Wednesday, January 2, 2019

Markets struggle on a choppy day for stocks

Dow finished 18 higher after wild swings, advancers over decliners 2-1 & NAZ went up 30.  The MLP index recovered 2+ to the 325s & the REIT index was little changed.  Junk bond funds began the new year higher & Treasuries rose in price (more below).  Oil went up 1 to the 46s & gold rose to 1282 (more below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Pres Trump told reporters that there was a “glitch” in the stock market last month, but that equities should recover as the US completes trade deals with countries like China.  The S&P 500 dropped more than 9% for its worst Dec performance since 1931.  Those losses also pushed the broad stock index to its worst annual performance since 2008, when it plunged more than 38%.  For 2018, the S&P 500 pulled back 6.2%.  Equities fell sharply in Dec as investors grappled with fear that the Federal Reserve might be making a monetary policy mistake, worries about a possible economic slowdown & ongoing trade negotiations between China & the US.  China & the US agreed to a 90-day truce on Dec 1 to try & strike a permanent trade agreement.  Both countries have slapped tariffs on B$ worth of each other's goods.

Trump says there was a stock market ‘glitch’ in December, but it will rise when trade …

US gov debt prices rose as weaker-than-expected data from China, Europe & the US fueled concerns of an economic slowdown over the coming months. The yield on the benchmark 10-year Treasury was lower at 2.677%, near its lowest levels since late Jan 2017.  The yield on the 10-year Treasury was also lower at 3.02%.  Bond yields move inversely to prices.  It comes after a private sector survey showed manufacturing activity in China, the world's 2nd-largest economy, contracted for the first time in 19 months.  China's Markit Manufacturing Purchasing Managers' Index (PMI) for Dec dipped to 49.7 from 50.2 in Nov.  Meanwhile, the euro zone manufacturing PMI remained at its lowest level since Feb 2016, according to IHS Markit.  The data also showed confidence about the future hit a fresh 6-year low.  In the US, the IHS Markit manufacturing PMI slipped to a 15-month low in Dec.  The data prompted investors to load up on Treasuries, which are considered to be a safer investment than equities because they are typically not as volatile.  Today's rise in Treasury prices also comes amid a choppy session in the US stock market.  The Dow fell as much as 398 points before rebounding, while the NAZ erased a loss of more than 1%.

US Treasury yields move lower amid heightened fears of an economic slowdown

Pres Trump hosted his first Cabinet meeting of the new year, where he offered a bleak preview of what top lawmakers are expected to encounter later in the day, when they visit the White House for what was being billed as a briefing on border security.  Trump began the meeting by saying he could “get a lot done” with Dems, but quickly shifted into more familiar talking points about the proposed wall he has long promised his supporters that he would build along the US-Mexico border.  Dems have so far refused to vote for any funding for Trump's wall, while the pres has repeatedly demanded $5B.  “The United States needs a physical barrier,” Trump said.  Over the course of more than an hour, Trump used the meeting to warn of a massive flow of drugs & crime entering the US over the southern border.  He also repeated several statistics about the number of people living in the US illegally & the rate at which those people commit crimes.  Trump spoke as a partial gov shutdown entered its 12th day, with no end in sight.  The shutdown was prompted by his refusal to sign spending bills for ½ a dozen federal agencies unless Congress provided an additional $5B for a border wall.  “We are in a shutdown because Democrats refuse to fund border security,” Trump said, before accusing Dems of playing politics with border security with an eye “on 2020″ presidential elections.  Top congressional leaders in both parties are scheduled to visit the White House later for a briefing that Trump said will be conducted by Homeland Security Secretary Kristjen Nielsen as well as other top DHS officials working on border issues.  Trump's remarks during the more than extensive Cabinet meeting are likely to do little to resolve the stalemate between the White House & congressional Dems that is currently holding up gov funding.  Trump & his Cabinet appeared to dig in deeper by repeating the same talking points the White House & the pres have been using for weeks.

Trump sticks to his demand for a wall after suggesting he could work with Dems

Gold climbed, with prices settling at their highest since mid-Jun on the first full trading day of 2019.  Losses in Asian equities & volatility in the US stock market fueled some buying interest among traders, despite strength in the $.  Feb gold rose $2.80 (0.2%) to settle at $1284 an ounce, the highest finish for a most-active futures contract since Jun 14.

Gold futures settle at highest since June

A survey of American manufacturers showed the slowest growth in Dec in 15 months, reflecting a dip in confidence among execs about how their businesses will perform in the new year. The IHS Markit manufacturing PMI slipped to 53.8 in Dec from an initial reading of 53.9 & it was down from 55.3 in the prior month.  Any number above 50 indicates more companies are growing instead of shrinking, but the index has now fallen to its lowest point since Sep 2017.  That could be an ominous sign for the economy if the loss of confidence continues to spread.  The level of optimism among senior execs was at the lowest ebb in more than 2 years.  The growth in new orders & employment both slowed in Dec, though production remained the same as in the prior month.  Exports also grew faster.  Somewhat slower business expansion has resulted in one unintended benefit:  Inflationary pressures eased again to an 11-month low.  The Markit survey of the US manufacturers paints a somewhat darker view than other reports such as the Institute for Supply Management or Chicago PMI.  By & large the US economy is still expanding at a healthy pace outside of a few areas such as housing.  The rest of the world, however, is not faring as well & worries about the global economy appear to influencing how American companies view the future of the economy.  Most economists predict the US will decelerate in 2019.

U.S. manufacturers expand at slowest pace in 15 months as business confidence wanes, IHS Markit finds

Uneven economic data was not welcomed by investors.  The Dow began the day under 23K & buyers bid it up to 23.4K putting it in the black.  Sellers returned in the last hour.  But buying into the close was good enough to bring the averages into the black.  That's not a good way to start the new year, especially following a brutal Dec.  The bulls are confused & when in doubt, they buy Treasuries & gold.  The partial gov shutdown is not big at the macro economic level.  But its psychological impact is & that weighs heavily on the stock market because there is NO END in sight.

Dow Jones Industrials

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