Markets jump following yesterday's selloff

Dow shot up 195, advancers over decliners 3-2 & NAZ gained 95.  The MLP index pulled back 1+ to the 246s & the REIT index was flattish in the 388s.  Junk bond funds crawled higher & Treasuries rose in price.  Oil fell 1+ to 57 & gold tumbled 14 to 1423 as the $ continues to climb.

AMJ (Alerian MLP Index tracking fund)

CL=F

Crude Oil

56.77

-1.81

-3.1%

GC=F

Gold

1,417.60

-20.20

-1.4%

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Stocks trading higher, a day after the Federal Reserve cut interest rates for the first time in a decade & comments by the Fed Chair sent stocks plunging.  Chair Jerome Powell had suggested that the cut wasn't the beginning of a long easing cycle.  He also reiterated that the central bank would continue monitoring incoming economic data.  That helped send the Dow to a loss of 333 (1.2%).   Weekly jobless claims came in at 215K, slightly higher than expected.  Yesterday, ADP reported the private sector added 156K jobs in July.  This comes ahead of Fri's monthly employment report.  Economists estimate that 164K workers were added to payrolls.

Stocks steady following Fed-led selling

As capital comes back home to the US, we are seeing Pres Trump's tax reform pay off big time for our country.  US based Pfizer (PFE), a Dow stock, this week announced that it will combine its off-patent drug business with Dutch company Mylan (MYL) & form a new US-based company.  And Illinois-headquartered AbbVie (ABBV), a Dividend Aristocrat, recently announced it would acquire the Irish company Allergan (AGN).  These are both fresh new demonstrations that Pres Trump's tax reform enacted at the end of 2017 is clearly doing what it was intended to do, making the US more competitive.  Not so long ago, companies viewed the U.S. as a poor choice for headquartering intl business operations because the US had one of the highest corp income tax rates in the world & a worldwide tax system that compared unfavorably with the territorial systems in 28 of the other 33 OECD countries.  This territorial system allowed active business income to be repatriated with little or no additional home country tax.  Because the US taxed active foreign earnings once they were repatriated to the US, corps had a strong incentive to leave earnings of foreign subsidiaries offshore.  In 2016, US companies held more than $2T offshore while borrowing in the US to fund domestic investments.  The pre-tax reform out-of-step US rules were also causing US companies to engage in heavily criticized “inversion” transactions in which they reincorporated as foreign companies thru cross-border mergers.  Pres Trump’s 2017 tax reform bill changed all of that by lowering the corp tax rate to 21% which allowed US companies to repatriate foreign subsidiary income at greatly reduced US tax rates.  The tax reform bill also included provisions removing the incentive to locate intellectual property in low-tax foreign jurisdictions rather than the US.  The new law substantially eliminated incentives for corporate inversions 2 created an environment in which the US is a more competitive location from which to hold intl business operations.

Trump tax reform delivering on promises as money comes back home to US

The US manufacturing sector expanded in Jul, but the pace of growth decelerated to its weakest in nearly 3 years stemming from a broad decline in activities from the month before, according to an industry report.  The Institute for Supply Management's (ISM) index of national factory activity fell to 51.2, the lowest reading since Aug 2016, below the figure of 51.7 in Jun.  The forecast called for a reading of 52.0.   US construction spending fell by the most in 7 months in Jun as investment in private construction projects tumbled to a more than 1.5-year low.  The Commerce Dept construction spending dropped 1.3%, the biggest decline since last Nov.  Data for May was revised up to show construction outlays falling 0.5% instead of decreasing 0.8% as previously reported.  The forecast called for construction spending rising 0.3% in Jun.  Construction spending fell 2.1% on a year-on-year basis in Jun.  Spending on private construction projects dropped 0.4% in June to $962.9B, the lowest level since Oct 2017.  Homebuilding has remained weak even as mortgage rates have dropped sharply from last year’s high levels.  Spending on residential construction has contracted for 6 straight qtrs, the longest such stretch since the 2009 recession.  Spending on private nonresidential structures, which includes manufacturing & power plants, fell 0.3% in Jun after decreasing 0.6% in the prior month.  Private nonresidential investment has now declined for 3 straight months.  Investment in nonresidential construction fell at its steepest pace in more than 3 years in Q2, helping to hold back economic growth to a 2.1% annualized rate. The economy grew at a 3.1% pace in Q1.  In Jun, investment in public construction projects tumbled 3.7%, the largest drop since 2002, after decreasing 1.2% in May.  Spending on state & local gov construction projects fell 4.1%, also the biggest decline since 2002.  That followed a 0.9% decrease in May.  Outlays on federal gov construction projects rebounded 2.6% in Jun after plunging 5.6% in the prior month.

ISM manufacturing index falls to 51.2 in July; construction spending down 1.3% in June

A gauge of US manufacturing from IHS Markit fell to the lowest since Sep 2009.  The IHS Markit Manufacturing Purchasing Managers’ Index fell to 50.4 in Jul, down from 50.6 in Jun, driven by a weaker demand.  The firm also noted managers' signaled slower hiring.  A gauge of employment within the report fell to the lowest since mid-2013 in Jul.  Stocks rose and bond yields fell following the release from IHS Markit as traders bet more weak readings such as this one could cause the Federal Reserve to follow thru with more rate cuts following its one yetersday.  “US manufacturing has entered into its sharpest downturn since 2009, suggesting the goods-producing sector is on course to act as a significant drag on the economy in the third quarter,” added IHS Markit economist Chris Williamson.  Readings above 50 signal expansion.

Gauge of US manufacturing hits lowest since September 2009, raising concerns about the economy

Bargain hunters returned to buy stocks today.  There is confusion about the Fed's next move on interest rates, but optimism reigns today.  Meanwhile stalled US-China trade talks are not a bother to the bulls as they keep the Dow at essentially record highs.

Dow Jones Industrials