Tuesday, February 4, 2020

Higher markets rise, adding to yesterday's advance

Dow shot up 407, advancers over decliners 3-1 & NAZ surged 194 to a new record.  The MLP index gained 2+ to the 204s & the REIT index rose 4+ to the 415s.  Junk bond funds inched higher & Treasuries were heavily sold, bringing higher yields.  Oil slid below 50 (more below) & gold tumbled 24 to 1557 after its recent run to the high 1500s.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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For companies bracing for losses from China's viral outbreak, the damage has so far been delayed, thanks to a stroke of timing:  The outbreak hit just when Chinese factories & many businesses were closed anyway to let workers travel home for the week-long Lunar New Year holiday.  But the respite won't last.  If much of industrial China remains on lockdown for the next few weeks, a very real possibility, western retailers, auto companies & manufacturers that depend on Chinese imports will start to run out of the goods they depend on.  In order to meet deadlines for summer goods, retail experts say that Chinese factories would need to start ramping up production by Mar 15.  If Chinese factories were instead to remain idle thru May 1, it would likely cripple retailers' crucial back-to-school & fall seasons.  "There's complete uncertainty,'' said Steve Pasierb, CEO of the Toy Industry Association.  "This could be huge if it goes on for months.''  Wuhan, the Chinese city where the outbreak hit hardest, is a center of automotive production.  It's been closed off, along with neighboring cities, isolating more than 50M people & bringing factories to a standstill.  So far, US automakers haven't had to curb production for want of Chinese parts.  The partial shutdown of Wuhan has already harmed the production of TV display panels & raised prices, according to a report by research group IHS Markit.  The city has 5 factories making liquid crystal displays, known as LCDs, & organic light-emitting diodes, known as OLEDs, both of which are used for television & laptop monitors.  China accounts for more than ½ of the global production of these display panels.  David Hsieh, an analyst at IHS Markit, said in a report that "these factories are facing shortages of both labor and key components as a result of mandates designed to limit the contagion's spread," leading suppliers to raise panel prices more aggressively.

Companies face 'huge' hit if virus keeps Chinese factories closed much longer

Oil futures gave up earlier gains to finish with a loss, with US prices below $50 a barrel for the first time in more than a year, as demand worries continue to plague the market.  Prices fell even as OPEC & its allies considered deeper production cuts to stem a coronavirus-inspired tumble in the commodity that entered a bear market a day ago.  There are reports that OPEC & its allies including Russia, known as OPEC+, were considering cutting crude output by a further 500K barrels a day.  However, among the scenarios under discussion at a technical meeting held in Vienna today & tomorrow, one may be even larger production cuts of 800K-1M barrels a day.  Officials said that they are set to issue recommendations this week, with a final decision to come after a meeting of OPEC & its allies, likely sometime next week.  OPEC's website still lists the next group gathering as Mar 5 for the special meeting of the OPEC Conference & Mar 6 for the OPEC+ meeting.  West Texas Intermediate crude for Mar delivery lost 50¢ (1%) to settle at $49.61 a barrel, a day after it entered a bear market, down 20.8% from its recent high of $63.27 on Jan 6.  A decline of at least 20% from a recent peak is the traditional definition of a bear market.  Today's settlement was the lowest since Jan 7, 2019.  Apr Brent crude fell 49¢ (0.9%) to $53.96 a barrel, its lowest settlement since Dec 31, 2018.  The intl benchmark entered into a bear market yesterday, down 21% from its recent high of $69.02 last Sep 16.  As of midnight yesterday, China had 20,438 diagnosed coronavirus cases, with 425 deaths, according to China's National Health Commission.

Oil ends at lowest in over a year; U.S. prices drop under $50 a barrel

Ralph Lauren (RL) beat market expectations for the holiday-qtr profit today, as higher prices for its winterwear boosted margins, sending the fashion house's shares higher.  The company has said it could sell products at higher prices due to a ramp-up in marketing, especially on social media thru supermodels & actors, which has helped lift its brand image.  Its marketing expenses rose 16% in fiscal Q3, while average prices at its own stores & website gained 6%.  Adjusted gross margin rose by 60 basis points.  Net revenue rose 1.4% to $1.75B in the qtr ended Dec 28, inching past average the estimate of $1.72B.  The company expects fiscal 2020 revenue, excluding fluctuations in foreign exchange, to rise 2-3%.  This does not include any potential impact from the outbreak of a new coronavirus in China.  The company's EPS rose nearly 3-fold to $4.41, lifted by a one-time tax benefit.  Excluding one-time items, EPS was $2.86, beating the expectation of $2.45.  The stock soared 10.32 (9%).
If you would like to learn more about RL, click on this link:

Higher winterwear prices boost Ralph Lauren holiday margins

Yesterday, stocks rose but finished below early highs.  Today the rally was extended.  The Dow opened substantially higher & held those elevated levels all day.  It's difficult to understand the reasons for bidding stocks higher while the coronavirus is spreading its influence which will be bearish for companies around the world.  Maybe they're hoping Trump's speech tonight will bring bullish word.  Whatever, the bulls are in charge of the stock market this week.

Dow Jones Industrials

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