Markets attempt a comeback after recent selling

Dow went up 136, decliners over advancers 4-3 & NAZ gained 132.  The MLP index gave back 1+ to the 207s & the REIT index was off 2 to the 474s.  Junk bond funds drifted lower & Treasuries were sold.  Oil climbed 2 to 104 due to buying the last ½ hour & gold added 1 to 1889.

AMJ (Alerian MLP index tracking fund)

CL=F Crude Oil 101.74  -0.28  -0.3%

GC=F Gold     1,886.10  -2.60  -0.1%

 

 

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The US economy cooled markedly in the first 3 months of the year, as snarled supply chains, record-high inflation & labor shortages weighed on growth & slowed the pandemic recovery.  Gross domestic product (GDP), the broadest measure of goods & services produced across the economy, shrank by 1.4% on an annualized basis in Q1, the Commerce Dept said in its first reading of the data.  The forecast expected to show the economy had expanded by 1.1%.  It marked the worst performance since the spring of 2020, when the US economy was still deep in the throes of the COVID-induced recession.  The headline figure often obscures the whole picture because the Commerce Dept calculates the GDP on a qtr-over-qtr basis as if that level of growth were sustained for a full year; in times of huge swings up or down, it can exaggerate both the decline in growth & the subsequent rebound.  Looking at the quarterly data, the nation's GDP declined by about 0.3% from the 4th qr to the first qtr, compared with an increase of 1.7% between the 3rd & 4th qtr.  The substantial downturn stems from a widening trade deficit, with the US importing far more than it exported.  In Q1, imports surged by nearly 20% as businesses & consumers bought more goods from abroad.  But exports fell about 6% – an imbalance that widened the trade deficit.  The US also saw a slower pace of inventory investment by businesses in Q1, following a surge in inventors at the end of 2021 as companies restocked in anticipation of the holiday-shopping season.  But key pillars of the economy – consumer spending & business investment – remained solid last qtr:  Businesses & consumers boosted their spending by 3.6% at the start of the year, compared with 6.1% last year.  Another bright spot in the economy is the jobs market.  Unemployment fell to 3.6% last month, the lowest level since the pandemic began in Feb 2020, & jobless claims have continued to fall amid an exceptionally tight labor market.

Growth shrinks as economy cools far more than economists expected

Americans are quickly losing confidence in the US economy, according to a new survey, reflecting heightened concerns among consumers about sky-high inflation & the rising price of everyday goods.  A Gallup survey shows Americans have low levels of confidence in the economy, with 42% rating the current economic conditions as "poor" & 38% describing it as "fair."  By comparison, 2% of respondents said the economy is "excellent" & only 18% described it as "good," according to the poll, conducted Apr 1-19.  What's more, most Americans expect the economy to deteriorate further.  About 76% said they think the economy is getting worse, compared to 20% who believe it is improving.  "Economic confidence remains sharply low but still well above readings during the Great Recession," the survey said.  "However, if inflation continues to rise and gas prices remain elevated heading into the summer months, economic confidence in the U.S. may well fall further."  4 in 10 Americans have identified economic issues as the biggest problem facing the US — the highest level in 6 years — including 17% who think the most concerning issue is the high cost of living.  Another 6% said fuel prices are the biggest problem.  Those figures are up slightly from last month, when 35% of Americans said the economy is the biggest problem.  There is a partisan divide in the data.  Reps are more likely than Dems to cite economic issues, & inflation specifically, as the country's top problem.  About 42% of respondents who identify as Reps said the economy is the #1 problem, compared to 33% of Dems.

Americans' confidence in the economy is crumbling: Poll

McDonald's (MCD), a Dow stock & Dividend Aristocrat,  reported better-than-expected earnings & revenue, fueled by price hikes in the US & strong international sales growth.  But the war in Ukraine and inflation in the company's home market loomed large over its quarterly report.  CEO Chris Kempczinski said the conflict hasn't affected consumer behavior across the rest of Europe yet, but some low-income US consumers are shrinking their orders or buying cheaper items.  Q1 EPS wasr $1.48, down from $2.05 a year earlier.  Excluding costs related to the tax settlement, its restaurants in Ukraine & Russia & other items, EPS was $2.28, topping the $2.17 estimate.  Like the broader restaurant industry, MCD has been facing higher commodity & labor costs, leading the company & its franchisees to raise prices.  CFO Kevin Ozan said the company expects elevated inflation to continue throughout 2022, given macroeconomic conditions.  Net sales rose 11% to $5.7B, beating expectations of $5.6B.  Global same-store sales climbed 11.8% in the qtr, fueled by strong growth in markets such as France & the UK.  Digital systemwide sales surpassed $5B in the qrr.  In the US, same-store sales increased 3.5%, surpassing estimates of 3.3%.  The company credited price increases & marketing promotions for growth in its home market.  A year ago, the fast-food chain reported US same-store sales growth of 13.6% as it lapped the weak demand of the early pandemic lockdowns.  Ozan said consumers are worried about inflation, particularly gas prices.  “We are certainly keeping a close watch on lower-end consumers, just to make sure that we’re still providing the right value for our lower-end consumers,” he added.  “But one of the things that’s probably helpful right now, as you know, is food at home has been increasing even more than food away from home.”  The stock rose 6.61 (3%).
If you would like to learn more about MCD click on this link:
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McDonald's revenue tops estimates, fueled by price hikes and overseas same-store sales growth

Today's advance does not really qualify as a rebound.  Decliners remain ahead of advancers.  Weak GDP growth was expected, but when the news hits it can still hurt.  So far earnings season is underwhelming.  Now the weaker ones will be reported.

Dow Jones Industrials

 

Markets edge higher in volatile trading

Dow climbed 61 (400 below early highs), decliners over advancers 5-4 & NAZ was off 1.  The MLP index went up 1+ to the 209s & the REIT index was off 3+ to the 476s.  Junk bond funds were mixed & Treasuries saw selling, raising yields.  Oil was flattish in the 101s & gold fell 17 to 1886 (more on both below).

AMJ (Alerian MLP Index tracking fund)

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Dr Anthony Fauci expressed optimism about the state of the pandemic in the US.  “We are certainly right now in this country out of the pandemic phase,” Fauci said.  He added that the US had entered the “control” stage of the pandemic, since the coronavirus is causing far lower levels of hospitalizations & deaths than during the winter omicron surge.  Fauci has previously described 5 phases of the pandemic.  The first, a full-blown pandemic, is where the US spent most of the last 2 years.  The 2nd is deceleration & the 3rd is control, which indicates that the virus is becoming endemic in the population.  After this should come elimination & eradication, though the virus will probably never be eradicated.  Fauci said that entering a new phase doesn't mean the entire pandemic is over.  “The world is still in a pandemic. There’s no doubt about that. Don’t anybody get any misinterpretation of that. We are still experiencing a pandemic,” he continued.  The US is recording around 51K Covid cases & just under 400 deaths per day.  But that case average has risen 49% in the last 2 weeks, even as infections go undercounted due to the common use of at-home tests.  Still, many people in the US have some form of immunity that should protect them from severe disease.  “If you add up the people who’ve been infected plus the people who’ve been vaccinated and hopefully boosted, you have a rather substantial proportion of the United States population that has some degree of immunity that’s residual,” he added.

Fauci says U.S. is transitioning out of ‘pandemic phase’

Amid rising costs & supply chain instability, General Motors (GM) reaffirmed its earnings expectations for 2022 despite reporting a lower net profit & margin compared to a year ago.  Adjusted EPS was: $2.09 vs a $1.68 estimate & revenue was $36B vs the $37B estimate.  GM reaffirmed its pretax adjusted earnings forecast of $13-15B for the year, while raising its net income expectations from $9.4-10.8B to $9.6-11.2.  Q1 profit margin was 8.2%, down from 9.3% a year earlier.  GM also increased its adjusted EPS guidance for the year to $6.50-7.50, up from $6.25-7.25.  The adjustment is a result of the company increasing its ownership stake in its Cruise autonomous vehicle unit & including the operation's losses in its consolidated income tax return.  On an unadjusted basis, net income was $2.9B for Q1 compared with $3B a year earlier.  The automaker reported pretax adjusted earnings of $4B for Q1, down from $4.4B a year earlier.  GM also reaffirmed plans to produce 25- 30% more vehicles this year than last year.  The stock was up 61¢.
If you would like to learn more about GM click on this link:
club.ino.com/trend/analysis/stock/GM_aid=CD3289&a_bid=6ae5b6f

General Motors (GM) earnings Q1 2022

The Russian war in Ukraine has sent the global cost of food & energy soaring, & costs are expected to remain elevated in the coming 3 years, the World Bank said in a grim economic forecast.  The institution said there is a risk that high commodity costs lasting until the end of 2024 could lead to stagflation, the 1970s-style economic phenomenon characterized by persistently high inflation & high unemployment.  Over the past 2 years, the world has seen the biggest increase in energy prices since the 1973 oil crisis & the largest jump in food & fertilizer prices since 2008.  Although the costs of food & energy may cool slightly from their current levels, they are expected to remain above the past 5-year average until at least 2024.  As a result of the disruptions from the Ukraine war, the World Bank is now forecasting a 50% rise in energy prices this year, with the price of Brent crude oil, the global benchmark, expected to average $100 a barrel in 2022.  That would mark the highest level since 2013. Although prices are projected to fall slightly to $92 a barrel in 2023, that's well above the 5-year average of $60 a barrel.  "This amounts to the largest commodity shock we’ve experienced since the 1970s. As was the case then, the shock is being aggravated by a surge in restrictions in trade of food, fuel and fertilizers," said Indermit Gill, a World Bank VP.  "These developments have started to raise the specter of stagflation."  Commodity prices were already rising before the invasion began on Feb 24, & the war has exacerbated already sky-high inflation.  The Labor Dept reported earlier this month that the consumer price index soared 8.5% in Mar from the year-ago period, the fastest pace since 1981.  The World Bank already lowered its forecast for global growth in 2022 to 3.2% – a sharp drop from the 4.1% prediction in Jan,  The decline stems from a cut in the outlook for Europe & Central Asia, which include both Russia & Ukraine. By comparison, the global economy expanded by 5.7% in 2021.  World Bank Pres David Malpass the war between Russia & Ukraine – the worst conflict that Europe has seen in decades – has exacerbated the financial pressures from the COVID-19 pandemic as well as the rising cost of living, saying there is a need to provide assistance immediately.  "I’m deeply concerned about developing countries," Malpass said.  "They are facing sudden price increases for energy, fertilizer and food, and the likelihood of interest rate increases. Each one hits them hard."

Persistently high food, energy prices could lead to stagflation, World Bank warns

A soaring $ again to take the steam out of gold, with the yellow metal posting its lowest finish in 2 months.  Gold for Jun fell $15 (0.8%) to close at $1888 an ounce, the lowest close for a most actively traded contract since Feb 25.  Gold has failed to find haven-related supported, even after Russia halted natural-gas supplies to Poland & Bulgaria in an escalation of tensions surrounding the Russian invasion of Ukraine.  Analysts said the $'s continued rise versus major rivals, with the ICE US Dollar Index touching levels last seen in 2017, remains a headwind for gold.  A stronger $ makes commodities priced in the unit more expensive to users of other currencies.  The $ has been lifted on expectations the Federal Reserve will move aggressively to raise interest rates & otherwise tighten monetary policy in response to inflation running at its hottest in 4 decades. 

Gold ends at 2-month low as U.S. dollar jumps

Oil futures shook off early weakness to end highery, finding support after a large drop in US inventories of gasoline & distillates.  Earlier in the session, oil futures edged lower after Russia cut off natural-gas deliveries to Poland & Bulgaria & as investors also assessed the threat to demand from China's COVID lockdowns.  A soaring $ was also seen weighing on oil & other $-priced commodities.  Worries over crude demand initially weighed on prices after Beijing moved to rapidly test residents for COVID amid fears of a lockdown in China's capital, though the People's Bank of China promised monetary-policy support for small businesses & industries hit hardest by COVID-19.  Meanwhile, state-controlled Russian giant Gazprom said that it had cut natural gas deliveries to Poland & Bulgaria as they refused to pay in Russian rubles, as demanded by Pres Vladimir Putin.  Futures tracking Europe's wholesale gas price reached a high of EUR119 per megawatt hour in early trading today, before paring back.  The € & British £ slumped versus the $, with the ICE Us Dollar Index, a measure of the currency against a basket of 6 major rivals, surging to levels last seen in 2017.  A stronger $ is seen as a headwind for commodities priced in the unit, making them more expensive to users of other currencies.  Oil trimmed losses, however, eventually ending positive after the Energy Information Administration reported weekly inventory data.

Oil scores gain after big drop in U.S. gasoline, distillate inventories

This was not an impressive rally.  Tech shares should have led a rally, but they didn't.  The advance decline ratio should been positive, but it wasn't.  The world bank's gloomy forecast may have caused investors to "wait & see."  Earnings season is not going well & reports next month will probably not give a lift.  So far, Dow is down 3K YTD with a grim outlook.

Dow Jones Industrials

Markets rebound in a choppy session

Dow rebounded 132, advancers over decliners about 5-4 & NAZ went up 81.  The MLP index hardly budged in the 208s & the REIT index was flattish in the 479s.  Junk bond funds were bid higher along with stocks & Treasuries saw a little selling bringing higher yields (more below).  Oil was about even in the 101s & gold fell 17 to 1886.

AMJ (Alerian MLP index tracking fund)

CL=F Crude Oil   100.08   -1.62  -1.6% .

GC=F Gold     1,888.60     -15.70  -0.8%

 

 

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Boeing (BA), a Dow stock, reported a wider adjusted quarterly loss & lower revenue than expected as the company faced higher costs on both commercial & defense aircraft & charges tied to the war in Ukraine.  The company said it will pause production of its 777X plane, which has not yet been certified by US regulators, thru 2023, a plan the company says will create $1.5B in abnormal costs starting in Q2.  BA also doesn't expect deliveries of the plane to start until 2025, more than a year later than it previously forecast.  The company posted a net loss of $1.2B in Q1, wider than the $561M loss it posted a year earlier.  Revenue of $14B fell 8% from Q1-2021 & short of estimates.  Adjusted results was for core EPS showed a loss of $2.75 loss per share vs an expected loss of 27¢.  The company is ramping up 737 Max output to 31 a month in Q2.  It delivered 95 planes in Q1, up from 77 in the same period last year, but revenue in its commercial aircraft unit fell 3% from last year to $4.3B as 787 Dreamliner deliveries remained halted.  BA reported negative operating cash flow for the qtr, but still expects to be cash flow positive in 2022. The stock tumbled 14+ to the 152s.
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club.ino.com/trend/analysis/stock/BA_aid=CD3289&a_bid=6ae5b6f 

Boeing tumbles on quarterly loss, added costs from 777X and defense delays

Sen Joe Manchin, once again, poured cold water on hopes the Senate would pass Pres Biden's ambitious Build Back Better social spending plan.  "There's not a Build Back Better revival," Manchin told reporters.  "There's not."  Manchin said legislation that deals with "major social changes" – as BBB sought to tackle free preschool, clean energy projects and health care – needs to go thru the regular Senate process & "build consensus."  "Then if you think you need reconciliation because you got a great piece of legislation, but people are playing politics with it that's another. … We haven't had hearings on any of these things," Manchin added.  With the Senate equally divided, all 50 senators in the Dem caucus must be united in passing sweeping spending legislation thru a process called budget reconciliation.  But both Manchin & Sen Kyrsten Sinema have previously opposed the roughly $2T social spending & environmental bill that passed the House in Nov – & efforts to pass a pared down bill that they could support have since sputtered.  Fresh off a spring break recess, environmental groups, lobbyists & progressives are making a new push to get at least something passed in the Senate before the midterm elections in Nov.  Many lawmakers view Jul 4 as a crucial deadline to get something passed before the midterm season & White House officials are facing the "real fear" that they will fail to reach a deal with Manchin to get anything done.

Dem senator issues devastating blow to Biden's signature economic plan

Treasury yields were mixed amid persistent concerns about a global economic slowdown.  The yield on the benchmark 30-year Treasury bond fell 1.6 basis points to 2.854%.  Yields move inversely to prices & 1 basis point is equal to 0.01%.  Treasury yields have been drifting lower this week, alongside falls in the stock market.  A surge in Covid-19 cases in China, concerns over developments in the Russia-Ukraine war & tighter central bank policy to combat rising inflation, have all weighed on investor sentiment.  Tensions are ratcheting up between Western allies & Russia after Foreign Minister Sergey Lavrov Mon said the threat of a nuclear war is very significant & the risks should not be underestimated.  Defense Secretary Lloyd Austin responded to those comments, calling the nuclear war rhetoric “very dangerous and unhelpful.”

Treasury yields are little changed as economic growth concerns persist

Buyers began the day bidding prices higher.  However their optimism is being tested.  BA's report was not a help.  Limited buying today is mostly driven by brave investors nibbling at stocks they consider to be oversold.  Hardly a convincing rally after a brutal plunge in recent sessions.

Dow Jones Industrials