Thursday, May 19, 2022

Markets attempt at a rebound fails after yesterday's intense selloff

Dow dropped 236 (after an intra day recovery there was selling in the last hour of trading), advancers over decliners about 5-4 & NAZ was off 29.  The MLP index drifted fractionally lower to the 207s & the REIT index fell 1+ to the 418s.  Junk bond funds were higher & Treasuries remained in demand.  Oil went up 2+ to the 112s & gold jumped 23 to 1819 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]




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Manufacturing activity in the mid-Atlantic region slowed markedly in May, with a key gauge posting the weakest growth since the early days of the COVID-19 pandemic, according to a survey from the Federal Reserve Bank of Philadelphia.  The bank's benchmark manufacturing index unexpectedly slumped to 2.6 in May, a stark drop from the 17.6 recorded in Apr & well below the expectation for a reading of 16.  It marks the worst reading for the gauge – which covers eastern Pennsylvania, southern New Jersey & Delaware – in 2 years.  A reading above zero indicates that manufacturing activity expanded during that month.  The gauge measuring inflation & price pressures remained elevated in May near a historical high, but eased somewhat compared with the previous month.  The employment index also slowed in May, suggesting that while firms are still onboarding new workers, they are doing so at a slower pace than in previous months.  The overall business outlook for the next 6 months tumbled to the lowest level since 2008, at the height of the financial crisis.  There is a growing sense of pessimism over concerns that the Fed may drag the economy into a recession as it seeks to tame inflation, which remained elevated at 8.3% in Apr.  Economic growth in the US is already slowing.  The Bureau of Labor Statistics reported earlier this month that GDP unexpectedly shrank in Q1, marking the worst performance since the spring of 2020, when the economy was still deep in the throes of the COVID-induced recession.

Philadelphia Fed's manufacturing gauge drops to lowest level in 2 years

Shares of Cisco (CSCO) fell after the company reported mixed earnings results & projected an unexpected sales decline in the current qtr.  CSCO expects Q4 revenue to decline by 1-5.5% year-over-year, while analysts had been looking for revenue growth of 6%.  CEO Chuck Robbins said the guidance range is wider than usual because of the increasingly complex environment.  The company blamed the disappointing outlook on Covid-19 lockdowns in China, which have worsened existing supply chain constraints, as well as rising inflation.  CFO Scott Herren also warned that component shortages would persist over the coming qtrs.  Robbins said that it's not clear when supply will return to normal, even as Shanghai officials have indicated they plan to open up on Jun 1.  He expects there will be severe congestion at Shanghai ports after they reopen, as companies race to snap up transportation capacity.  “In the near term, we believe that as they begin to ship, we’re but one company with one product we’re trying to get out of there,” Robbins added.  “But we do believe there will be a rush to get product out. We saw their industrial production numbers way down, and their export numbers way down.  Robbins said he believes some of these issues will start to wane by the company’s fiscal first or 2nd qtr.  Fiscal Q3 revenue was $12.8B, which was roughly flat year over year & lower than the estimate of $13.3B.  Adjusted EPS was 87¢, compared with the estimate for 86¢.  Q3 revenue took a roughly $200M hit from the war between Russia & Ukraine, & it added $5M to cost of sales & $62M in operating expenses in the qtr.  The stock dropped 6.64 (14%).
If you would like to learn more about CSCO click on this link:

club.ino.com/trend/analysis/stock/CSCO_aid=CD3289&a_bid=6ae5b6f

Cisco stock falls 13% after company projects unexpected revenue decline

Kohl's (KSS) cut its full-year earnings forecast, joining some of America's biggest retailers in warning that a 4-decades high inflation is starting to take a toll on profit margins & consumer spending power.  The company reiterated that it is talks with multiple parties for a potential sale.  Evidence of red-hot inflation seeping into the economy sparked a sell-off in retail stocks.  "Sales considerably weakened in April as we encountered macro headwinds related to lapping last year's stimulus and an inflationary consumer environment," CEO Michelle Gass said.  The company expects fiscal 2022 adjusted EPS of $6.45-6.85, compared with its previous forecast of $7.00-7.50.  KSS forecast full-year net sales to rise only as much as 1%, compared with its previous forecast of a 2-3% increase.  Net sales fell 5.2% to $3.5B in Q1.  The forecast had expected $3.7B.  On an adjusted basis, EPS fell about 90% to 11¢ in the reported qtr.  The stock rose 1.90.
If you would like to learn more about KSS click on this link:

club.ino.com/trend/analysis/stock/KSS_aid=CD3289&a_bid=6ae5b6f

Gold futures closed higher, recording their best daily gain in about a month, as the yellow metal benefited from risk aversion in the wake of the worst day for US stocks in nearly 2 years yesterday.  Gold futures rose $25 (1.4%) to settle at $1841 an ounce, the best daily percentage rise for the most-active contract since Apr 12.  In US stocks, the Dow was lower again today, a day after it & the S&P 500 index booked their worst days in since Jun 2020, as investors worried about inflation cutting into margins at big-box retailers & perhaps beyond.  The US ICE dollar index fell 1% today to $102.79, a gauge of the currency against a basket of 6 major rivals.  A stronger $ can be a negative for commodities priced in the unit, making them more expensive to users of other currencies.

Gold futures end higher, book best daily gain in a month as inflation weighs on stocks

Oil futures swung to a higher close as a selloff in equity markets eased  investors kept an eye on plans to ease COVID restrictions in Shanghai.  West Texas Intermediate (WTI) crude for Jun rose $2.62 (2.4%) to close at $112.21 a barrel.  Jul WTI, the most actively traded contract, gained $2.89 (2.7%) to finish at $109.89 a barrel. Jul Brent crude advanced $2.93 (2.7%) to settle at $112.04 a barrel.  Crude was under pressure in early trade after oil & other energy futures fell yesterday despite data that showed an unexpected fall in US crude inventories & a larger-than-expected drop in already tight gasoline stocks —- a move that likely reflected selling in response to a rout in the equity market.  But crude shook off the early pressure to turn higher, as losses for US indices moderated in today's session & traders highlighted a tight supply backdrop.  Crude had found support earlier in the week as China began to loosen its lockdown of Shanghai.  China's COVID-19 lockdowns have undercut demand from the world's largest oil importer.  Shanghai will reopen four of its 20 subway lines Sun as it slowly eases pandemic restrictions that have kept most residents in their housing complexes for more than 6 weeks.  The city will also restart 273 bus lines connecting major urban centers, airports, train stations & hospitals as it resumes cross-district public transit.  The Energy Information Administration said natural gas in storage rose 89B cubic feet, or Bcf, last week.  The forecast had called for injection into storage of 87 Bcf.  Stocks were 358 Bcf less than last year at this time & 310 Bcf below the 5-year average of 2042 Bcf, the EIA said.

Oil ends higher, reversing loss as equity selloff moderates

Bargain hunters attempted a recovery, but that ended in the last hour of trading when sellers returned.  That qualifies as choppy trading.  Sluggish economic recovery along with high inflation & interest rates are never far from investors' thoughts.  This week so far, Dow is down almost 1000 in what has been a tough month for stocks (see below).

Dow Jones Industrials








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