Thursday, October 11, 2018

Mixed markets decline again as interest rates slide lower

Dow dropped another 177, decliners over advancers 4-3 & NAZ gave back 26.  The MLP index lost 2+ to the 273s & the REIT index drop 5+ to 342.  Junk bond funds fluctuated & Treasuries were purchased, driving the yield on the 10 year Treasury down 5 basis points to 3.18%.  Oil dropped another 1+ to the 71s (after being in the 75s last week) & gold shot up a whopping 23 to 1216.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil72.03

GC=FGold   1,210.80

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Stocks were volatile following yesterday's drubbing, which saw the Dow closing with more than a 830-point loss.  While stock futures were sharply lower overnight, they trimmed their losses following a benign report on inflation.  In the aftermath, stocks continued to oscillate.  While the Dow plunged yesterday, the NAZ slid to a 3-month low led by big-tech names including Amazon (AMZN), which dipped into correction territory with shares falling more than 10% from their record closing high on Sep 4.  Apple (AAPL), Microsoft (MSFT- a Dow stock) & Facebook (FB) also were down.  The rout followed fast-rising bond yields & signs of inflation, which led investors to worry that profit margins could narrow.  Of note, on today the yield on the 10-year Treasury note retreated slightly.  Economic data released today included a report on inflation.  The Consumer Price Index rose a modest 0.1% in Sep, below the estimated rise of 0.2%.  CPI was up 2.3% year-over-year last month, also below the estimate of 2.4%.  Core CPI, which excludes volatile food & energy prices, also came in slightly below estimates.  Weekly jobless claims rose 7K to 214K.

US stock market investors brace for more volatility

A day after Pres Trump called the Federal Reserve "loco," his top economic advisor said the White House is not trying to influence monetary policy.  Larry Kudlow, director of the National Economic Council, spoke about the current state of the economy & its impact on markets.  On Trump's remarks, he did not address them directly but said the administration knows the Fed has a job to do.  "The president has his own views. He's stated them many times. There's nothing new here as far as I can tell," Kudlow said.  "We all know the Fed is independent. The president is not dictating policy to the Fed. He didn't say anything remotely like that."  The discussion came a day after the Dow fell more than 800 amid fears about rising interest rates, the escalating trade battle with China & a number of other factors.  The market weakness comes amid an economy growing strongly & the unemployment rate at a nearly 50-year low.  Earlier in the day, Pres Trump said that "this is the strongest economy we've ever had."  Kudlow reiterated the pres's belief that current conditions are solid & said the stock market retreat should not be viewed as a reflection on what's happening with growth.  "My own view is it's a normal correction in a bull market," he said.  "The economic numbers are superb across the board."

Larry Kudlow says the Fed is independent and the president is not dictating policy to central bank

US consumer prices rose less than expected in Sep, held back by a slower increase in the cost of rent & falling energy prices, as underlying inflation pressures appeared to cool slightly.  The Consumer Price Index increased 0.1% last month after rising 0.2% in Aug.  In the 12 months thru Sep, the CPI increased 2.3%, slowing from the Aug 2.7% advance.  Excluding the volatile food & energy components, the CPI edged up 0.1% for the 2nd straight month.  The core index had increased 0.2% in May, Jun & Jul.  In the 12 months thru Sep, the core CPI increased 2.2%. The forecast both overall & core CPI called for an increase of 0.2% in Sep.  With the readings only slightly below what was expected, the inflation report will probably do little to change expectations that the Federal Reserve will raise interest rates at its Dec policy meeting.  The central bank has raised rates 3 times this year.  The Fed tracks a different inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, for monetary policy.  The core PCE price index rose 2.0% in the 12 months thru Aug, holding at the Fed's 2% target for the 4th straight month.  Last month, gasoline prices slipped 0.2% after surging 3.0% in Aug.  Food prices were flat overall & prices for food consumed at home fell 0.1%.  Owners' equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, rose 0.2% in Sep after rising 0.3% in Aug.

US inflation slows in September on rental costs, energy

The number of Americans filing for unemployment benefits unexpectedly rose last week but remained near a 49-year low & the increase appeared unlikely to dislodge the view that the labor market remains strong.  Initial claims for state unemployment benefits increased 7K to a seasonally adjusted 214K for the latest week, the Labor Dept said.  The forecast called for claims slipping to 206K from 207K a week earlier.  The Labor Dept said claims for South & North Carolina were affected by Hurricane Florence, which lashed the region in mid-Sep.  The 4-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 2K to 209K last week.  The labor market is viewed as being near or at full employment, which many economists believe is helping US wages grow a little more quickly & fueling expectations the Federal Reserve will increase interest rates again in Dec.  The claims report also showed the number of people receiving benefits after an initial week of aid rose 4K to 1.66M for the latest week.  The 4-week moving average of continuing claims decreased 10K to 1.66M, the lowest level since 1973.

US jobless claims rise unexpectedly as filings for the Carolinas were affected by Hurricane Florence

After yesterday's plunge, the administration is talking up the economic fundamentals which have driven the bull market.  But investors are not interesting in hearing that message.  Dow is sinking as I write.  The best use of time when stocks are falling is to research the markets for good buys at lower levels.  Eventually there will be buying opportunities. 

Dow Jones Industrials

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