Wednesday, December 26, 2018

Markets rebound after calming words from the White House

Dow surged an astonishing 1086 closing at the highs, advancers over decliners 7-1 & NAZ shot up 361.  The MLP index recovered 11+ to the 223s (still depressed) & the REIT index dropped 12 to the 315s.  Junk bond funds rose in price & Treasuries were sold bringing higher yields.  Oil shot up almost 4 to the 46s (more below) & gold fell a modest 3 to 1268.

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The Dow surged triple-digits on in a seesaw session, as US markets aim to regain losses suffered in the most recent trading session, on Christmas Eve.  Gains in the tech & retail sectors drove the rally, helping the market recoup some of the steep losses witnessed on Mon.  Stocks have taken a beating recently on lingering worries about the economy & caution over persisting political uncertainties, as a partial federal gov shutdown lingers & Pres Trump's continues his hostile stance toward the Federal Reserve.  US stocks posted their worst Christmas Eve session ever, as a perfect storm of concerns drove investors to bail out of a market that was already badly bruised.  The blue-chip Dow had its steepest drop on Christmas Eve in its 122-year history.  It also was the worst Christmas Eve for the tech-heavy NAZ & the first time the broader S&P 500 ever had more than a 1% drop on Dec 24.  Meanwhile, US home price growth slowed in the month of Oct, according to data released today.  The S&P CoreLogic Case-Shiller 20-city home price index rose 5%  from the prior year, down from an annual gain of 5.2% in Sep.  That's down from a 5.5% yearly gain in the previous month.  Congress missed a midnight Fri deadline for getting a spending bill passed, resulting in a partial gov shutdown.  No votes are scheduled to end the stalemate until after Christmas. Today's hammering followed a stomach-churning week, when the Dow lost 6.9% & the S&P 500 tumbled 7.1%.  The NAZ gave up 8.4%, making it the first of the 3 major averages to fall into bear market territory.  Concerns about the ability of the markets to handle the sell-off promoted Treasury Secretary Steve Mnuchin late Sun to contact the CEOs of the nation's 6 largest banks & convene a meeting of Trump's Working Group on Financial Markets.  That group, which includes officials in the Federal Reserve, the S&C & the Commodity Futures Trading Commission, met to ensure the financial system had adequate liquidity to handle all the selling.

Dow soars in seesaw session after Christmas Eve plunge; tech, retail lead gains

Pres Trump is "very happy" with Treasury Secretary Steve Mnuchin, a White House adviser said, adding that stories suggesting otherwise are "false."  "I am highly confident that the president is very happy with Secretary Mnuchin," White House Council of Economic Advisers Chairman Kevin Hassett told said.  "I've met with them together in the Oval (Office) many, many times and they have a very collegial and productive working relationship."  Hassett's comments come in the wake of reports that the pres is frustrated with Mnuchin, who attempted to reassure investors as volatility continues to roil markets.  The Treasury secretary spoke to the CEOs of 6 of the nation's largest banks on Sun & released a statement saying all had “ample liquidity.”  However, Mnuchin's efforts did little to quell fears, as the Dow had its steepest drop on Christmas Eve in its 122-year history.  It also was the worst Christmas Eve for the tech-heavy NAZ & the first time the broader S&P 500 ever had more than a 1% drop on Dec 24.  Still, Trump, on Christmas Day, called the Treasury secretary a "very talented guy" & a "very smart person."

Trump 'very happy' with Treasury Secretary Mnuchin, White House adviser says

Holiday sales increased for US retailers at the best pace in 6 years, according to early data.  Total US retail sales, excluding automobiles, rose 5.1% between Nov 1 - Dec 24 from a year earlier, according to Mastercard SpendingPulse, which tracks both online & in-store spending with all forms of payment.  Overall, US consumers spent over $850B this holiday season.  The figures suggest a stock-market swoon & partial gov shutdown haven’t curbed consumer confidence & spending,  Sales have been generally strong throughout the holiday season, led by an increase in online shopping.  Retailers entered the holidays with momentum as online sales jumped 26.4%  from a year earlier between the Wed before Thanksgiving thru Black Friday, one sign of an early buying surge, according to Adobe Analytics.  Buying slowed in early Dec in part because an unusually early Thanksgiving made it harder for retailers to sustain sales thru the entire holiday shopping period.  But shoppers picked up the pace ahead of Christmas.  Since Christmas Eve fell on a Mon, retailers benefitted a last-minute push from shoppers who were counting on the final weekend to wrap up their gift-buying.  Chains extended deadlines to get online orders delivered before Christmas, while (AMZN) in some cities offered Prime members the option of free same-day delivery on Christmas Eve.  Many retailers also touted the option to buy online & pick up in store thru Christmas Eve.  Overall, sales in that category increased 47% from Nov 1 - Dec 19.  Mastercard found that sales from online shopping grew 19.1% between Nov 1 - Dec 24 compared with the year-earlier period.  Sales at department stores fell 1.3% in the period tracked by Mastercard, in part due to store closings.  Stores that mainly sell apparel, however, experienced robust sales, growing 7.9% during the same period.  Overall, sales from bricks-&-mortar stores rose 3.3%.

Holiday retail sales are strongest in years: Report

Oil surged, erasing some of the steep losses that have taken crude benchmarks to lows not seen in 1½ years on perceptions the price slide has gone too far, too fast.  Both US & Brent crude were about 8% higher today, but it was unclear if the move would see any follow-thru when trading desks are more fully staffed after the beginning of the new year.  Crude has been caught up in wider financial market weakness as the US gov shutdown, higher US interest rates & the US-China trade dispute unnerved investors & exacerbated worries over global growth.  West Texas Intermediate crude futures ended the day up $3.69 (8.7%) at $46.22.  WTI fell 6.7% to settle at its lowest level in 1½ years on Mon.  Brent crude oil futures, the global benchmark, was up $4.02 (8%) at $54.49.  It earlier fell to $49.93, the lowest since Jul 2017, & posted a 6.2% slide in the previous session.  Funds have incurred heavy losses in oil markets this year, with the average commodity trading adviser fund (CTA) down by 7.1% on the year thru mid-Dec.  Funds took big bets on oil's rally, only to see the commodity drop by more than 40% since the Oct highs.  The head of Russian oil company Rosneft, Igor Sechin, predicted an oil price of $50-$53 in 2019, a long way south of the 4-year high of $86 for Brent crude reached earlier this year.  OPEC & its allies including Russia decided earlier this month to cut production in 2019, unwinding a Jun decision to pump more oil.  The combined group plans to lower output by 1.2M bpd next year.  OPEC's share is 800K bpd, next year, & some ministers have even suggested taking further action.

US crude surges 8.7%, settling at $46.22, erases sharp Christmas Eve loss

Times are very ugly for the timid.  Today's recovery was welcomed by investors.  However all is not well for stocks.  When bargain hunters return to blindly buy stocks, caution should be kept in mind.  Today's advance was nothing short of staggering.  The gov partial shutdown is not catastrophic, but it weighs on investor sentiment.  Additionally there are no shortage of problems which have dragging on in Q4 & prior.  Trade relations with China remain "iffy."  Too many investors have become addicted to low interest rates while the economy has been growing.  Low oil prices bring troubles for energy companies.  Housing is in a slump & the auto sector while healthy has not been able to reach new record levels at a time when China has become the #1 auto market.  Brexit is going nowhere fast as important deadlines approach.  Enjoy the rebound for stocks, but do not forget fundamental problems have not evaporated.  And demand for safe haven investment remains strong.

Dow Jones Industrials

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