Markets retreat on profit taking

Dow dropped 112 (finishing near the lows & barely hanging above 21K), decliners over advancers 5-2 & NAZ fell 42.  The MLP index was fractionally lower, going under 331, & the REIT index drifted down 1+ to under 351.  Junk bond funds declined & Treasuries were also sold.  Oil declined to the 51s (more below) & gold was off 14 to 1235.

AMJ (Alerian MLP Index tracking fund)

CL=F

Light Sweet Crude Oil Futures,A

52.60

-1.23

-2.3%

GC=F

Gold Apr 17

1,233.00

-17.00

-1.4%

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Caterpillar, a Dow stock, shares had the steepest decline in 8 months as the biggest maker of machinery for mining & construction had its Illinois offices raided by US tax & financial agents.  Searches were conducted by the IRS, the Federal Deposit Insurance & the Commerce Dept a spokeswoman said.  Declining to comment on the nature of the raid, she said that in other cases the US attorney's office has dealt with the IRS Criminal Investigations unit & Commerce's Office of Export Enforcement.  CAT, which has a financial unit that lends to customers, confirmed the presence of agents in some of its Peoria-area facilities & said it was cooperating.  The raids come as new CEO Jim Umpleby shifts the global headquarters to Chicago to bolster the iconic machinery maker's push in foreign markets.  Last week, Oberhelman, who remains as chairman, participated in discussions on pro-growth policy at the White House, where Pres Trump said “I love Caterpillar.”  Although the focus of the raids wasn't clear, the company disclosed in an annual filing last month that it received a grand jury subpoena from the US District Court for the Central District of Illinois in Jan 2015.  The subpoena requested documents relating to, among other things, financial information on US & non-US CAT subsidiaries.  That included undistributed profits of non-US subsidiaries & the movement of cash among US & non-US subsidiaries.  The manufacturer said it got additional subpoenas relating to this investigation requesting more information on the purchase & resale of replacement parts by CAT & non-US CAT subsidiaries & div distributions of certain non-US CAT subsidiaries.  The company said in the filing that it believes this matter “will not have a material adverse effect on the company’s consolidated results of operations, financial position or liquidity.”  The stock sank 4.22 (4%).  If you would like to learn more about CAT, click on this link:
club.ino.com/trend/analysis/stock/CAT?a_aid=CD3289&a_bid=6ae5b6f7

Caterpillar Shares Plunge After Federal Agents Raid Its Offices

Caterpillar (CAT)

Oil dropped to a 3-week low as record US crude stockpiles were seen jeopardizing OPEC's efforts to drain a global surplus.  Futures declined more than 2%.  US stockpiles expanded to 520M, the most in weekly gov data going back to 1982.  Saudi Arabia continued to lead OPEC's efforts to cut production, helping the group get closer to a goal set out in a historic accord last year.  Output fell to 32.17M barrels a day in Feb, a 65K barrel-a-day drop from Jan, the first month of the agreement.  As OPEC & 11 other nations trim supply in an effort to end a glut, US producers are ramping up & potentially offsetting the curbs.  That has subdued price swings, sending the Crude Oil Volatility Index to the lowest since Oct 2014.  It could be a week or 2 before enough seasonal maintenance at refineries is finished to start seeing steady processing gains.  West Texas Intermediate for Apr delivery dropped 87¢ (1.6%) to $52.96 a barrel.  Futures traded between $51.22-54.94 in Feb, the tightest range since 2003.  Total volume traded was about 20% above the 100-day average.  US crude stockpiles rose 1.5M barrels last week, the Energy Information Administration reported yesterday.  They've increased by more than 41M barrels since the start of the year.  Supplies at Cushing, Oklahoma, the delivery point for WTI, gained 495K barrels to 63.5M last week.  Crude production rose to 9.03 million barrels a day, the highest in a year.  Saudi Arabia, the world's largest crude exporter, cut prices for Apr oil sales to the US & Northwest Europe & trimmed most grades for buyers in Asia & the Mediterranean.

Oil Falls to Three-Week Low as Record U.S. Supply Outweighs OPEC

China stocks fell as buyers retreated on speculation of a possible US interest rate hike later this month & concerns liquidity could tighten as Beijing's steps up its fight against leverage.  The blue-chip CSI300 index fell 0.7%, to 3435, while the Shanghai Composite Index lost 0.5% to 3230.  CSI300, the blue-chip index, has climbed around 20% over the past year on signs of economic recovery, supported by Beijing's fiscal stimulus & efforts to shut down "zombie" companies.  But the rally has tapered off in over the last few months, suggesting further gains could be limited.  Guo Shuqing, China's newly-appointed banking regulator said today that risk prevention will be a more prominent policy focus in 2017, signaling tougher crackdown in areas such as shadow banking.  Most sectors fell, led by infrastructure & real estate stocks, after a poll showed China's house price growth will slow significantly on continuing gov curbs & tighter credit conditions this year.

China Shares Fall as Rally Loses Steam

Home Depot, another Dow stock, plans to hire 80K Americans, as the home-improvement retailer prepares for the busy spring season.  The company is seeking seasonal workers for nearly 2K stores & 75 distribution centers.  Positions are open in customer service, sales & HD's Merchandising Execution Team, which is responsible for setting merchandising displays & ensuring products are customer-ready.  The retailer has hired about 80K spring associates in each of the past 4 years.  Upgrades to HD's careers website has cut down the amount of time it takes to apply for a job.  Applying for a job now takes roughly 15 minutes on any device.  “We want everyone to have an easy and convenient experience with The Home Depot, whether they’re shopping with us or applying for a position,” said Tim Crow, exec VP of human resources.  HD also noted that seasonal employees may transition to a permanent position with the company.  The start of spring is a critical time for HD, especially at a time when consumers are spending more on do-it-yourself projects.  The stock rose 1.27.  If you would like to learn more about HD, click on this link:
club.ino.com/trend/analysis/stock/HD?a_aid=CD3289&a_bid=6ae5b6f7

Home Depot to Hire 80K for Spring Season

Home Depot (HD)

Selling today was a routine a follow up to the enormous stock market rally.  However, gold & Treasuries, traditional safe haven investments, were also sold.  The bulls are richer & very happy.  For the time being, they are in charge of the stock market even though it remains vastly overbought.

Dow Jones Industrials

 

Markets pause after the recent surge

Dow slid back 10, decliners over advancers 2-1 & NAZ gave back 16.  The MLP index was little changed near 331 & the REIT index lost 1+ to 351.  Junk bond funds declined & Treasuries weakened.  Oil dropped 1 to under 52 on the inventory report & gold retreated to 1242 (still relatively strong).

AMJ (Alerian MLP Index tracking fund)

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The fewest Americans in almost 44 years filed applications to collect unemployment benefits last week, indicating the job market continues to power forward.  Jobless claims fell 19K to 223K, the fewest since 1973 & below the lowest projection, a report from the Labor Dept showed.  The forecast called for 245K applications.  The weekly decline, which was the largest this year, shows employers are keeping dismissals at a minimum as demand remains steady & the labor market stays tight.  Fed policy makers will take persistent job growth & falling separations into consideration at their monetary policy meeting later this month.  The 4-week moving average decreased to 234K, the lowest since 1973, from 240K.  The latest tally marked 104 straight weeks of claims below 300K, a level considered consistent with a healthy labor market.  The number  continuing to receive jobless benefits rose 3K to 2.07K & the unemployment rate among people eligible for benefits held at 1.5%.

U.S. Initial Jobless Claims Drop to Lowest in Almost 44 Years

One of the Fed's biggest skeptics about the strength of the global expansion signaled the US economy may be strong enough to withstand an interest-rate increase soon, as key policy makers coalesce around tightening at their next meeting in mid-March.  “Assuming continued progress, it will likely be appropriate soon to remove additional accommodation, continuing on a gradual path,” Fed Governor Lael Brainard said.  “We are closing in on full employment, inflation is moving gradually toward our target, foreign growth is on more solid footing and risks to the outlook are as close to balanced as they have been in some time.”  Brainard, who for months has played the role of lead dove at the Fed by arguing to keep rates lower for longer, said the US economy “appears to be in transition.”  If continued, that would allow the central bank not only to normalize rates gradually but also begin considering when and how to reduce the size of its $4.5T balance sheet, she added.  Her improved outlook may add momentum to rising expectations among investors that the Fed will raise rates when the FOMC gathers on Mar 14-15.  Hawkish comments from NY Fed pres William Dudley & San Francisco's John Williams on Tues already significantly boosted those expectations.  Yields on 2-year Treasuries have climbed about 0.14 percentage point this week, briefly breaching 1.30% for the first time in more than 7 years.  The probability of a Mar rate hike implied by prices in federal funds futures contracts has climbed.  Brainard expects the US economy to continue making progress toward the Fed's goals, driven by growth in consumption, adding that signs of improved business investment are rising.  “The contrast with the situation a year ago is sharp,” she said.  A former undersecretary of the Treasury for intl affairs, Brainard also pointed to favorable developments in a number of major foreign economies.  “Near-term risks to the United States from abroad appear to have diminished,” she said.  “Recoveries are gaining traction in China, Europe and Japan, in part reflecting greater confidence in their respective policy environments.”  In China, she said, gov officials had “stabilized growth and calmed fears of financial instability” by boosting credit & fiscal stimulus & clamping down on capital outflows.  In Europe, despite threats posed by the UK vote to exit the EU & from capital stresses to German & Italian banks, “the recovery has proven to be increasingly resilient.”

Fed’s Brainard Says Interest-Rate Hike Likely Appropriate ‘Soon’

Treasury Secretary Steven Mnuchin gave a  look at the administration's economic agenda.  “The number one thing that the president and I are focused on is economic growth,” he said.  Mnuchin, who has been involved in the financial sector for over 30 years, believes that the markets are generally unpredictable on a day-to-day basis.  However, the Dow has reached new highs, which many are associating with the presidential election.  Mnuchin sees this rise in the markets as a vote of confidence from the American people in Pres Trump.  “What is important here is that the market is showing you that people believe in the president’s agenda,” he said.  He added: “I think you couldn’t see a stronger indicator of people liking the president’s economic policies, the president’s political policies and a vote of confidence in the president.”  He recently met up with Fed Chair Janet Yellen, honoring a tradition that the 2 officials get together each week.   “I look forward to working with her…We spoke for over an hour yesterday, we covered a lot of topics, we got a lot of work to do together. I left the meeting being incredibly comfortable and how we can work together and what she is doing over at the Fed and I look forward to continuing those conversations with her,” he said.

Mnuchin: Stock Market Shows People Believe in Trump’s Agenda

Stocks are taking a breather after the recent surge.  A positive sign will be if the Dow holds near present values for the rest of the week,  Gold continues in demand as stocks have risen higher.  The disconnect can last for just so long.

Dow Jones Industrials