Friday, February 28, 2020

Markets stumble again as the virus crisis scares investors

Dow plunged another 744 to the 24Ks (but off earlier lows), decliners over advancers a whopping 11-1 & NAZ sank 166.  Last week the NAZ was heading for 10K, now it's heading for 8K.  The MLP index sank another 7+ to the 163s (an almost 20 year low) & the REIT index tumbled 12+ to 378 (an almost 1 year low in what has been a strong sector).  Junk bond funds sank on more selling & Treasuries were heavily purchased taking the yield on the 10 year Treasury down a huge 12 basis points to 1.17% (another record low).  Oil dropped 2+ to the 44s & gold plunged a whopping 52 to 1589 (almost 100 under last week's high). 

AMJ (Alerian MLP Index tracking fund)

stock chart

CL=FCrude Oil44.96   -2.13-4.5%

GC=FGold    1,611.10

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Dallas Federal Reserve Pres Robert Kaplan warned that economic fallout from the deadly coronavirus outbreak could spill over into the US.  "China is a meaningful percentage of global growth. So we know global growth in the first quarter to first half of the year is going to be substantially weaker," he said.  "And when that happens, it spills over to the U.S. economy."  The virus, which causes a disease called COVID-19, has killed close to 3K, with more than 80K cases reported worldwide, mostly in China.  So far, there have been a total of 60 confirmed cases of coronavirus in the US.  That figure includes individuals who have been repatriated to the country.  It has forced China, the world's 2nd-largest economy, to all but halt its production of consumer goods like phones, clothing & automobiles & institute mass quarantines in some cities & place severe restrictions on an estimated 780M people.  Dozens of US companies have temporarily closed their locations in China or limited their hours.  "The thing that companies are trying to assess, and what we're trying to assess, is what will be the demand effect," Kaplan added.  "We already know that the travel industry is affected in the United States, we know the oil industry is affected already. That's the part that's uncertain, and we're going to have to continue to monitor this."  Although hopes for an interest rate cut by the central bank has spiked in recent weeks after coronavirus slammed the stock market & cast a dark cloud over the US economy, Kaplan would not commit to lowering the benchmark federal funds rate at the Fed's Mar 18th meeting.  Kaplan is a voting member of the FOMC.  "I'll be going into the meeting prepared to make a judgment," he said.  "As I sit here today, not going to comment publicly, I've said up to now it's too soon to make a judgment. But I'll be prepared to make a judgment on what we ought to do as we go into the March meeting."  Still, James Bullard, Pres of the Federal Reserve Bank of St Louis, noted that coronavirus cases appear to be stabilizing in China & suggested that a rate cut is not necessary.  “Further policy rate cuts are a possibility if a global pandemic actually develops with health effects approaching the scale of ordinary influenza, but this is not the baseline case at this time,” he added during a presentation (see below).  In 2019, Bullard was one of the most vocal advocates of an interest-rate cut.  The Fed cut rates 3 times by 25 basis points last year, setting the rate at 1.5-1.75% .

Fed’s Kaplan warns coronavirus fallout could ‘spill over’ to US economy

St Louis Federal Reserve Pres James Bullard said the coronavirus outbreak would have to reach levels of the ordinary flu before he would consider cutting interest rates.  Markets are anticipating the Fed will cut rates 4 times this year amid a scare that the virus would cause a sharp slowdown in global growth.  The coronavirus has not been classified as a pandemic & has seen far fewer deaths than the flu but its mortality rate is much higher.  Bullard said the COVID-19 spread in China appears to be stabilizing.  While he acknowledged the damage the virus already has done to economic growth expectations, he added that current Fed policy is “in a good position” as officials examine the situation.  “Further policy rate cuts are a possibility if a global pandemic actually develops with health effects approaching the scale of ordinary influenza, but this is not the baseline case at this time,” he said.  The comments come amid a stock market meltdown that continued today.  Major averages have lost more than 10% this week in what has been the quickest correction in market history.  Bullard said the sell-off has been driven by a “flight to safety” that has pulled down interest rates, “likely benefiting the U.S. economy.”  Indeed, govbond yields continue to hit record lows Fri, with the benchmark 10-year Treasury note dipping to 1.176% & the 30-year bond around 1.7%.  The policymaking FOMC cut its own benchmark rate 3 times last year, down to 1.5-1.75%.  Markets expect at least one rate cut at the Mar meeting.  “The FOMC executed a marked turnaround in U.S. monetary policy during 2019 that was designed in part to insure the economy against possible negative shocks to growth,” Bullard said.  “This has put the FOMC in a good position in early 2020 as we closely monitor the evolving coronavirus impact on the global economy.”  He added that the lag effect of rate moves likely will continue to help the US & pointed out that the 3 cuts was a bigger monetary boost than the market has appreciated as the 2-year Treasury saw a slide of 165 basis points, compared with the actual 75 basis point cut the Fed instituted.  The most recent decline in yields is actually “a bullish factor for U.S. economic growth,” Bullard said.

Fed’s James Bullard says rate cuts only if coronavirus reaches pandemic

World Health Organization officials said they are increasing the risk assessment of the coronavirus, which has spread to at least 49 countries in a matter of weeks, to “very high” across the world.  “We have now increased our assessment of the risk of spread and the risk of impact of COVID-19 to very high at global level,” Tedros Adhanom Ghebreyesus, director-general of WHO, said in Geneva.  Outside of China, there are over 4300 cases across 48 countries, including 67 deaths as of today Tedros said.  He said that health officials are seeing “linked epidemics of COVID-19 in several countries, but most cases can still be traced to known contacts or clusters of cases.”  “We do not see evidence as yet that the virus is spreading freely in communities,” he added.  Denmark, Estonia, Lithuania, Netherlands & Nigeria all reported their first cases on yesterday.  All these cases have links to Italy, he added.  Tedros reiterated that the virus could turn into a pandemic.  He urged against fear & panic, adding, “our greatest enemy right now is not the virus itself. It’s fear, rumors and stigma.”

WHO raises coronavirus threat assessment, now says virus poses a 'very high' risk at a global

This week has been one of the worst in stock market history (including the 1929 depression period).  AT&T (T) is an unexciting, boring, old line stock, a previous member of the Dow.  It started the week in the 38s & has fallen to the 34s.  The fall raised its yield to 6% while long term 10 year Treasuries under 2%.  That's the kind of week it has been.  Bargain hunting is drawing the brave.  The Volatility Index shot up 9 to the 49s today, about 4X where it was when stocks were in the rally mode.  Even with some bargain hunting today, enormous damage has been done the rally that investors become accustomed to in recent years.  The outlook for stocks remains gloom!!!

Dow Jones Industrials

Thursday, February 27, 2020

Markets resume their decline after a failed midday rally bounce

Dow tumbled 1191 after a midday bargain hunting buying spree ended & sellers took command of the the market, decliners over advancers almost 6-1 & NAZ sank another 414.  A week ago NAZ was closing in on 10K, but now it's below 8.6K.  The MLP index dropped 6+ to the 172s (above session lows) & the REIT index plunged an enormous 17 to the 396s (a sector that has been in demand for the last year).  Junk bond funds continued to be sold & Treasuries were slightly lower in price, although yields closed above session lows.  Oil dropped 2 to the 46s & gold  was off 1 to 1641 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Tim Cook, Apple CEO (AAPL), a Dow & NAZ stock, said that he is "optimistic" about China managing the coronavirus, which has slowed production at the tech giant's suppliers.  "It feels to me that China is getting the coronavirus under control," Cook said.  "You look at the numbers, they're coming down day by day by day. And so I'm very optimistic there."  He stressed that iPhone gets parts from "everywhere in the world," including China, which has seen 2744 deaths among 78K cases, mostly in the central province of Hubei.  "When you look at the parts that are done in China, we have reopened factories, so the factories were able to work through the conditions to open, they're reopening," Cook said.  "They're also in ramp. So I think of this as sort of the third phase in getting back to normal, and we're in phase three of the ramp mode."  AAPL said last week it will likely fall short of its revenue guidance in Q2 due to the ongoing impact of coronavirus on its operations in China.  "Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated," the company added.  Cook was in his home state of Alabama to help launch an educational initiative to bring coding opportunities to underserved communities, in a partnership with Birmingham City Schools.  It's part of the tech giant's Community Education Initiative, which is an extension of AAPL's ConnectEd education program, which started in 2014.  The initiative is active in cities like Austin, Houston, Boise, Columbus, Chicago and Nashville.  The stock lost 19+ (7%).
If you would like to learn more about AAPL, click on this link:

Apple CEO Tim Cook says China 'getting coronavirus under control'

Gold futures gave up earlier gains to finish lower for a 3rd consecutive session, as US bond yields traded above the day's lows.  The rise in bond yields helped offset support for the metal even as worries about the spread of the COVID-19 epidemic outside of China continued to spark selling in global equity markets.  Gold for Apr was off a smidgen at $1642 an ounce.  Prices also fell on Tues & Wed, after settling at a 7-year high on Mon.  A new coronavirus case was confirmed in Northern California, the first in the US by someone who hasn't traveled to infected areas or been in known contact with anyone who has, raising the worrisome prospect that the virus is spreading by other means.

Gold gives up gains to finish lower for a third straight session

The number of Americans filing for unemployment benefits increased more than expected last week, but the underlying trend remained consistent with solid labor market conditions.  Initial claims for state unemployment benefits rose 8K to a seasonally adjusted 219K last week, the Labor Dept said. The forecast called for claims increasing to 212.  The 4-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, was little changed at 210K.  Sustained labor market strength suggests the longest economic expansion on record, now in its 11th year, remains on track.  However, investors have been rattled by fears that the coronavirus, which has killed more than 2K, mostly in China, & spread to other countries, would undercut global & US economic growth.  Risky assets such as stocks have been sold off in favor of safe-haven gov bonds.  Money markets have raised their bets on the prospect of more Federal Reserve cuts.  The central bank cut rates 3 times last year & has signaled its intention to keep monetary policy on hold at least this year.  The claims report also showed the number of people receiving benefits after an initial week of aid fell 9K to 1.72M last week.  The 4-week moving average of continuing claims rose 5K to 1.73M.  The continuing claims data covered the period during which the gov surveyed households for Feb's unemployment rate.  The 4-week average of continuing claims fell between the Jan & Feb household survey weeks, suggesting some improvement in the unemployment rate.

Weekly jobless claims rise more than expected

Oil prices continued their steep decline, with West Texas Intermediate crude falling more than 5% at the low to $45.88 per barrel, not seen since Jan 2019, as fears of the coronavirus outbreak, & what it could mean for crude demand, continue to batter prices.  After falling more than 5% in early trading, West Texas Intermediate pared some of its losses to settle down $1.64 (3.4%), a level not seen since Jan 2019.  WTI posted its 5th straight session of losses, & tumbled even deeper into bear market territory, currently sitting 29% below its 52-week intraday high level of $66.60, reached last Apr.  Intl benchmark Brent crude fell to $50.97 per barrel, its lowest level since Dec 2018, before paring some of the losses to settle 2.34% lower at $52.18 per barrel.

Oil tumbles deeper into bear market, sinking to lowest level since Jan. 2019

Today was what has become a routine day for stocks this week.  An attempt at bargain hunting did not last.  Sellers returned to drive the Dow down to close at the session low.  The Volatility Index (VIX) remained near 35, triple where it was during the rally time for stocks.  The short term outlook for stocks remains gloomy.  However, long term investors should be looking for value stocks with attractive yields which will be higher with additional declines in stock prices.  Research & patience today will be rewarded in the future.

Dow Jones Industrials

Markets tumble again as the coronavirus crisis deepens

Dow sank another whopping 740, decliners over advancers better than 10-1 & the NAZ sank 274.  The MLP index  plunged 9+ to the 168s (a 17 year low) & the REIT index slumped 15+ to the 397s.  Junk bond funds declined around 3% (big for this sector) & Treasuries continue in demand by investors.  Oil dropped 2+ to the 45s & gold jumped up 12 to 1655 as stocks were being sold.

AMJ (Alerian MLP Index tracking fund)

stock chart

CL=FCrude Oil46.25
  -2.48 -5.1%

GC=FGold   1,656.60

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Pres Trump declared that a widespread US outbreak of the new respiratoryvirus sweeping the globe isn't inevitable even as top health authorities at his side warned Americans that more infections are coming.  Shortly after he spoke, the gov announced a worrisome development:  Another person in the US is infected — someone in California who doesn't appear to have the usual risk factors of having traveled abroad or being exposed to another patient.  At a news conference, Trump sought to minimize fears as he insisted the US is "very, very ready" for whatever the COVID-19 outbreak brings.  Under fire about the gov's response, he put VP Mike Pence in charge of coordinating the efforts.  "This will end," Trump said of the outbreak.  "You don't want to see panic because there's no reason to be panicked."  But standing next to him, the very health officials Trump praised for fighting the new coronavirus stressed that schools, businesses & individuals need to get ready.  "We do expect more cases," said Dr Anne Schuchat of the Centers for Disease Control and Prevention.  If the CDC confirms that the latest US case doesn't involve travel or contact with an infected person, it would be a first in this country & a sign that efforts to contain the virus' spread haven't been enough.  "It's possible this could be an instance of community spread of COVID-19," the CDC said.  More than 81K cases of COVID-19, an illness characterized by fever & coughing & in serious cases shortness of breath or pneumonia, have occurred since the new virus emerged in China.  The newest case from California brings the total number infected in the US to 60, most of them evacuated from outbreak zones.

Trump says US 'very ready' for virus just before CDC reveals worrisome development

The US economy maintained a steady pace of growth in Q4 of last year, the gov confirmed.  GDP, a measure of how much the US produces in goods & services, increased at a 2.1% annualized rate, the Commerce Dept said in its 2nd reading of the 3-month period from Oct-Dec.  That was unrevised from the initial estimate of 2.1% last month.  For the full year, the economy grew 2.3%, below the 2.9% increase from 2018 & the 2.4% gain in 2017, amid fading fiscal stimulus from the 2017 Tax Cuts & Jobs Act & an 18-month trade war between the US & China that rattled global financial markets.  Consumer spending, which accounts for more than 2/3 of the country's now $21.7T economy, was revised down to a 1.7% increase from 1.8%.  Nonresidential fixed investment was revised lower to a 2.3% drop.  The report comes amid a stock-selloff brought on by fears of the deadly coronavirus, which has killed close to 3K & infected more than 80K, mostly in China.  While most data in the US has yet to reflect the impact of the virus, which has forced China, the world's 2nd-largest economy to all but halt production of consumer goods, some indicators suggest the economy may take a hit.  Although it's less trade-reliant than some other countries, like Japan or Germany, which could help shield it from slowing external demand, US companies' bottom lines could still be hurt by the virus.

US growth unchanged at 2.1% in fourth quarter

Pending home sales in Jan rose 5.2%, the National Association of Realtors (NAR) said, crushing expectations of a 2% monthly gain.  They were 5.7% higher on an annual basis.  “This month’s solid activity — the second-highest monthly figure in over two years — is due to the good economic backdrop and exceptionally low mortgage rates,” said Lawrence Yun, NAR's chief economist.  Pending sales measure signed contracts, not closings, so they are an indicator of future closings 2-3 months out.  Very low mortgage rates should be juicing sales more, but the existing home market is struggling with a record low supply of homes for sale, the lowest since 1999.  Investors turned about 5M homes into single-family rentals during the foreclosure crisis, & they continue to be active in the market, as rents are quite favorable.  “Inventory availability will be the key to consistent future gains,” Yun added.   “Moreover, the latest stock market correction could provide exceptional, even lower mortgage rates for a few weeks, and that would help bring about a noticeable upturn in the coming months.”  Regionally, pending home sales in the Northeast rose 1.3% monthly & were 1.2% higher than a year earlier.  In the Midwest, sales increased 7.3% for the month & were 6.5% higher than in Jan 2019.  Pending home sales in the South grew 8.7% monthly & 7.1% annually.  The West was the only region to see a decline for the month, down 1.1%, but sales were still 5.5% higher annually.  Sales of newly built homes, which are also measured by signed contracts, jumped to the highest level in Jan since 2007, according to the US Census.  Builders are increasing production slowly, but they have still not reached even normal historical levels since the recession.  Builders are also starting to increase production of lower-priced homes, but they continue to be hindered by high costs for land, labor & materials.

January pending home sales jump more than expected, up 5.2%

The stock market plunged again in what has become one of the gloomiest times in history for stocks.  In just 6 trading days, the Dow has dropped an astounding 3200 (over 10%).  Meanwhile the Volatility Index (VIX) shot up 7+ to the 34s today, about triple where it was during the stock market rally.  Investors are avoiding risky investments (stocks) with some of that money going into gold & Treasures.  The yield on the 10 year Treasury today dropped to 1.25% (another record low).  Investors would rather get a meager rate of return on Treasuries than invest in the stock market.  While there is a little bargain hunting as this is being written, the short term outlook remains gloomy. 

Dow Jones Industrials