Friday, January 31, 2020

Markets plunge on worries about the economic impact of coronavirus

Dow tumbled 603 (close to session lows), decliners over advancers about 4-1 & NAZ sank 148.  The MLP index dropped 3 to the 204s & the REIT index dropped 5+ to 410.  Junk bond funds (stock with high yields) slid lower & Treasuries continued in demand as stocks were sold.  Oil fell to the 51s on an unusually wild day for trading & gold went up 4 to 1593 (more on both below).

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Live 24 hours gold chart [Kitco Inc.]

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Whenever you talk about a deadly event like the coronavirus, you have to show respect to the human side of the story.  At the same time, you also have to think about the financial & economic side.  Ground zero for the outbreak of the virus may be the Chinese city of Wuhan, but financially, Ground zero is oil.  Oil prices are on track to have their most significant one-month net & percentage decline since the week ending Nov 30, 2018.  The reason oil is being hit hard is because demand is the first thing that gets destroyed in this situation.  Demand destruction is a permanent loss of oil demand due to unexpected events.  So far, the coronavirus is creating oil demand destruction on a massive scale.  As soon as it began to unfold, China, on Jan 23, took the unprecedented step of putting a quarantine on the city of Wuhan 11M people.  They closed stores canceled plane flights & trains which brought oil demand to a near standstill.  But that was just the beginning.  Soon China expanded the order to the entire province of Hubei, effectively parking nearly 56M.  This came on the important Lunar Day holiday for China.  Chinese authorities saw a  drop of almost 30% in travel from the year before.  In an attempt to slow the spread of the virus, they decided to extend the Lunar Day holiday to Feb 2.  In China, factories are still closed & will remain closed. Hundreds of flights out of Wuhan & the surrounding  16 cities in Hubei Province.  This week the WHO declared the outbreak a "public health emergency of international concern" & another bold step unfolded yesterday when the State Dept issued a "Do Not Travel to China" advisory.  Initially, global oil demand destruction was estimated to be around 200K barrels a day.  Yet now as the virus fears spread its probably more than twice that amount.  Due to canceled flights in China & across the globe, we may see 300K barrels a day of lost jet fuel demand alone.  Today, American Airlines (AAL) & Delta (DAL) issued additional flight reductions to the region.  Because of that, it looks like OPEC along with Russia, is in talks to add another 500K barrels of production cuts to offset the demand loss but if the virus fears continue to slow global economic growth, it might not be enough.  On top of that, there has generally been warm winter around the globe. That caused a significant drop in diesel & jet fuel demand & pushed prices to a one-month net decline not seen since Nov 2018.  Gas prices are also seeing substantial reductions having its most extensive one month net & percentage drop since last Aug.  It did not help to see that China's manufacturing sector was struggling before the reports of the outbreak happened.  China's Purchasing Managers’ Index (PMI) fall to 50.0 in Jan from 50.2 in Dec, China's National Bureau of Statistics (NBS) said today.  The reading was in line with forecasts & hit the neutral 50-point mark that separates growth from contraction on a monthly.  Yet what could also hurt demand is fear.  Fear that the virus could spread.  It is now being reported that the coronavirus has spread from China to around 20 countries, killing more than 200.  If people start to fear the virus & stay home, it could have a more significant impact on the economy.

Coronavirus is ground zero for crude

US health officials have quarantined 195 Americans evacuated from Wuhan, China, taking the rare step of issuing a mandatory order for the first time in more than 50 years to help contain an outbreak of a new coronavirus that’s spread to roughly 10K people across the globe.  “CDC under statutory authority of the HHS secretary has issued federal quarantine orders for all 195 passengers,” Dr Nancy Messonnier, director of the National Center for Immunization & Respiratory Diseases, said on a conference call today.  “While we recognize this is an unprecedented action, we are facing an unprecedented public health threat.”  The new coronavirus, which was discovered about a month ago, can spread before symptoms show, she said, citing a new report from the New England Journal of Medicine.  The illness has quickly spread throughout mainland China, with 7K new cases confirmed over the last week & at least 213 deaths.  “This is a very serious public health situation and CDC and federal government has and will continue to take aggressive action to protect the public,” she added.  “If we take strong measures now, we may be able to blunt the impact on the United States.”

CDC issues mandatory quarantine for first time in more than 50 years to Wuhan passengers

Gold settled lower, pulling back from the more-than-6-year high it settled at a day earlier, but prices scored a 2nd straight monthly climb.  Against that backdrop, gold for Apr delivery lost $1.30 to settle at $1587 an ounce.  Prices for the most-active Apr contract saw weekly climb of 0.6% & a rise of about 3.8% for the month.  The settlement level also marked the highest weekly price finish since 2013.  Gold's rally was boosted this week as worries mounted over the potential global economic impact of the spread of the coronavirus.  Those concerns helped burnish gold's appeal as a haven as investors shunned risky assets, including stocks.  Global equity markets were under pressure today, but US stocks had rebound on yesterday after the World Health Organization declared the outbreak a global emergency, with analysts tying the bounce to relief over the lack of a recommendation by the body to restrict travel to or trade with China.  Beijing has reported nearly 9700 cases of coronavirus, while the death toll has climbed to 213.  The US State Dept today urged Americans not to travel to China.

Gold eases back from highest level since 2013, but posts a second monthly climb

Manufacturing activity in the Midwest sank in Jan to the lowest level since 2015, according to a survey of businesses released today by MNI Indicators. The Chicago Purchasing Managers Index fell to 42.9 this month from 48.9 in Dec.  Any reading below 50 indicates deteriorating conditions.  The forecast expected a small dip to 48.5.  All 5 of the major components declined, with orders backlogs & new orders leading the way & production also cooled.  The Chicago PMI has been below 50 since Jul.  Other regional manufacturing surveys have not been as weak & showed some improvement this month.  Economists think the Boeing (BA), a Dow stock, production halt for the 737 Max is weighing on the index.  Additionally Caterpillar (CAT), another Dow stock, expects demand for its machinery to slump this year.  The closely watched national ISM manufacturing purchasing managers index will be released on Mon.  The forecast is for a slight improvement from Dec's 47.2% reading, which was the lowest since 2009.  The national index has been below 50 for 5 straight month.

Chicago manufacturing activity slumps in January to weakest reading since late 2015

After a dreary start, this turned out to be a brutal day for stocks.  Fears on growing complications from the coronavirus drove the selling.  This outbreak is so scary that buying in safe haven gold & Treasuries was limited.  All investors are nervous.  The Dow finished down 280 in Jan & the outlook for Mon looks to be be bleak without good word on containing the virus.

Dow Jones Industrials

Markets tumble on growing coronavirus worries by investors

Dow sank 410, decliners over advancers 5-2 & NAZ pulled back 95  The MLP index slid back 1+ to the 206s & the REIT index fell 2+ to the 412s.  Junk bond funds edged lower & Treasuries rose in price.  Oil dropped to the 51s & gold was even at 1588.

AMJ (Alerian MLP Index tracking fund)

stock chart

CL=FCrude Oil51.79

GC=FGold   1,588.50

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Caterpillar (CAT), a Dow stock, reported declining revenue at the end of last year & forecast lower 2020 profit than expected as user demand remains weak amid global economic worries fueled partly by the US trade battle with China.  The equipment maker reported EPS of $1.97, as sales fell 8.4% year-over-year to $13.1B, trailing projections.  Excluding items such as pension-plan losses & tax-reform impact, EPS amounted to $2.63, topping the $2.38 estimate from analysts.  For the full year, EPS was $10.74 a share as revenue fell 2% from a year earlier to $53.8B.  “We expect continued global economic uncertainty to pressure sales to users in 2020 and cause dealers to further reduce inventories," CEO Jim Umpleby said.  The construction industries business, which accounts for about 38% of sales, saw revenue fall 12% from a year ago to $5.02B as dealers stocked less equipment & fewer pieces of machinery were sold.  Sales were also impacted by "unfavorable price realization."  Meanwhile, sales at the energy & transportation unit, which makes up 45% of revenue, slid 5% year-over-year to $5.95B.   The decline was precipitated by a 23% drop in inter-segment engine sales.  Looking ahead, CAT sees full-year 2020 EPS of $8.50-10, missing the $10.68 that analysts were expecting.  The stock fell 2.05.
If you would like to learn more about CAT, click on this link:

Caterpillar warns global economic tremors will curb sales

Chevron (CVX), a Dow stock & Dividend Aristocrat, posted a massive Q4 loss after taking $10.4B worth of writedowns related to North American shale projects.  The oil giant lost $6.6B ($3.51 a share) in the 3 months thru Dec as revenue fell 14% to $36.3B.  Adjusted EPS of $1.49 topped the $1.43 that analysts were expecting.  “Cash flow from operations remained strong in 2019, allowing the company to deliver on all our financial priorities,” CEO Michael Wirth said.  Those included paying $9B in divs & buying back $4B of company shares, which typically drives up value for remaining stockholders.  The stock fell 3.77.
If you would like to learn more about CVX, click on this link:

Chevron loses $6.6B after huge writedown of North American shale

US consumer sentiment came in marginally above expectations & within striking distance of a cyclical peak amid strength in the labor market & strong increases in income.  The Univ of Mich consumer sentiment index came in at 99.8 for Jan.  The forecast called for consumer sentiment to come in at 99.1 & a slight uptick from Dec's 99.3 reading.  “The resilience of consumers is remarkable and due to record low unemployment, record gains in income and wealth, as well as near record lows in inflation and interest rates,” said Richard Curtin, Surveys of Consumers chief economist.  The US unemployment rate was at 3.5% in Dec, its lowest level in about 5 decades.   Personal income rose 0.2% last month after a 0.4% in Nov.   Meanwhile, the Federal Reserve kept rates near historically low levels earlier in Jan.  Still, Curtin remarked this consumer resiliency “is surprising given the overall slow pace of economic growth, which was accompanied in January by renewed military engagements in the Mideast, an impeachment trial in the Senate, and a fast spreading coronavirus.” 

Consumer sentiment ticks up as unemployment remains around 50-year lows

The virus scare in China has become a major worry for investors around the world.  There are 10K cases & they only represent ones that have been reported.  Confidence in China's ability to control is disaster is plummeting.  The Dow is down 100 in Jan & has the makings of an ugly day for stocks.  As a result the price of gold is at multi year highs.

Dow Jones Industrials

Thursday, January 30, 2020

Markets recover losses on strong earnings

Dow finished the day up 124, decliners barely ahead of advancers & NAZ added 23.  The MLP index dropped 3+ to the 207s & the REIT index was steady in the 415s.  Junk bond funds hardly budged in price & Treasuries were in strong demand.   Oil dropped to the 52s while gold went up 6 to 1577 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Microsoft (MSFT), a Dow stock, cloud computing services boosted earnings in the last qtr, helping send shares to an all-time high.  The company reported fiscal Q2 profit of $11.6B, up 36% from the same period last year & EPS of $1.51 beat expectations.  The software maker posted revenue of $36.9B in the Oct-Dec period, up 14% from last year, also beating forecasts.  Analysts expected EPS of $1.32 on revenue of $35.7B for the qtr. They are predicting EPS of $1.24 on revenue of $34.1B for the Jan-Mar qtr.  Price increases that began in Oct 2018 are continuing to drive revenue, as are MSFT moves to phase out older products such as Windows 7, which came out in 2009.  Its efforts to catch up to #1 cloud provider Amazon (AMZN) got a big boost in Oct when the Dept of Defense awarded MSFT a $10B contract to supply the US military with cloud services for the next decade.  The project, formally called the Joint Enterprise Defense Infrastructure plan, would store & process vast amounts of classified data.  CEO Satya Nadella celebrated the strong profit & revenue, while also calling attention to the company's work “to ensure the technology we build is inclusive, trusted and creates a more sustainable world.”  The stock jumped up 4.74.
If you would like to learn more about MSFT, click on this link:

Microsoft shares hit all-time high on cloud growth

The World Health Organization (WHO) declared the outbreak sparked by a new virus in China that has been exported to more than a dozen countries as a global emergency after the number of cases spiked tenfold in a week.  The UN health agency defines an intl emergency as an “extraordinary event” that constitutes a risk to other countries & requires a coordinated intl response.  China first informed WHO about cases of the new virus in late Dec.  To date, China has reported more than 7800 cases including 170 deaths.  18 other countries have since reported cases, as scientists race to understand how exactly the virus is spreading & how severe it is.  Experts say there is significant evidence the virus is transmitting among people in China & have noted with concern several instances in other countries — including Japan, Germany, Canada & Vietnam — where there have also been isolated cases of human-to-human spread.  China first informed WHO about cases of the new virus in late Dec.  To date, China has reported more than 7800 cases including 170 deaths.  A declaration of a global emergency typically brings greater money & resources, but may also prompt nervous govs to restrict travel & trade to affected countries.  The announcement also imposes more disease reporting requirements on countries.

World Health Organization issues dire warning about deadly virus from China

US health officials confirmed the nation's first person-to-person transmission of the coronavirus, which has already killed at least 171 people in China & infected more than 8200 since emerging less than a month ago.  The new patient is the husband of the Chicago woman who brought the infection back from Wuhan, China, the epicenter of the outbreak, CDC & Illinois health officials said.  Health officials said the man, in his 60s, has “some underlying medical conditions” but was in good condition.  His wife was doing well but remained in isolation at a local hospital, they said.  Public health officials are also monitoring 21 patients in Illinois for possible infections.  “This is a very serious public health situation,” said Dr Nancy Messonnier, director of the National Center for Immunization & Respiratory Diseases.  “Moving forward, we can expect to see more cases, and more cases means more potential for person-to-person spread.”  The virus, which emerged Dec 31, has already spread to more people than the 2003 SARS epidemic, which sickened roughly 8100 across the globe over 9 months.  The transmission makes the US at least the 5th country where the infection is now spreading thru human-to-human contact, including China.  Officials of the Centers for Disease Control & Prevention said there are at least 9 cases of human-to-human transmission outside of China.

CDC confirms first human-to-human transmission of coronavirus in US

Coca-Cola (KO), a Dow stock & Dividend Aristocrat, reported quarterly revenue that topped expectations as new products under its namesake brand boosted sales.  The beverage giant reported Q4 EPS of 47¢ up from 20¢ a year earlier.  Excluding impairment charges, refranchising gains & other items, EPS was 44¢, meeting expectations.  Net sales rose 16% to $9.07B, topping expectations of $8.89B.  New products, such as Coke Plus Coffee & the expansion of Coke Zero Sugar, lifted sales during the qtr & led the namesake brand to its best performance in 8 years.  As US consumption of soda has fallen, the company has used its Coke brand to create healthier options & branch out into new categories.  For example, it launched Coke Energy in the US earlier this month.  Teas from its Fuze brand & coffee also boosted its sales.  Additionally, KO also benefited from an extra day in the qtr & more customers buying higher-priced products.  Global organic revenues rose 7% during the qtr.  North American unit case volume, which strip out the impact of currency & price hikes, were flat for the qtr.  Volume in its Europe, Middle East & Africa segment climbed 4%, driven by growth in Nigeria, North Africa, Turkey & central & eastern Europe.  In Latin America, unit case volume increased by 3%, helped by acquisitions in Central America.  Despite weaker sales in China, the company's Asia Pacific business saw its unit case volume rise only 2%.  CEO James Quincey said that it is “way too early” to tell the short-term impact of the Wuhan coronavirus on the Chinese business, which accounts for about 10% of its global volume but less of its profits & revenue.  The company has closed offices and a number of its factories in response to the virus outbreak.  The company, working with the Chinese gov, is reopening some of its manufacturing plants so it can continue to make its beverages for the Chinese population.  In 2020, KO estimates organic revenue will grow by 5% & adjusted EPS will increase by 7% to $2.25.  Its earnings outlook falls 1 penny below estimates of $2.26 for fiscal 2020.  The stock rose 1.87.
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Coca-Cola stock rises as earnings meet estimates and Coke brand boosts sales

Oil futures dropped, with US prices logging their lowest settlement since early Aug, as worries rise over the potential economic impact from the continued spread of the coronavirus.   Today, see above, WHO declared that coronavirus is a public health emergency of intl concern.  West Texas Intermediate crude for Mar delivery fell $1.19 (2.2%) to settle at $52.14 a barrel, after trading as low as $51.66.  The settlement was the lowest for a front-month contract in almost 6 months.  Mar Brent crude, which expires tomorrow's settlement, shed $1.52 (2.5%) to $58.29 a barrel, for the lowest front-month contract finish since Oct 8.

Oil drops as coronavirus fears rise; U.S. prices end near 6-month low

Gold futures climbed, sending prices to their highest finish since 2013, as renewed worries over the spread of the coronavirus contributed to demand for haven investments.  The Apr futures contract for gold, which is now the most-active contract, rose $13 (0.8%) to settle at $1589 an ounce.  That was the highest finish for a most-active contract since Apr 1, 2013.  Chinese authorities said more than 7700 have been infected, with at least 170 dead.  World Health Organization officials expressed “great concern” over the virus's spread outside of China.  Gold held on to gains after the Commerce Dept said the US economy grew at a faster-than-expected 2.1% annualized clip in Q4.  The forecast called for 1.9% growth.

Gold prices settle at highest since 2013 as coronavirus worries feed haven demand

In the last 2 hours buyers returned to bring the averages into the black.  Earnings are looking good as shown by the 2 Dow stock reports above.  But there are plenty of negatives out there, starting with worries about the ability of the coronavirus to spread.  Demand for gold continues to be strong.

Dow Jones Industrials