Tuesday, April 30, 2019

Markets edge higher after earnings and Alphabet's tumble

Dow rose 38, advancers modestly ahead of decliners & NAZ finished down 54.  The MLP index lost 3+ to the 249s & the REIT index went up 3+ to 378.  Junk bond funds inched higher & Treasuries gained in price today.  Oil continued higher in the 63s & gold rose 4 to 1286.

AMJ (Alerian MLP Index tracking fund)

Higher prescription drugs sales & restrained spending together gave drugmaker Pfizer (PFE), a Dow stock, a 9% jump in Q1 profit as it easily topped profit expectations.  Sales of breast cancer drug Ibrance & blood thinner Eliquis both jumped over 20% to more than $1B each, & Xeljanz for rheumatoid arthritis saw sales soar 30%, lifting prescription drug sales by 3%.  EPS was 68¢.  EPS, adjusted for non-recurring costs, was 85¢, beating projections by 8¢.  "Pfizer is off to a very good start in 2019," new CEO Albert Bourla said.  PFE has several drug approvals in the US or elsewhere during the qtr, including US approval of its biosimilar version, or near-copy, of injected breast & gastric cancer drug Herceptin & approval of Ibrance for men.  The company expects US approvals this year for biosimilar medicines for cancer & rheumatoid arthritis, plus approval of tafamadis for a rare, tough-to-diagnose heart disorder with no current treatment.  However, the heavily touted experimental pain drug tanezumab flopped in late-stage testing, so the company is halting its development.  The biggest US drugmaker by revenue posted sales of $13.12B, up from $12.91B in 2018's Q1.  PFE raised its full-year EPS forecast by a penny, to $2.83-2.93 & reaffirmed its Jan forecast for sales of $52- 54B.  The stock rose 1.02.
If you would like to learn more about PFE, click on this link:

Pfizer 1Q profit jumps 9% on higher drug sales, lower costs

The job market in the US has been incredibly strong, with more openings than workers available to fill those jobs.  There are currently 5.6M open positions, a number that's slightly down (0.4%) from Apr 2018.  While the number of openings has decreased very slightly, wages have continued to inch up.  Pay has increased by 1.4%, with the average full-time worker in the US earning a median base pay of $52,807.  Job growth varies depending upon the market you live in.  Atlanta saw the biggest increase with 7.9% more openings than the same time last year, while wages grew by 2.2%.  Houston saw the largest decline in job growth of the 10 metro areas.  Job openings in Houston dropped 5.1% year-over-year, while wages fell by 0.6%.  Job-seekers need to put up with the slight slowdown in perspective.  While there are fewer openings, the market remains strong for people looking for a job.  The job market remains strong, but there are some trends workers should worry about.  Job automation may not be common, but some companies have begun testing & using technologies that could eliminate some lower-level positions.  At the moment, automation has not majorly cut into the number of openings that need to be filled.  That could change, however, if companies can't find the employees they need.  In many ways, the rise of automation will happen not as an attempt to eliminate human workers, but as a response to the workforce not having enough available bodies.  The problem is that once a warehouse or cashier position has been automated, it's not coming back to human workers.  That makes it especially important for anyone looking to remain employed to develop skills that aren't easily automated.  That means not relying on the fact the job openings remain plentiful, & instead continuing to develop skills even while employed.

Job Openings Slightly Down, But Pay Inches Up

Pres Trump & leading Dem lawmakers agreed a plan to overhaul US infrastructure would need $2T, Senate Minority Leader Chuck Schumer, said today.  “We agreed on a number, which was very, very good,” he added.  Rebuilding the country's aging infrastructure is one of the few bipartisan issues in American politics.  Dems & Reps alike have stressed the importance of repairing & modernizing US transportation, broadband, water & power projects, & both parties have submitted separate funding proposals to achieve those goals.  Yet the issue has languished on Capitol Hill — & the Trump administration's repeated attempts to refocus lawmakers thru the label of “infrastructure week” have become a running joke in Congress.  Schumer said “there was good will in this meeting” between the White House and Democrats — a tone that was “different than some of the other meetings we’ve had,” he added.  Speaking outside the White House just after the meeting, the Dem leaders also said that the 2 sides also found common ground on some of the priorities that an infrastructure plan should address.  Pelosi told reporters that Trump agreed on the importance of broadband infrastructure, a signal that a broader, more modern definition of infrastructure will be the basis for further discussions.  Schumer said that another meeting will take place in 3 weeks.

Trump and Democrats agreed $2 trillion is needed for infrastructure, Chuck Schumer says

Along with a string of successful promotions, technology-focused store upgrades helped McDonald's (MCD), another Dow stock & Dividend Aristocrat, beat expectations for earnings & revenue.  But the company also said that its tech investments will mean higher expenses this year.  The fast food giant raised its full-year outlook for selling, general & administrative expenses because of its tech investments, including its acquisition of Dynamic Yield.  The company previously said that those expenses would decline by 4% this year, excluding currency changes, but now expects them to be unchanged from last year.  The company is also forecasting that US commodity costs will increase by 2-3%, up from previous guidance of 1-2%.  While net income fell to $1.33B from $1.38B a year earlier.  However, EPS was flat at $1.72.  Excluding an additional $47M  of income tax costs, EPS was $1.78, beating the $1.75 expected.  Net sales dropped 4% to $4.96B, topping expectations of $4.93B.  Excluding currency fluctuations, revenue increased 2%.  The refranchising initiative once again hit sales this qtr.  While selling its corp-owned stores to franchisees helps cut costs, it also means that the company's reported revenue falls because of accounting differences.  However, its strong same-store sales performance shows that customers are still eating plenty of its Happy Meals & Big Macs.  The fast food giant reported global same-store sales growth of 5.4%, beating estimates of 3.4%.  “We started the year strong with our 15th consecutive quarter of positive global comparable sales, reflecting continued broad-based momentum across each of our global segments,” CEO Steve Easterbrook said.  In the US, sales at stores open at least a year increased by 4.5%.  MCD attributed the growth to its promotions, like its hour-long free bacon giveaway, the 2 for $5 Mix & Match deal & Donut Sticks.  The company also said that it is seeing a “net positive impact” from its store renovations for the first time.  The stock went up 45¢.
If you would like to learn more about MCD, click on this link:

McDonald's earnings beat estimates as promotions drive sales growth

Earnings did not give a big boost to stocks & the Alphabet (GOOG) selloff, down 99 (8%), cast a dark could over the entire market.  The best earnings reports may be out already with the rest being less inspiring.  Tomorrow the Fed will speak after the meeting & the big jobs report comes on Fri.  More testing for the high stock values is coming.

Dow Jones Industrials

Markets struggle after Alphbet reported weak revenue

Dow slid back 23, decliners over advancers 5-4 & NAZ dropped 64.  The MLP index fell 1+ to the 251s & the  REIT index inched higher in the 374s.  Junk bond funds fluctuated & Treasuries were pruchased by investors.  Oil rose in the 63s & gold added 2 to 1283.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil63.93

GC=FGold   1,286.00

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Slower North American sales & a flat intl business at General Motors (GM) underscored lower profits & revenue in Q1, sending shares lower.  The company is in the midst of shifting its operations away from passenger cars towards electric & autonomous vehicles, as well as trucks & sports utility vehicles, one that is expected to lead to as many as 14K job cuts.  As part of that transformation, GM said it planned to double the number of employees in its self-driving division in 2019, which cost the company $169M in Q1.  Overall, revenue in the qtr dropped 3.4% to $35B, less than predicted.  Meanwhile, adjusted EPS was $1.41, higher than estimates.  A portion of the profits came from GM's stake in Lyft (LYFT), which went public earlier this year.  The results "were in line with expectations," according to CEO Mary Barra.  "My confidence in the year ahead remains strong, driven by our all-new full-size truck launch and our ongoing business transformation," she said.  Profits in the US, Mexico & Canada were down 15% to $1.9B, while net income outside the region declined 84% to $31M.  The bulk of the North American sales came from trucks, up 20% year-over-year & the bottom-line was bolstered by a $5800 increase in the average transaction price.  GM is rolling out its 2020 Chevrolet Silverado HD & GMC Sierra HD trucks in H2.  In Asia, sales fell 14%.  GM plans to introduce 20 new vehicles in China this year, as sales in the world's most lucrative auto market continue to stall.  The stock fell 89¢.
If you would like to learn more about GM, click on this link:

GM's 1Q earnings drop on slower global sales

Home shoppers signed 3.8% more contracts to buy existing homes in Mar compared with Feb, according to the National Association of Realtors' (NAR) Pending Home Sales Index.  That was higher than expected.  Sales were 1.2% lower compared with Mar 2018, the 15th straight month of annual declines.  Buyers had added incentive in Mar, as mortgage rates plummeted to the lowest level in over a year.  The average rate on the popular 30-year fixed mortgage topped 5% at the start of last Nov, but then began falling & took a sharp dip in Mar to around 4%.  That gave buyers additional purchasing power, as well as more confidence in the overall market, where prices have been overheating.  “We are seeing a positive sentiment from consumers about home buying, as mortgage applications have been steadily increasing and mortgage rates are extremely favorable,” wrote Lawrence Yun, chief economist for the NAR.  Yun also noted that pending sales have been exceptionally fluid over the past several months but predicted that numbers will begin to climb “more consistently.”  Mortgage applications to purchase a home, however, have weakened over the past several weeks, as mortgage rates are now about a quarter of a percentage point higher than they were in Mar.  Home price gains have been shrinking since last summer, but only after affordability had fallen to the worst level in over a decade.  Prices rose 4% nationally in Feb, down from Jan's 4.2% annual gain.  “Despite some affordability issues in the West, the numbers indicate that there is a reason for optimism. Inventory has increased, too.  These are great conditions for the region,” added Yun.  The supply of homes for sale continues to increase, according to the NAR, but that increase may be more about homes sitting on the market longer, rather than a big jump in new listings.  The shrinking price gains could help, but only if rates stay low.

Pending home sales jumped 3.8% in March, thanks to a big dip in mortgage rates

Consumer confidence bounced back in Apr & suggested the economy is likely to keep growing solidly thru the summer, a survey shows.  The consumer confidence index rose to 129.2 from 124.2, according to the Conference Board.  Consumers feel pretty good about how the economy is doing right now & they see good times continuing over the next 6 months.  The present situation index rose to 168.3 from 163.  The board’s survey of future expectations moved up to 103 from 98.3.  Both are close to the highest levels in a decade.  Consumer confidence surged to an 18-year peak in Oct & Americans are still optimistic about the economy, if a bit less than they were last fall.  There's good reason to believe confidence will remain high.  Stock prices have retouched record highs, interest rates & inflation are low & wages are rising at the fastest pace in almost a decade.  That should be enough to help the current 10-year-old economic expansion break the all-time record this summer.

Consumer confidence snaps back in April and points to steadily growing economy

The NAZ retreat was led by led Alphabet (GOOG).  Its shares plunged more than 100 on a disapapointing report (worst day in 10 years).  In the ordinary industrrials, GM did not have a good qtr.  The Fed started its big meeting & its statement tomorrow will get a lot of attention.  At least consumer confidence is did well.

Dow Jones Industrials

Monday, April 29, 2019

Markets rise cautiously ahead of earnings reports this week

Dow climbed 11, advancers over decliners 3-2 &  NAZ gained 15.  The MLP index went up chump change in the 253s & the REIT index declined 3+ to the 374s.  Junk bond funds were little changed & Treasuries continued to be sold.  Oil finished higher in the 63s & gold fell 6 to 1282 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Top White House economic adviser Larry Kudlow said that the new US-Mexico-Canada Agreement, which will replace NAFTA, will add Bs of $s to the US economy & create hundreds of Ks of jobs.  “I want to put in a plug for USMCA which could produce $100 billion per year in added GDP. Maybe 170,000 to 180,000 jobs, that’s a huge thing, American farmers will benefit,” Kudlow said.  The Trump administration trade deal to replace the North American Free Trade Agreement may lead to labor reform laws in Mexico, a move spearheaded by Trade Representative Robert Lighthizer.  The Mexican labor movement that has kept wages low for the country could push USMCA closer toward approval.  Kudlow said USMCA is “hugely important” to the American economy and he is hopeful Congress will sign the trilateral trade deal.  “We’re hoping that [House] Speaker [Nancy] Pelosi, who’s been very cooperative so far, will give us a vote in the near future,” he added.

USMCA could generate $100B per year in added GDP: Larry Kudlow

The Treasury expects to borrow $30B in Q2, $53B lower than previously estimated, according to a statement.  The new forecast includes an end-of-qtr cash balance of $270B.  The dept said the decrease in borrowing was driven by "changes to projections of fiscal activity and cash balance assumptions."  Looking ahead to Q3, Treasury said it expects to borrow $160B in net marketable debt with a cash balance of $85B.  The US is expected to run out of cash to pay bills sometime in the fall without a debt-limit increase, according to estimates from the CBO.  During Q1, Treasury borrowed $374B in net marketable debt & ended with a cash balance of $334B.  This was slightly higher than the Treasury's estimate of borrowing of $365B & a cash balance of $320B.

U.S. expects to borrow $30 billion in second quarter

Crude-oil futures ended on a mixed note, with US prices managing to recoup a small portion of last week's loss, but global benchmark prices failing to hold on to modest gains.  Uncertainty surrounds OPEC's next move in the wake of Pres Trump's latest call on the Saudis & their allies to boost crude production.  The Saudis may have some difficulty in finding an incentive to raise output, however.  The Saudis need an oil price of about $85 a barrel to balance its budget this year, up from a forecast of $73 in Sep from the IMF.  West Texas Intermediate crude for Jun delivery rose 20¢ (0.3%) to settle at $63.50 a barrel.  Prices tumbled 2.9% to settle at $63.30 a barrel on Fri to post a loss of 1.2% for the week, following 7 consecutive weeks of gains. In contrast, Jun Brent crude, the global benchmark, fell 11¢ to settle at $72.04 a barrel after briefly moving higher.  The contract, which expires at tommorrow's settlement, fell 3% on Fri.  Oil contracts closed off their worst levels on Fri after OPEC's Secretary-General Mohammed Barkindo said he hadn't spoken with Trump & a report said that Saudi Arabia's energy minister Khalid al-Falih wasn't part of those talks either.  Trump later tweeted that he had spoken to Saudi Arabia.  “Spoke to Saudi Arabia and others about increasing oil flow. All are in agreement.” Trump tweeted on Fri.

Oil ends mixed; uncertainty surrounds OPEC’s next move after Trump’s latest call for output boost

Gold futures settled lower after tallying gains in each of the last 3 trading sessions, with investors looking ahead to a busy week for Federal Reserve policy & key US jobs data.  Today data showing that profits at Chinese industrial firms grew for the first time in 4 months set a relatively upbeat tone for riskier global stock markets, nicking precious metals prices.  Some strength in the US stock market also helped to dull investor interest in gold.  Strength in appetite for risky assets, like stocks, can weigh on haven gold, while the $'s recent uptrend can make gold relatively more expensive to intl buyers.  Separately, rising bond yields can also dull the luster of gold & other commodities, which offer no yield.  Gold futures finished higher Fri & for last week after a quarterly reading of the pace of growth of the US economy came in better than expected for the first 3 months of the year, up 3.2%.  But details of the report raised questions about the underlying strength of the economy.  There was little fresh evidence in the report to suggest the Federal Reserve would crank up interest-rate hikes soon.  Federal Reserve policy makers are fully expected to leave interest rates on hold when they conclude a 2-day meeting on Wed.  But the statement & Chairman Jerome Powell's remarks will be closely watched for clues to their thinking.  Some investors continue to look for the Fed to cut rates before the end of the year, even after data Fri showed the US economy started 2019 on a stronger-than-expected footing.  That's because underlying components of the report on Q1 GDP appeared less impressive &, moreover, due to continued signs that inflation remains subdued.  The gov's estimate of Apr jobs growth is due on Frid.

Gold futures post first loss in 4 sessions

Although trading today remained quiet, the S&P 500 & NAZ were able to reach record levels again.  The Dow is about 1% away from its record reached in Oct.  Earnings reports always have the potential of creating excitement.  In addition Powell & the FOMC will speak & the big jobs report comes on Fri.  Trader excitement should increase later this week.

Dow Jones Industrials