Friday, April 26, 2019

Mixed markets on strong GDP growth while earnings are weak

Dow crawled up 4, advancers over decliners about 2-1 & NAZ fell 24 following recent strength.  The MLP index was off a fraction to the 252s & the REIT index gained 2 to the 377s.  Junk bond funds inched higher & Treasuries rose in price, bringing the yield on the 10 year Treasury down to 2.5%.  Oil sank 2 to the 63s on profit taking & gold added 8 to 1288.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil63.94

GC=FGold   1,287.90

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Stocks opened slightly lower after poor earnings reports offset data showing US economic growth was faster than expected.  Nevertheless, the S&P 500 is up 16% YTD after the Federal Reserve earlier decided to hold off on further interest rate rises this year.  Q1 GDP grew 3.2% , the Commerce Dept said, beating estimates for 2.5% growth, compared to a 2.2% increase in Q4.  Q1 GDP growth was the fastest in 6 years.  Shares were lower in Asia overnight after data showed a fall in Japanese industrial production.  Treasury yields fell though after strong Q1 GDP data was offset by weak inflation data.  The 10-year Treasury note yield slipped to 2.52%.  The headline inflation rate fell to a 1.4% annually in Q1, from 1.9%  in the previous period.  The Federal Reserve is not expected to change its policy of refraining from further interest rate rises this year despite the strong GDP data.  The central bank meets again next week to discuss the outlook.  Oil prices slipped after rising to 6 month highs earlier in the wake of Pres Trump's decision to restrict Iranian oil exports further.

Stocks open lower on poor earnings despite good US GDP data

The US economy grew more quickly than expected during Q1, according to data from the Commerce Dept.  During the 3-month period from Jan-Mar, the GDP rose at a 3.2% annualized rate, beating most expectations of 2.5%.  It also bested GDPNow, a real-time tracker monitored by the Federal Reserve Bank of Atlanta, which lowered its forecast to 2.7% this week because of weakness in existing-home sales & a drop in residential investment growth.  The economy largely shook off the effects of a 5-week long gov shutdown, the longest in US history, that White House officials once warned could result in near-zero growth.  The standoff was a result of a feud between Pres Trump & Dem congressional leaders over funding for a wall along the US.-Mexico border.  Disposable income rose $116B (3%) in the first qtr & 0verall prices 0.8%.  Investors were closely watching the report's release for signs to dismiss fears of an impending economic recession.  Stocks rose on the better-than-expected results in pre-market trading.

US economic growth rebounds at 3.2 percent pace in first quarter

The US economy is off to its best start to a year since 2015 & White House economic adviser Larry Kudlow believes it means the Federal Reserve should cut interest rates.  GDP grew by 3.2% in Q1, which Kudlow called “a blow out number.”  He added the current economy is in a “prosperity cycle” that “is gaining momentum, not losing momentum”  “The inflation rate continues to slip lower and lower,” Kudlow said.  “Even according to the Fed’s own spokespeople, from the chairman on down, that could open the door to a target rate reduction,” Kudlow said.  Kudlow is the director of Pres Trump's National Economic Council.  He added the argument for cutting interest rates was coming by the Fed's own metrics.  “We are clicking on all cylinders, the inflation rate is coming down, the Federal Reserve will be looking at that,” Kudlow conitnued.  Kudlow has trumpeted this view ever since Fed chairman Jerome Powell said at the central bank's Mar meeting that no rate cuts would be necessary this year.  Both Kudlow & Trump have been outspoken that they think the Fed should stop shrinking its balance sheet & cut rates.

White House economic advisor Larry Kudlow says Fed should still cut rates despite 3.2% GDP growth

Exxon Mobil (XOM), a Dow stock & Dividend Aristocrat, reported that Q1 profits fell nearly 50% from a year ago, hit by poor results in its refining & chemicals segments.  Shares of the oil giant declined.  XOM reported a quarterly loss in its downstream business, which focuses on refining oil into fuels like gasoline & diesel.  The company said brimming stockpiles of gasoline led to weak fuel margins during the qtr.  It also continued a heavy slate of refinery maintenance.  That maintenance has weighed on downstream profits in recent qtrs & the company warned that it will continue in Q2.  Profits in the chemicals business also tumbled $219B from a year ago.  While XOM sold more chemicals, profit margins came under pressure because the industry has recently added capacity.  The oil major's output of crude, natural gas & other fossil fuels reached 4M barrels of oil equivalent, up 2% from last year.  Still, income in the upstream exploration & production unit fell $621M from last year.  While crude oil prices strengthened, they still remained relatively weak, XOM said.  “Solid operating performance in the first quarter helped mitigate the impact of challenging Downstream and Chemical margin environments,” CEO Darren Woods said.  EPS came in at 55¢ compared with the 70¢ forecast.  Revenues were $63.63B, down 6.7% from a year ago & short of estimates for $64.82B.  Capital & exploration expenses increased from $4.87B a year ago to $6.89B this qtr.  The results showed XOM continuing to increase its oil & natural gas production after the energy giant broke a streak of declining output last qtr.  Production figures were in line with expectations.  On Wed, the quarterly div was raised 5¢ to 87¢.  The stock dropped 2.02.
If you would like to learn more about XOM, click on this link:

Exxon Mobil’s quarterly profits tumble on poor refining and chemicals r…

Will wonders never cease?  The GDP growth rate was unexpectedly strong,  However, 2 revisions are coming In May & Jun.  Enthusiasm from investors was tempered by mixed earnings reports.  And safe haven gold & Treasuries were bid higher.  Some of the biggest companies have been reporting dreary numbers & more of that should be expected.  But the popular stock averages continue to be optimistic on the future.

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