Dow jumped 406 (150 off early highs). advancers over decliners 5-2 but NAZ was off 63. The MLP index gained 3+ to the 226s & the REIT index rose 1+ to the 363s. Junk bond funds crawled higher & Treasuries saw more buying, reducing yields. Oil went up 1+ to the 89s & gold was off 3 to 1666.
AMJ (Alerian MLP index tracking fund)
The US economy
rebounded over the summer after shrinking for the first 6 months of
the year, but the rebound does little to allay fears that the world's
largest economy is headed toward a recession as it confronts painfully
high inflation and rising interest rates. GDP,
the broadest measure of goods & services produced across the economy,
grew by 2.6% on an annualized basis in Q3, the Commerce Dept said in its first reading of
the data. The foecast expected the report to show the economy had expanded by 2.4%. The
turnaround stemmed in large part from a narrowing trade deficit &
increased exports, volatile measurements that do not accurately capture
the underlying health of the economy. Exports climbed 14.4%, while
imports dropped 6.9%. The surge in exports could be just a
one-off that masks weakening in the economy that will ultimately act as a
drag on future growth. Consumer spending – which accounts for about 2/3 of GDP – rose
just 1.4% in Q3, a deceleration from the previous qtr
when it climbed 2.0%. Gross private domestic investment, meanwhile, tumbled 8.5% after falling 14.1% in the period from Apr-Jun.
US GDP grows in the third quarter, but could be downhill from here
The ECB announced a 75-basis-point interest rate hike — its 3rd consecutive increase this year — while also scaling back support for European banks. Following much speculation by market participants, the ECB said it was now changing the terms & conditions of its targeted longer-term refinancing operations, or TLTROs. They are a tool that provides European banks with attractive borrowing conditions, designed to incentivize lending to the real economy. However, because the ECB has been increasing rates faster than expected in the face of soaring inflation, European lenders are benefiting from both TLTROs & higher interest rates. The situation has been described as effectively providing a subsidy to banks. “During the acute phase of the pandemic, this instrument played a key role in countering downside risks to price stability. Today, in view of the unexpected and extraordinary rise in inflation, it needs to be recalibrated,” the ECB said. Therefore, it added that the interest rates applicable to the tool, known as TLTRO III, would be adjusted from Nov.23 to match the deposit facility rate, which is the main benchmark of the ECB. In addition, banks will also be offered voluntary early repayment dates. “In order to align the remuneration of minimum reserves held by credit institutions with the Eurosystem more closely with money market conditions, the Governing Council decided to set the remuneration of minimum reserves at the ECB’s deposit facility rate.” This will see the cost of lending for banks rise significantly under the scheme. ECB Pres Christine Lagarde said that the Nov 23 date would allow banks to adjust to the new conditions.
McDonald’s (MCD), a Dow Stock & Dividend Aristocrat, traffic to its US restaurants is growing, helping the
fast-food giant top expectations for its quarterly earnings & revenue. Execs spoke openly about the
challenges its restaurants are facing. CEO Chris Kempczinski said
there's increasing uncertainty & unease about the economic
environment. CFO Ian Borden said that inflationary pressures & interest rate hikes are putting “significant pressure” on consumers & the restaurant industry. Q3 EPS was
$2.68, down from $2.86 a year
earlier. Net sales fell 5% to $5.9B. Excluding the impact of foreign currency, sales rose 2% in the qtr. Worldwide,
the company's same-store sales climbed 9.5%, beating estimates of 5.8% growth. All 3 divisions topped expectations for same-store sales growth. The stock rose 8.77.
If you would like to learn more about MCD, click on this link:
club.ino.com/trend/analysis/stock/MCD?a_aid=CD3289&a_bid=6ae5b6f7
While the headline number was fairly good, the underlying data is not impressive. The Dow has already pulled back from its early highs. There could be more selling in the PM.
Dow Jones Industrials
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