Friday, December 28, 2018

Markets wobble after a week of wild price swings

Dow pulled back 102, advancers over declines 5-4 & the NAZ fell 36.  The MLP index lost 1+ to the 218s & the REIT index was flattish in the 326s.  Junk bond funds went up after recent selling & Treasuries crawled higher.  Oil inched higher in the 44s & gold was little changed at 1281 (more below on its recent rise).

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil45.18

GC=FGold   1,279.80
 -1.30 -0.1%

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Stocks opened cautiously higher, a day after the markets posted a stunning late-session rebound that saw a 865-point swing in the blue-chip Dow.  The 3 major stock indices, the Dow, S&P 500 & tech-heavy NAZ, are now on course to book their first up week in the last 4.  Despite the positive open, investors were moving cautiously as volatility has been one of the consistent feature of markets lately.  The VIX index, which tracks the volatility of the equity markets, remained at a multi-month high of nearly 30.  All 11 sectors of the S&P 500 were posting gains, while shares of consumer goods helped pace the market.  The late-session rebound yesterday energized stock markets outside the US today.  In European trading, London's FTSE gained 2.2%, Germany's DAX added 1.7% & France's CAC was up 1.9%.  Most Asian markets finished up trading for the year.  China's Shanghai Composite index ended the day up 0.4% & the Shanghai index lost 24.6% for the year.  Hong Kong's Hang Seng Index ended the day up 0.1%.  The Hang Sang will trade for ½ a day on Mon.  Japan's Nikkei finished the session down 0.3% & declined 12% for the year, its first annual decline since 2011.  Yesterday, the Dow posted a 865-point swing in less than 2 hours.  The index had been down in mid-afternoon more than 500 to cut the previous session's gains in ½, before bargain hunters & short covering turned a big decline into a modest gain.  The Dow, the S&P 500 & NAZ all posted their largest 2-day percentage gains since Aug 2015.  The volatility followed a massive gain on Wed when the Dow rose more than 1080 (5%) marking the first time in history the exchange rose more than 1K in a single day of trading.

US stocks cautious after dramatic late-session rebound

Gold climbed to a more than 6-month high, as concerns about slowing global economic growth & a partial govt shutdown in the US stoked safe-haven demand, although gains in equities capped the upside.  Spot gold had risen by 0.5% to $1281 per ounce & was set for a 2nd straight weekly gain with no end in sight for China-US trade tensions & political uncertainty in the US.  The precious metal hit its highest level since Jun 19.  US gold futures inched up 0.2% to $1283 per ounce on Fri.  The $ index, a gauge of its value versus 6 major peers, edged lower, having lost 0.5% overnight, adding to gold's appeal by making it cheaper for holders of other currencies.  Financial markets are expecting US growth to slow next year as a result of rising interest rates.  A measure of US consumer confidence posted its sharpest decline in more than 3 years in Dec, emphasizing the possibility.  In a blow to worsening trade tensions between the world's 2 biggest economies, Pres Trump is considering an exec order that would bar US companies from using telecommunications equipment made by China's Huawei & ZTE.  Gold is often used by investors as a hedge against political & financial uncertainty.

Gold hits over 6-month high as investors flock to safety

Contracts to buy previously owned homes fell unexpectedly in Nov, the National Association of Realtors (NAR) said, the latest sign of weakness in the US housing market.  The NAR's pending home sales index decreased 0.7% from the prior month to 101.4.  The forecast called for pending home sales to rise 0.7% last month.  Pending home contracts are seen as a forward-looking indicator of the health of the housing market because they become sales one to 2 months later.  Compared to one year ago, pending sales were down 7.7% in Nov, the 11th straight year-over-year drop.  The housing market has been constrained by higher mortgage rates as well as land & 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.  The NAR previously reported that home resales rose in Nov, but recorded their biggest annual decline in 7½ years.  Groundbreaking for new homes also rebounded in Nov, but completions on single-family homes fell for a 3rd straight month to their lowest level in more than a year.  Lawrence Yun, NAR's chief economist, said that the pending home sales data was not yet reflecting recent favorable mortgage rate conditions.

Pending home sales fall unexpectedly in November

Pres Trump scolded Dems over his proposed border wall yesterday as a partial gov shutdown carried into its 6th day with no signs of a deal to end it.  Only some lawmakers returned to DC from their holiday break on Thurs, when the Senate convened briefly.  But Congress has so far failed to break an impasse over the Trump's demand for $5B to build the barrier & no votes are scheduled yet.  Barring quick & unexpected progress, the stalemate will likely last into the new year & potentially until after Dems take a House majority on Jan 3.  House Majority Whip Steve Scalise advised GOP members yesterday not to expect a vote this week.  The Senate will not hold another session with the potential for votes until Jan 2.  Lawmakers will get 24 hours notice before any vote on a deal to end the shutdown.  The White House & congressional leaders still appear far from ending the stalemate even as hundreds of Ks of federal workers face furloughs or temporarily work without pay.  After he returned to DC from a surprise visit to military service members in Iraq & Germany, Trump quickly turned his attention back to the immigration fight.  In a tweet, he questioned whether Dems have “finally realized that we desperately need Border Security and a Wall on the Southern Border.”  He suggested federal workers damaged by the shutdown support Dems, asking: “Do the Dems realize that most of the people not getting paid are Democrats?”  It was unclear what evidence exactly Trump was using to show federal employees are Dems.  But 95% of campaign contributions from federal employees in the 2016 presidential election went to Hillary Clinton.  In subsequent tweets, Trump accused Dems of “obstruction” in blocking money for the wall.  He also contended that the party wants an “Open Southern Border” — which Dem leaders have repeatedly said they do not want.  The comments yesterday, combined with remarks the pres made Wed, indicate he has little desire to back down from his demand even as 9 federal departments remain unfunded.  With Dems pledging not to put money toward a project they call immoral and ineffective, the impasse looks no closer to breaking.  Meanwhile, White House press secretary Sarah Huckabee Sanders said in a yesterday  that Trump “does not want the government to remain shut down, but he will not sign a proposal that does not first prioritize our country’s safety and security.”  She argued that the White House offered a “reasonable, common sense solution” to Dems on Sat — a proposal that reportedly came out of a meeting between VP Mike Pence & Senate Minority Leader Chuck Schumer.  The Dem leader rejected an offer that reportedly included more than the $1.6B for border security he has publicly said he would accept.

Shutdown likely to extend into next year as Trump and Congress fail to break border wall stalemate

This has been a week that investors will long remember.  Extraordinary high volatility has been difficult to handle for many, especially after years of fairly steady price appreciation for stocks & low interest rates.  Those times could be over next year.  Even with limited interest rate hikes by the Fed, steady growth in stock prices does not look to be in the cards.  Housing & autos are 2 large parts of the economy & they have been stumbling for much of 2018.  Trade tensions with China are not close to being resolved.  The gov shutdown will not last & gov workers will be paid back pay when it is over.  But it casts a dark cloud over the stock market, adding to negative thinking by investors.  The VIX, volatility index, is above 30.  In the "good old days" earlier this year it was generally in the mid teens which is why gold is getting more attention from investors.  Next year is shaping up as a pause period in the longer term bull market.  As a result, yield stocks could get more attention.

Dow Jones Industrials

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