that effort, he added.  The firm's net interest margin, a widely watched measure of profitability, rose 4 basis points to 2.42 percentage points, beating the estimate by 1 basis point.  Profit in consumer banking, the biggest division, jumped 49% to $3.1B on improving credit, expenses & lower taxes.  That exceeded the improvements seen by wealth management, global banking & market divisions.  Loans in the business rose 6% to $285B & deposits rose 4% to $688B.   The stock fell 69¢.
If you would like to learn more about BAC, click on this link:

Bank of America's earnings jump, topping Wall Street estimates, as consumer credit improves

Stocks got off to a relatively slow start after last week's wild time.  Today markets the ½ way mark for the month & results have been glum so far.  The bulls are hoping earnings reports will bring back buyers.

Dow Jones Industrials

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