Higher markets ahead of Trump's speech tonight

Dow rose 143, advancers over decliners about 2-1 & NAZ gained 53.  The MLP index was steady in the 251s & the REIT index added 2+ to the 264s & up 16% from the Christmas eve low.  Junk bond funds went up & Treasuries were purchased ahead  of Trump's speech tonight.  Oil fluctuated in the 54s & gold was flattish at 1319.

AMJ (Alerian MLP Index tracking fund

CL=F

Crude Oil

54.02

-0.54

-1.0%

GC=F

Gold

1,318.70

-0.60

-0.1%

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Stocks rose on Tuesday, ahead of Pres Trump delivering the State of the Union address.  Trump's speech tonight comes a week later than scheduled after House Speaker Nancy Pelosi yanked the original invitation during their showdown over the gov shutdown.  On the eve of the State of the Union address, Pres Trump & Fed Chairman Jerome Powell dined at the White House.  The meeting covered a variety of economic topics, the Fed said, but did not delve into expectations of future monetary policy decisions.  Yesterday after the closing bell, Google-parent Alphabet (GOOG) wrapped up FAANG earnings by posting a better-than-expected quarterly revenue & profit.   However, its shares fell before the bell yesterday as investors worried about its sharply higher spending, which hit margins.  In Asia today, markets in Hong Kong & China are closed for the Lunar New Year holiday.  Japan's Nikkei ended 0.2% lower.  In Europe,  London's FTSE added 1.2%, Germany's DAX gained 1% & France's CAC was up 0.9%.

Stocks rise before State of the Union

On the eve of the State of the Union address, Pres Trump & Fed Chairman Jerome Powell dined at the White House.  It was their first meeting after months in which Trump lambasted the central bank for raising interest rates &, in the view of the pres, endangering the economy's growth.  Treasury Secretary Steven Mnuchin & Vice chair Richard Clarida were also at the dinner. The hour-&-a-half steak dinner, a possible opportunity for the 2 men to reset their relationship, covered a variety of economic topics, the Fed said, but did not delve into expectations of future monetary policy decisions.  Last week, the Fed said that further rate hikes were on hold for now, a step Powell & others said was based on recent economic developments, not the Trump's public tirades against the Fed.  Recent presidents have largely steered clear of directly criticizing the Fed.  Powell's comments in this setting were consistent with his remarks at his press conference of last week.  He did not discuss his expectations for monetary policy, except to stress that the path of policy will depend entirely on incoming economic information & what that means for the outlook.  Powell said that he & his colleagues on the FOMC will set monetary policy in order to support maximum employment & stable prices & will make those decisions based solely on careful, objective & non-political analysis.

Fed's Powell, Trump discuss economy over steak dinner

For investors cheering this earnings season, there could be trouble ahead.  As Q4 results roll in, the S&P 500 is poised to post an average earnings growth rate of 12.4%, the 5th straight qtr of double-digit growth.  These results have boosted the stock market, with the S&P 500 enjoying its best Jan in more than 30 years.  While companies are reporting great numbers, their outlooks are falling short & that's caused analysts to rapidly slash their earnings expectations for the current qtr.  Expectations for earnings growth for Q1 have just turned negative with profits expected to fall on average by 0.8%.  That would mark the first year-over-year decline in earnings since Q2-2016.  At the end of Sep, analysts expected Q1 profits to increase by 6.7%.  This earnings season may seem upbeat so far on the surface.  Many major companies are scoring big rallies on beats.  In terms of price action, it's even shaping up to be the best earnings season in nine years.  But the bar was set very low.  6 of the 11 sectors in the S&P 500 are expected to report a decrease in earnings for the first qtr, with the information technology sector projected to decline the most by 8.9%.

Profits in the first quarter are now expected to decline as company outlooks fall short

Boeing (BA), a Dow stock, shares are soaring to begin 2019, rising to an all-time high a few days after the company reported booming Q4 results & gave shareholders even greater confidence in the company's prospects in China's nearly insatiable aviation market.  The aerospace giant is ramping production to fulfill its backlog of 5900 aircraft orders, which "equates to about seven years of production at current rates," CEO Dennis Muilenburg said.  BA broke its airplane production record last year, churning out 806.  But it expects to shatter that record by nearly triple digits & produce at least 895 next year.  The company aims to produce airplanes at a blistering rate of one every 9 hours & 45 mins in 2019.  The stock hit a record $394 yesterday.  Shares are off to a red-hot start this year, up over 21%.  BA's stock was climbing steadily last year until the last 3 months more than cut the company's year-to-date gains in ½.  Fears of a slowing global economy led by China helped knock stocks all down.  But BA still finished 2018 up 9.4%.  Sales to China plays a key role in its future & Muilenburg said he sees "strong demand in China overall."  BA estimates China makes up about 18% of the world's demand for new commercial airplanes over the next 2 decades.  That translates to about 7700 airplanes solely for Chinese customers.  "We're seeing passenger growth [in China] that exceeds the overall market growth around the world," Muilenburg added.  The stock rose 8 to 405 ( a new record).
club.ino.com/trend/analysis/stock/BA?a_aid=CD3289&a_bid=6ae5b6f7

Boeing shares hit another record, bucking China slowdown concerns: 'Things are just heating up'

Economic news is light today.  There is not much for traders do ahead ahead of Trump's speech tonight.  Despite numerous dark clouds out there, buyers keep bidding up stock prices.  Hard to believe, but the Dow is only 1400 below its record made last Oct.

Dow Jones Industrials

Higher markets ahead of Google earnings

Dow rose 175 (closing at the highs), advancers over decliners 3-2 & NAZ went up 83.  The MLP index added 1 to the 251s & the REIT index lost 2 to the 262s.  Junk bond funds rallied along with stocks & Treasuries were sold.  Oil pulled back to the 54s & gold fell 4 to 1317 (more on both below).

AMJ (Alerian MLP Index tracking fund)

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Gold futures posted a 2nd straight session decline, in part as a leading $ index gained, though bullish analysts considered the metal's action to be only a pause in its recent uptrend.  Apr gold fell $2.80 (0.2%) to settle at $1319 an ounce.  Prices based on the most-active contracts, however, rose 1.9% last week.  The ICE US $ index was up 0.3%, making commodities priced in the greenback less attractive to users of other currencies.  And major stock indices traded higher as gold futures settled.  Gold futures tallied a 2nd weekly climb in a row thru last Fri after the Federal Reserve hinted at a pause in interest-rate hikes.  US employment data reinforced a picture of a solid labor market, but one that isn't likely to sway the Fed from its newfound “patient” policy stance, a development that helped to hand gold a solid 3% Jan gain, its 3th straight monthly advance.

Gold posts second loss in a row, but analysts see higher prices ahead

Oil futures finished lower, after briefly touching their highest intraday levels of the year, with prices giving up some of the gains they scored last week as concerns over a potential slowdown in energy demand resurfaced.  Demand concerns were reignited today following the release of surprisingly weak Chinese & US economic data.  Those included the surprisingly soft Chinese General Services PMI for Jan released overnight, which showed the Composite level dip to 50.9 from 52.2 in Dec, barely holding expansion territory which was then followed up by a whiff in the delayed release of the US factory orders data from Nov, which pushed prices down to early lows.  West Texas Intermediate crude oil for Mar delivery fell 70¢ (1.3%) to settle at $54.56 a barrel after tapping a high of $55.75.  The contract settled up 2.7% to $55.26 a barrel Fri, with prices tracking the front-month contracts logging their highest finish since Nov.  The month of Jan saw WTI crude rise 18.5% & 2.9% on the week.  Apr Brent was off 24¢ (0.4%) to $62.51 a barrel after reaching a session peak of $63.63.  It rose 3.1% to $62.75 a barrel Fri.  Prices based on the front-month contract gained 15% in Jan & about 1.8% last week.  The intraday highs for both crude benchmarks were the loftiest so far this year &, after posting hefty gains in Jan & climbing last week.  Fundamental factors remain mostly supportive.  Baker Hughes on Fri reported that the number of active US rigs drilling for oil fell by 15 to 847 this week.  That more than offset the increase of 10 in the oil-rig count from a week earlier.  And analysts were also optimistic that more Venezuela oil production will come off the market thanks to US sanctions.  The Trump administration unveiled sanctions on Venezuela's state-owned oil firm Petróleos de Venezuela last week in an effort to cut off money to Pres Nicolás Maduro, days after opposition leader Juan Guaidó declared himself interim pres of the country.  The political turmoil raises the risk of disruption to Venezuela’s oil output.

Oil futures finish lower after touching highest intraday level of 2019

Rep Dan Kildee said that China's trade practices are the biggest threat to workers in his home state of Mich.  “When China  Opens a New Window. can produce cheap steel and dump it into global markets, that undermines the ability of our manufacturers to compete,” Kildee said.  He added that US officials must reach an agreement with their Chinese counterparts that will ensure American workers can compete on an even playing field.  “Those other factors are important, but they’re not going to be as important as getting trade right,” Kildee added.  Pres Trump said he expects to meet with Chinese Pres Xi Jinping soon in an effort to iron out a trade deal between the 2 countries.  The White House said in a statement that Mar 1 is a hard deadline to reach an agreement on trade, & will hike tariffs on Chinese goods the following day (as planned) if talks fail.  The world's 2 largest economies agreed to a 90-day trade truce on the sidelines of the Group of 20 Summit in Argentina late last year.  As the trade war progresses, China continues to face economic headwinds that include lackluster equity & auto markets.  Auto sales in China fell 6% to 22.7M units last year, according to the China Passenger Car Association.  US automakers have felt the strain of the less-than-rosy Chinese car market.  Michigan, known for its auto manufacturing industry, is home to 3 of the largest American car manufacturers – known as the “Big Three” – & produced more than 2M cars & trucks at 11 different assembly lines within the state in 2017, according to data from the Detroit Chamber of Commerce.  Automotive-related jobs grew more than 1% over the past 5 years & are expected to grow another 3% by 2022.  Kildee said he supports Trump's decision to push back against Beijing due to the economic threat it poses, but hoped the administration would have taken a different, more strategic approach that would not negatively affect US allies.  “I wish that it would’ve been done in a multilateral fashion because what we ended up doing is essentially penalizing Canada for China’s misdeeds,” the congressman said.  “The president was not wrong to take on China when it comes to its dumping of steel.”  But China isn’t the only threat to the American workforce.  The advent of new technology, artificial intelligence (AI) in particular, could alter the structure of the US labor force & take away jobs in both blue collar & white collar industries.

China, artificial intelligence, among biggest threats to US workforce

Techs were strong all day, taking NAZ higher.  The Dow was hit with selling in the first hour of trading.  Then the bulls returned & took the Dow higher for the rest of the day.  But there was little significant news for traders to digest.  More earnings are coming later this week starting with Google (GOOGL) after the close. The Dow is up a staggering 3.4K since the Christmas eve low (shown below) with hardly a hiccup along the way.  The volatility index (VIX) has plunged from a unusually higher level of 36 to 15 currently.  During much of last year the VIX was near where it is today!!  Investors again are embracing risk, except for the gold buyers.

Dow Jones Industrials

Markets waver as investors await earnings results

Dow fell 68, decliners slightly ahead of advancers & NAZ added 41.  The MLP index retreated 2 to the 248s & the REIT index was off 2+ to 362.  Junk bond funds crawled higher & Treasuries drifted lower in price.  Oil dropped 1+ to the 53s & gold pulled back 4 to 1318 following recent strength.

AMJ (Alerian MLP Index tracking fund

CL=F

Crude Oil

54.27

-0.99

-1.8%

GC=F

Gold

1,315.40

-6.70

-0.5%

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Stocks traded little changed to start a week that will include earnings from 96 companies in the S&P 500.  Markets in China are closed for the week for the Lunar New Year celebration.  Hong Kong's Hang Seng was open & closed up 0.2% & Japan's Nikkei gained 0.5%.  In Europe, London's FTSE added 0.2%, Germany's DAX slipped 0.3% & France's CAC fell 0.6%.

Stocks little changed to start the week

The Pentagon announced a deployment of about 4K troops to the US border with Mexico, as Pres Trump continues to press the need for stronger border security amid a surge in migrants from Central America.  The additional troops will bring the total number of forces supporting the border mission to approximately 4350.  The troop deployment, which was approved by Acting Secretary of Defense Patrick Shanahan on Jan 11, will last for 90 days.  The border mission includes mobile surveillance capability as well as the emplacement of approximately 150 miles of concertina wire between ports of entry.  The Pentagon first approved the deployment of active-duty troops to the Mexico border in Oct, on the heels of the midterm congressional elections.  Trump made the caravan of approximately 3500 Central American migrants seeking asylum as one of his prime targets ahead of midterm elections.  The movement of Ks of active-duty troops to the border has been criticized as a political stunt designed to back Trump's campaign promise of securing ports of entry.  At the time, Secretary of Defense James Mattis downplayed that criticism, saying that the Pentagon is providing "practical support based on the request from the commissioner of customs and border police. We don't do stunts in this department," he added.  The latest revelation comes on the heels of a partial gov shutdown stemming from the impasse over Trump's demand for $5.7B to construct a border wall.  Yesterday Trump said that shutting down the federal gov again & declaring a national emergency are options he's considering when addressing the border security issue.  "It's national emergency, it's other things and you know there have been plenty national emergencies called. And this really is an invasion of our country by human traffickers," Trump said.  "We're going to have a strong border. And the only way you have a strong border is you need a physical barrier. You need a wall. And anybody that says you don't, they're just playing games," he added.

The Pentagon says it will deploy another 3,750 troops to the Mexican border

Clorox shares (CLX), a Dividend Aristocrat, jumped after it reported fiscal Q2 profits that topped expectations & reaffirmed its 2019 outlook.  The consumer goods maker posted adjusted EPS of $1.40, beating projections of $1.30.  It posted 4% sales growth in its Q2, bringing revenues for the 3 months ended on Dec 31 to $1.47B.  "Sound execution of our pricing and cost-savings plans has enabled us to address near-term headwinds, resulting in another strong quarter of topline performance," said CEO Benno Dorer.  "Importantly, we remain on track for sales and earnings in fiscal year 2019."  The company said that it anticipates sales growth for fiscal 2019 of 2-4%, driven by innovation that management expects to deliver about 3 percentage points of incremental sales.  It expects fiscal years 2019 diluted EPS of $6.20-6.40.  However, CLX also said it expects tariffs to hurt its EPS by 5-7¢ in 2019.  The stock shot up 10.60 (7%).
club.ino.com/trend/analysis/stock/CLX?a_aid=CD3289&a_bid=6ae5b6f

Clorox shares jump 5% after earnings top expectations

Factory orders in the US fell more sharply than expected in Nov, adding to a litany of reports showing a slowdown in growth in the industrial segment of the economy toward the end of 2018.  A key measure of business investment also declined.  The forecast called for a 0.2% decline, largely because of lower oil prices.  The report had been delayed by the 35-day partial gov shutdown  One bright spot:  Orders for durable goods rose a slightly revised 0.7%, the gov said.  These are products such as appliances and computers meant to last at least three years.  Falling oil prices caused a big drop in the value of energy production at refineries, helping to explain the decline in factory orders in November.  Orders also fell for machinery, military hardware & autos & trucks.  Orders rose for primary metals, fabricated metals, computers & commercial aircraft.  A closely followed gauge of business investment, known as core orders for durable goods, declined by 0.6% in Nov.  It was the 3rd drop in 4 months, suggesting companies were more hesitant to invest.  The ongoing trade spat with China has been a major source of uncertainty & worries about a recession were especially pronounced during a market slump near year end.  Although manufacturers expanded more slowly late last year, they still reported rising sales &and continued to hire.  2 strong US employment reports in Dec & Jan point to stable economic growth despite increasing “crosscurrents” faced by the economy.

Delayed U.S. factory orders report adds to evidence showing slowdown late last year

Not much to do for investors while they wait for earnings reports.  Tech shares are doing well (i.e. NAZ) on hopes for good reports beginning with Google (GOOGL) tonight.  Gold remains in demand by investors who have negative thoughts about where the economy is going.

Dow Jones Industrials