Wednesday, April 24, 2019

Markets pull back after yesterday's advance to new records

Dow inched up 6, advancers over decliners 4-3 & NAZ was up 1 following early selling.  The MLP index fell 1 to the 256s (remaining in its sideways trend) & the REIT index rose 4 to the 377s.  Junk bond funds fluctuated & Treasuries were in demand.  Oil slid back pennies in the 66s & gold went up 2 to 1276 after recent selling.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil66.32

GC=FGold   1,274.70

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Stocks slipped , following record-setting gains the day before, on stronger-than-expected quarterly reports & despite concerns about the strength of the global economy.  The declines came as investors eyed German business sentiment, which dropped in Apr, indicating that Europe's biggest economy continues to weaken.  Investors also gauged the possibility that Beijing may slow the pace of policy easing following a report that China's economy posted a surprisingly strong Q1 growth.  Yesterday, stocks closed at an all-time high as better-than-expected quarterly profits from some of the largest companies encouraged investors.  The benchmark S&P 500 index rose 17%, its best start to a year since 1987, while the NAZ has gained 22%, its best start since 1991.  The Dow remains about ½ a percentage point from its record last Oct.  Yesterday's move to a record high for the benchmark S&P 500 index & Nasdaq index comes less than 6 months after a sharp decline in late Dec, which led the S&P 500 to its worst annual performance since 2008.  But stocks quickly recovered in the past 3 months as the Federal Reserve stopped raising interest rates & the Trump administration said it was making progress on a trade deal with China.  Crude oil prices for US benchmark West Texas Intermediate (WTI) were fractionally lower at $66.26 per barrel.  The slight pullback in WTI prices comes after the American Petroleum Institute yesterday reported a gain of almost 7M barrels in inventories last week, more than 5 times the expected increase.  WTI is hovering just below a 6-month high touched yesterday on supply concerns in reaction to Mon's announcement by the US that it would end sanctions that allowed some nations to import Iranian oil.  The markets were already nervous about tight supplies resulting from output cuts by OPEC, Russia & others.  The Energy Information Administration is expected to say that crude stockpiles rose by 1.255M barrels last week.  Inventories of such refined products as heating oil diesel are anticipated to slip by almost 1.2M  barrels, while gasoline stocks likely fell by about 1M barrels.  China's Shanghai Composite inched higher, the Hang Seng finished off 0.5% & Japan's Nikkei 225 ended down 0.3%.  Britain's FTSE 100 was off 0.6%, France's CAC 40 was down 0.3% & Germany's DAX rose 0.7%.

US stocks slip after record-setting gains

Caterpoillar (CAT), a Dow stock, reported record Q1 profit amid higher sales, results that could ease some concerns over the prospects of a global economic slowdown given the firm's sprawling intl operations.  Revenue rose to $13.5%, beating projections & EPS was $3.25, higher than anticipated.  CEO Jim Umpleby touted the company's strategy for growth thru “investing in services, expanding our offerings and improving operational excellence.”  CAT raised its 2019 EPS outlook to a high of $13.06.  Overall, total construction sales grew 3% to $5.9B, supported largely by a 13% growth in North America spurred by increased road construction.  Meanwhile, sales fell in all other major markets, including China & Europe.  Profits in the sector fell to $1B due to, among other things, higher raw material costs as a result of Pres Trump's double-digit tariffs on steel & aluminum imports.  A 52% growth in mining sales in China also helped underscore an 18% rise in sales in the sector.  Energy & transportation sales remained flat year-over-year.  The stock dropped 3.63.
If you would like to learn more about CAT, click on this link:

Caterpillar posts record 1Q profits amid fears of global economic slowdown

Boeing (BA), another Dow stock, announced it will pause share buybacks & is withdrawing its full year 2019 financial forecast while it works throu issues surrounding its 737 Max aircraft, whose software is suspected in two deadly crashes.  BA said the previous guidance “does not reflect 737 MAX impacts,” adding that “new guidance will be issued at a future date” because of “the uncertainty of timing and conditions” for when the 737 Max planes will return to flight.  The company noted the commercial airplane business had $1B in increased costs due to the 737 production line.  BA also delivered Q1 earnings that were in line with expectations while revenue was lighter than expected.  The cash flow fell nearly 10%, to $2.8B from $3.1B last year, specifically citing lower 737 aircraft deliveries.  Expectations vs. results:
  • EPS: $3.16 vs $3.16 expected.
  • Revenue: $22.92B vs $22.98B expected.
“Across the company, we are focused on safety, returning the 737 MAX to service, and earning and re-earning the trust and confidence of customers, regulators and the flying public,” CEO Dennis Muilenburg said, adding that this is “a challenging time for our customers, stakeholders and the company.”  Its largest business, commercial airplanes division, saw deliveries fall 19% year-over-year for the qtr, to 149 aircraft from 184 aircraft.  That decline is largely due to the 737 Max's grounding, as the plane makes up the majority of the order backlog.  The stock rose 5.16.
If you would like to learn more about BA, click on this link:

Boeing pulls 2019 guidance, pauses share buybacks due to 737 Max uncertainty

AT&T (T), a Dividend Aristocrat, missed estimates for quarterly revenue, hit by lower-than-expected sales in its WarnerMedia unit & a shortfall in income from a wireless business where it has cut prices to draw in customers.  AT&T has reduced its dependency on the phone business by buying media content through its acquisition of Time Warner, yet faces a daunting struggle to find growth as declines in one business offset growth in another.  WarnerMedia, which includes Turner & premium TV channel HBO, reported revenue of $8.38B in the qtr, falling short of estimates for $8.45B.  The 2nd-largest US wireless carrier by subscribers added a net 80K phone subscribers, surprising on the forecast for a loss of 44K subscribers as its cut the price of plans to combat strong competition in the saturated US market.  However, that meant Mobility, its largest segment which includes its wireless business, had revenue of $17.57B during the qtr, missing estimates of $17.65B.  DirecTV Now, the company's streaming service, lost 83K subscribers, more than expectation of a 82K loss.  EPS fell to 56¢, from 75¢ a year earlier.  Excluding items, EPS was 86¢, in line with estimates.  Total revenue rose nearly 18% to $44.83B but fell short of expectations of $45.11B.  The stock declined 1.34.
If you would like to learn more about T, click on this link:

AT&T misses quarterly revenue estimates

Earnings were less impressive today & profit taking was in order.  Going forward, earnings reports may be choppy.  And trade talks continue to need more work.  But the bulls are happy to see the popular stock averages at or close to record highs.

Dow Jones Industrials

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