Wednesday, December 19, 2018

Markets rise ahead of Fed rate decision

Dow recovered 189, advancers over decliners 2-1 & NAZ rose 59.  The MLP index bounced back 5+ to a still depressed 234s & the REIT index recovered 2+ to 341.  Junk bond funds were little changed & Treasuries crawled higher.  Oil rebounded 1+ to the 47s & gold gained 6 to 1260, a 5 month high.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil47.12

GC=FGold   1,260.10

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Stocks rose, hours before the Federal Reserve is expected to announce its interest rate decision & on renewed optimism that a trade deal with China is coming together.  Treasury Secretary Steve Mnuchin said that US & Chinese officials will meet next month to work out a truce in the current trade dispute.  That helped lift investor sentiment.  In addition, the 2 nations held vice-ministerial talks today to discuss trade & tariff issues.  Meanwhile, the Fed's 2-day meeting concludes today with an announcement about whether the central bank will raise a key interest rate, something that has been expected – & feared by investors -- but which may not happen in the face of a massive equity decline.  In Asian markets, China's Shanghai Composite closed the day falling 1.1% & Hong Kong's Hang Seng ended the day up 0.2%.  Japan's Nikkei closed down 0.6%.  In European trading, London's FTSE traded higher by 1%, Germany's DAX added 0.7% & France's CAC rose by 0.6%.  Yesterday, US stocks overcame a late-session retreat that wiped out the day's gains to close higher as investors waited to see if the Federal Reserve would raise interest rates.  All major equity indices were up from the opening, but about an hour before closing surrendered those gains after Senate Majority Leader Mitch McConnell said Dems had rejected a short-term spending bill.  Then, shortly before the closing bell, all 3 major indices turned positive.

Stocks up ahead of Federal Reserve interest rate decision

Eli Lilly (LLY) forecast 2019 revenue & adjusted profit above expectations, citing higher demand for newer medicines including diabetes drug Trulicity & psoriasis drug Taltz.  Trulicity, which recently overtook Humalog as its top-selling medicine, had sales of $816M & helped power profit beat in Q3.  The company forecast 2019 adjusted EPS of $5.90-6.00, compared with estimates of $5.82.  LLY said revenue was expected to be $25.3-25.8B for the coming year, also above expectations of $24.43B.  However, the company said sales of erectile dysfunction drug Cialis will take a hit due to loss of patent exclusivity.  It also reiterated its forecast for 2018 adjusted profit.  The stock went up 3.31.
If  you would like to learn more about LLY, click on this link:

Eli Lilly forecasts 2019 profit, revenue above estimates

The Senate will introduce a short-term measure to fund the gov as an impasse over Pres Trump's border wall threatens a partial gov shutdown.  The bill would fund the gov thru Feb 8, Senate Majority Leader Mitch McConnell announced.  The Senate will take up the measure later today.  Lawmakers need to pass spending bills by midnight Fri to avoid a partial shutdown.  The plan would push the ongoing debate over immigration & border security into next year, when Dems will hold control of the House & Nancy Pelosi will likely be speaker.  “We need the government to remain open for the American people,” McConnell said.  House Democrats likely would not object to the bill to fund the gov thru Feb, a senior Dem said before McConnell's announcement.  Meanwhile, Senate Dems would “very seriously consider” a short-term bill to avoid a shutdown if McConnell offered one, Senate Minority Leader Chuck Schumer said.  A White House spokesman did not immediately respond to a proposed short-term spending bill.  Yesterday, White House press secretary Sarah Huckabee Sanders said the pres would want to see what Congress passes before he decides whether to sign it.  Last week, Trump said he would be “proud” to shut down the gov over the border wall.  The short-term bill would mean Trump would fall short once again in his ongoing effort to secure money for the wall, one of his key campaign promises.  Trump sees stoking fear of illegal immigration as one of his core political appeals.  In a tweet today, Trump seemed to justify his potential shortcoming in getting wall funding from Congress.  He claimed “Mexico is paying (indirectly)” for the structure through his revision to the North American Free Trade Agreement, a dubious assertion that the White House has struggled to explain.  He also contended that the US military will construct the wall, a process that could also require congressional appropriations.

US home sales unexpectedly rose in Nov, but recorded their biggest annual decline in 7½ years, adding to other data that have painted a grim picture of the housing market.  The National Association of Realtors said existing home sales increased 1.9% to a seasonally adjusted annual rate of 5.32M units last month.  Oct's sales pace was unrevised at 5.22M  units.  Sales have now increased for 2 straight month.  The forecast existing home called for sales falling 0.6% to a rate of 5.20M units.  Existing home sales, which make up about 90% of home sales, tumbled 7.0% from a year ago in Nov, the largest annual drop since May 2011.  Sales are down 2.3% in the first 11 months of this year compared to the same period last year.  The housing market is being constrained by higher mortgage rates as well as land and labor shortages, which have led to tight inventory.  Though house price inflation has slowed significantly, it continues to outpace wage growth, sidelining some first-time homebuyers.  A survey on Mon showed confidence among single-family homebuilders dropped to more than a 2½-year low in Dec.  Single-family homebuilding dropped to a 1½-year trough in Nov reported yesterday.  There are concerns that the persistent weakness could spill over to the broader economy, which continues to be bolstered by robust consumer spending.  The softening housing market is not expected to discourage the Federal Reserve from raising interest rates when officials wrap up a 2-day policy meeting later today.  The central bank has increased borrowing costs 3 times this year.  The 30-year fixed mortgage rate has risen more than 60 basis points this year to about 4.63%.  Last month, existing home sales rose in the Northeast, Midwest & populous South while they fell in the West, likely affected by the wildfires in Cal.  There were 1.74M previously owned homes on the market in Nov, up from 1.67M a year ago.  The inventory crunch is easing as demand slows especially in the West, which has seen a surge in house prices.  At Nov's sales pace, it would take 3.9 months to exhaust the current inventory, down from 4.3 months in Oct & up from 3.5 months a year ago.  A 6-7-month supply is viewed as a healthy balance between supply & demand.  The median existing house price increased 4.2% from a year ago to $257K in Nov.

Existing home sales unexpectedly rise in November

Until the Powell at the Fed speaks there is not much to do.  Market fluctuations don't mean much now.  The proposal to extend gov financing & avoid a partial gov shutdown is a welcome plus for stocks.  Market breadth is so-so, but that is to be expected during this pause period for stocks.

Dow Jones Industrials

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