Tuesday, January 22, 2019

Markets decline on fears of a global growth slowdown

Dow dropped 181, decliners over advancers better than 3-1 & NAZ gave back 83.  The MLP index fell 3+ to the 246s & the REIT index was fractionally higher to the 347s.  Junk bond funds fluctuated & Treasuries were purchased.  Oil fell 1+ to 52 & gold was off 3 to 1279.

AMJ (Alerian MLP Index tracking fund

CL=FCrude Oil52.37

GC=FGold   1,281.40

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Stocks traded lower as markets return to trading amid worries about global economic growth & concern about Brexit.  The IMF predicted the global economy to grow at 3.5% in 2019 & 3.6% in 2020, down 0.2 & 0.1 percentage point, respectively, from last the forecast last Oct.  Yesterday, China's 2018 growth was reported that it slowed to the lowest in nearly 3 decades, which puts pressure on Beijing to add more stimulus.  The economy cooled in Q4 under pressure from lower domestic demand & US tariffs on Chinese goods.  Q4 GDP grew eased to 6.4% on-year as expected from 6.5% in Q3, the National Bureau of Statistics said.  That pulled full-year growth down to 6.6%, the slowest annual pace since 1990.  In Asian markets today, China's Shanghai Composite ended the day 1.2% lower & Hong Kong's Hang Seng ended the session down 0.7%.  Japan's Nikkei closed down 0.5%.  In Europe, London's FTSE traded lower by 0.8%, Germany's DAX slipped 0.6% & France's CAC was off 0.6%.  US stocks closed higher Fri, for the 4th consecutive weekly gain, after China reportedly offered to increase its imports from America over a 6-year-period to reduce the trade imbalance between the 2 nations.  Equities also got a lift from a report that the Trump administration was considering rolling back tariffs on Chinese goods to ensure that current trade negotiations, set to end Mar 1, were successful.

Stocks trade lower on IMF global growth outlook

China's economy is starting to show signs of distress as a trade war between the world's 2 largest economies continues.  Yesterday, China announced that its economy grew at a rate of 6.6% in 2018, the slowest pace since 1990.  China's manufacturing sector has also showed signs of contraction.  Last month, China's Purchasing Managers’ Index was 49.4, the weakest level recorded since Feb 2016.  The major Chinese stock index suffered double-digit losses in 2018.  The Shanghai Composite fell more than 24% for the year, its largest annual decline in a decade.  Another indicator that could spell longer-term trouble for Beijing is a slowing birth rate.  Last year births dropped to their lowest level in nearly 60 years.  White House officials have acknowledged the trade spat could put pressure on domestic data as well.  On Fri, White House Economic Council Director Larry Kudlow admitted that trade talks with China would impact both the US & world economies.  “Will the China trade talks affect the economy? Yes because the China trade talks will have an impact on future growth in the United States and prosperity and jobs and profits. And actually world growth.”  After a dizzying performance to end 2018, the US stock market has started off the new year strong, boosted by the prospect of easing trade tensions with China.  Trade officials are expected to meet next week to continue discussions.

China's economy showing warning signs as Trump trade war drags on

US home sales tumbled to their lowest level in 3 years in Dec & house price increases slowed sharply, suggesting a further loss of momentum in the housing market.  The National Association of Realtors said existing home sales declined 6.4% to a seasonally adjusted annual rate of 4.99M units last month, the lowest level since Nov 2015.  The forecast called for existing home sales falling 1.0% to a rate of 5.25M units in Dec.  Existing home sales, which make up about 90% of home sales, plunged 10.3% from a year ago.  For all of 2018, sales fell 3.1% to 5.34M units, the weakest since 2015.  The housing market has been stymied by higher mortgage rates as well as land & labor shortages, which have led to tight inventory & more expensive homes.  But there are glimmers of hope for the sector.  The 30-year fixed mortgage rate has dropped a 4-month low, with much of the moderation occurring in the 2nd half of Dec & house price inflation is slowing.  A survey last week showed a rebound in homebuilders confidence in Jan amid optimism over market conditions now & over the next 6 months, as well buyer traffic.  Homebuilders are hopeful that the moderation in mortgage rates “will help the housing market continue to grow at a modest clip as we enter the new year.”  A month-long partial shutdown of the federal gov, which has delayed data on new home sales, housing starts & building permits is, however, making it difficult to get a good read of the housing market.  Last month, existing home sales fell in all 4 regions.  There were 1.55M previously owned homes on the market in Dec, down from 1.74M in Nov, but up from 1.46M a year ago.  At Dec's sales pace, it would take 3.7 months to exhaust the current inventory, down from 3.9 in Nov.  A 6-7 months supply is viewed as a healthy balance between supply & demand.  The median existing house price increased 2.9% from a year ago to $253K in Dec, the smallest increase since 2012.

US existing home sales tumble to three-year low

Psoriasis treatments & cancer drug sales propelled Johnosn & Johnson (JNJ), a Dow stock & Dividend Aristocrat, to another quarterly earnings beat, while sales of its signature baby products & other consumer goods showed slight improvement.  The health-care conglomerate, which makes everything from Neutrogena face wash to Acuvue contacts to prescription drugs like Xarelto & Invokana, reported a Q4 earnings & the company offered its financial forecast for 2019 that was close to what was expected on profit but fell short on sales' estimates.  “As you’ve heard me say before, while we’re pleased with our 2018 performance it’s important to remember that we are never satisfied,” CEO Alex Gorsky said.  In Q4, EPS came to 1.12, up from a loss of 3.99 per share a year earlier due to amortization expenses & special items.  Excluding an amortization expense of $1B & a net charge for special items of $1.4B, EPS was 1.97, above the $1.95 estimate.  Net sales rose 1% to $20.4B, above expectations of $20.2B.  The company has now beaten consensus earnings estimates 21 qtrs in a row & revenue 14 of the past 21 qtrs.  JNJ forecast 2019 EPS of $8.50-8.65 & revenue in of $80.4-81.2B.  Analysts previously EPS of $8.60 & $82.7B in revenue.  “We remain committed to ensuring that facts about talc are understood and we will continue to defend the safety of our products,” Gorsky said.  The stock fell 2.29.
If you would like to learn more about JNJ, click on this link:

Johnson & Johnson tops fourth-quarter expectations but signals sales to slow this year

After a 4 week spectacular run, it was time to take a rest.  In short, China trade talks will need more work, especially with drab economic data just reported.  Meanwhile the gov shutdown is pinching harder & an end looks to be far, far away.  A combination of the 2 stories should drive the stock market this week.

Dow Jones Industrials

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