Monday, January 28, 2019

Markets retreat after poor outlook from Caterpillar

Dow dropped 302, decliners over advancers almost 2-1 & NAZ sank 91.  The MLP index fell 1+ to the 247s & the REIT index rose 4+ to the 351.  Junk bond funds were mixed & Treasuries crawled higher while stocks were sold.  Oil gave back 1+ to the 51s & gold went up 3 to 1301 as demand for gold remains strong.

AMJ (Alerian MLP Index tracking fund

CL=FCrude Oil51.96
 -1.73 -3.2%

GC=FGold   1,299.90

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Stocks fell after Dow component Caterpillar (CAT) missed Q4 profit estimate.  The fact that Pres Trump was downplaying the chance of Congress coming up with a budget agreement by the Feb 15 deadline also weighed on markets.  Profits at CAT missed estimates for Q4, results that could reignite fears over a global economic slowdown given the manufacturing firm's immense intl operations.  It will be a busy week in the markets as investors keep an eye on a Fed meeting, earnings from 13 Dow stocks & the monthly jobs report.  In Asian markets, China's Shanghai Composite closed down 0.2% & Hong Kong's Hang Seng closed the session nearly flat.  Japan's Nikkei  average ended the day down 0.6%.  In European trading, London's FTSE was lower by 1%, Germany's DAX slipped 0.6% & France's CAC fell 0.8%.

Stocks drop on Caterpillar miss, border security deal worries

Profits at CAT missed estimates for Q4, results that could reignite fears over a global economic slowdown given the manufacturing firm's immense intl operations.  EPS grew to $2.55, less than the $2.99 expected.  Revenue rose to $14.3B, in-line with expectations.  Last year, CAT said it would have to raise costs to mitigate the impact of Pres Trump's double-digit tariffs on steel & aluminum imports.  Cost of sales, a key indicator of the effect of the new levies, rose 11% in the qtr to nearly $10B.  Overall for 2018, revenues rose to $54.7B, while EPS grew to $11.22.  The company expects EPS to hit as high as $12.75 in 2019.  “Our outlook assumes a modest sales increase based on the fundamentals of our diverse end markets as well as the macroeconomic and geopolitical environment,” CEO Jim Umpleby said.  The stock dropped 11.14 (8%).
If you would like to  learn more about CAT, click on this link:

Caterpillar misses profit estimates after warnings on Trump tariffs

The federal gov shutdown cost the economy $11B, according to a new analysis from the nonpartisan Congressional Budget Office, reflecting lost output from federal workers, delayed gov spending & reduced demand.  The report estimated a hit of $3B (0.1%) to economic activity during Q4.  The impact was greater during Q1-2019: $8B, or 0.2%  of GDP.  Although most of the damage to the economy will be reversed as the gov re-opens & workers return to their jobs, the CBO estimated $3B in economic activity is permanently lost.  “Among those who experienced the largest and most direct negative effects are federal workers who faced delayed compensation and private-sector entities that lost business,” the report says.  “Some of those private-sector entities will never recoup that lost income.”  The analysis does not incorporate some indirect effects of the shutdown, such as the halt in some federal permits & reduced access to loans.  However, the report suggests that businesses were beginning to postpone investment & hiring decisions as a result of the shutdown & warned that the risks were becoming “increasingly significant” as the impasse dragged on.  The CBO's annual report also looked at the impact of the administration's trade policies on the economy.  It estimates that new tariffs on imports & exports will shave an average of 0.1% from economic growth thru 2029.  It also forecast customs duties will rise from 0.2% of GDP in 2018 to 0.3% of GDP this year.  Overall, the CBO projected economic growth will slow this year to 2.3%, compared to the 3.1% rate last year, as the benefits of the new tax law begin to fade.  Through 2023, growth is expected to average 1.7%, below the CBO's estimate of the economy's potential.

The shutdown cost the economy $11 billion – including a permanent $3 billion loss, government s…

Pres Trump said another gov shutdown is “certainly an option” as he expressed skepticism that Congress would reach a deal to fund the border wall he has requested.  Trump said in an interview that he thinks there's a less than 50% chance such a deal could be reached before the next gov funding lapse on Feb 15, less than 3 weeks away.  The pres also said he doubted he would accept less than $5.7B for the border wall, nor would he agree to grant citizenship for "Dreamers", immigrants illegally brought to the US as children who would have benefited from never-passed proposals in Congress called the DREAM Act, in exchange for wall funding.  Trump on Fri signed a bill to temporarily end the 35-day partial government shutdown that dragged on as he argued with Dems over his proposed border wall.  The shutdown, which was the longest in US history, caused about 800K federal workers to miss paychecks with some having to scramble to cover meals & bills.

Trump tells WSJ another government shutdown is ‘certainly an option’

CAT gave a glum outlook for 2019 which signals a tough year for the global economy.  As pointed out many times here, the Dow (representing the stock market) has had a spectacular run in the last month, making it vastly overbought.  This week the FOMC will give its outlook for the economy & guidance for rate hikes this year.  Many earnings reports are coming, with more guidance for the new year.  Then there is uncertainty about another shutdown.  For a starter, those guys in DC will go on holiday on Feb 16 showing they don't care about solving complex problems.  Today's market decline may be a preview of a week with profit taking in stocks.

Dow Jones Industrials

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