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Archive for January, 2015

Weekly Market Update – January 30, 2015

A late-afternoon slide cost the Dow 250 points Friday as global growth concerns overshadowed a rally in the energy sector.  For the week, the Dow was down 2.9% and for the year the index is now down 3.7%.

The first estimate of US Q4 GDP showed growth of only 2.6%, below estimates of over 3% and well below Q3’s 5% gain.  A drop in government spending, reduced business investment and a widening trade gap due to the strong dollar muted growth even as consumer spending, which accounts for 70% of GDP, grew by 4.3% (aided in part by falling energy prices).  Given the rise in consumer spending and low energy prices, it was no surprise that the latest consumer confidence reading reached an 11-year high.

Economic concerns were not limited to the US.  Russia, projected to enter a recession this year, cut its main interest rate by 2%, precipitating a further slide in the ruble while in Europe, all eyes remain on Greece and its new anti-austerity leadership.  The country’s finance minister on Friday stated that the new government will not negotiate the terms of its bailout with the “troika” (the IMF, ECB and European Commission) but instead will go directly to leaders of crediting countries within the Eurozone.  The delivery of the next tranche of bailout money, $7 billion due to be delivered at the end of February, is in doubt, pending a review by the currently snubbed troika.  Greece’s economy continues to struggle, as does the wider Eurozone, forecast to grow only about 1% this year.     
 
Oil surged over 8% on Friday, closing at $48.24 per barrel as data showed the largest weekly drop in drilling rigs since 1987.  The number of rigs drilling for oil has now dropped 24% since October.  While the impact on production is still several months away, the larger-than-expected drop in rigs will only accelerate this timeline. We expect oil to remain volatile as demand is influenced by inventories and worldwide growth.

Next week’s economic calendar highlights will be job-related, with weekly jobless claims on Thursday and the January jobs report on Friday.  Expect weekly jobless claims to settle in the 290,000 – 300,000 range (from 265,000 this week) and the jobs report to show the addition of 235,000 jobs in January (from 252,000 in December) and the unemployment rate to remain at 5.6%.  A small number of remaining fourth-quarter earnings reports will be announced as well.

Weekly Market Update – January 23, 2015

The Dow lost 141 points Friday as disappointing earnings results from economic bellwether UPS helped drive stocks lower.  For the week the Dow was up .9% (its first positive week in the last four) and for the year the Dow is now down .9%. 

Citing underwhelming performance in US ground shipping last quarter and higher-than-anticipated expenses going forward, UPS announced preliminary Q4 earnings that were lower than previously forecast and tempered revenue and growth expectations for 2015.  About 20% of the S&P 500 companies have announced Q4 earnings to date, with approximately 72% beating earnings expectations (historical average is 63%).

On Thursday, the European Central Bank (ECB) announced a stimulus plan in which it will purchase bonds in the amount of $60 billion euros a month through September 2016 in an effort to stimulate the European economy and stave off deflation.  European markets cheered the news, though remain somewhat nervous heading into Sunday’s Greek parliamentary election.  Syriza, Greek’s anti-austerity party, is at the moment ahead in preliminary polls.  Regardless of who wins the vote, the management of Greek’s debt will dominate the new government’s agenda.

Oil fell 2.2% Friday to close at $45.29 per barrel.  The oil and gas sector is one we continue to closely monitor.  Magnum Hunter, one such company in that sector, has issued three high dividend paying preferred securities that are in most of our portfolios.  The prices of these preferreds have fallen sharply with the 50% decline in oil prices and natural gas prices.  This has raised a concern about the company’s ability to pay its monthly dividend.  We met with the company both in August and December.  This morning, the company hosted a conference call to address its financial health and the ability to maintain its attractive dividend.  As a result of the updated information, the three preferreds had a big rebound, between 22% and 42%.  We feel the company will be able to navigate these stressful times in the energy sector.  The company has cut its drilling budget for 2015 and is seeking a joint venture partner for part of its natural gas find in Ohio.  We reevaluate this situation weekly and it has our full attention.

Next week’s economic calendar highlights include December housing data and consumer confidence on Tuesday, weekly jobless claims on Thursday and the first estimate of Q4 GDP, a January manufacturing report and another consumer confidence reading on Friday.  Expect the housing data to show an uptick in new home sales from November, consumer confidence to hold steady, weekly jobless claims to settle in the 310,000 – 320,000 range (from 307,000 this week), the Q4 GDP estimate to show growth of approximately 3.4% year-over-year and the manufacturing report to show a slight decline in activity from December.  The release of fourth quarter corporate earnings reports will continue throughout the week as well.

Weekly Market Update – January 16, 2015

Stocks rallied Friday, closing higher for the first time in six trading sessions.  The Dow rose 191 points, finishing the week down 1.2%. For the year the Dow is down 1.8%. 

The energy sector led the way Friday, buoyed by oil’s sharp 5.3% rise to $48.69 per barrel in response to the International Energy Agency lowering its 2015 supply forecast for non-OPEC oil producers.  Most of the reduction is projected to come from the output of Canada and Colombia, while the effects of oil’s price decline on US production are so far “marginal.”  The oil rig count continues to fall and has done so by 209 rigs since December 5, the steepest six-week decline since Baker Hughes began tracking the data in July 1987.  We expect the drill rig count to continue to drop as exploration companies reduce capital expenditures in 2015.

Economic data released Friday showed consumer confidence rose markedly from the previous reading in December, while the consumer-price index fell .4% in December, its biggest drop since December 2008. The core CPI, which removes the volatile food and energy sectors, was flat. In the past 12 months, the CPI has risen only .8%, its lowest 12-month reading since October 2009. 

Next week’s economic calendar highlights include December housing data on Wednesday and Friday and weekly jobless claims on Thursday.  Expect the housing activity to show a slight increase in activity from November and weekly jobless claims to settle in the 300,000 – 310,000 range (from 316,000 this week).  Fourth quarter corporate earnings reports will continue next week as well.

Markets and our office will be closed on Monday, January 19 in observance of Martin Luther King, Jr. Day.

Weekly Market Update – January 9, 2015

After rising over 500 points the prior two days, the Dow fell 171 points Friday on mixed December jobs data and global growth concerns.  For the year the Dow is down .5%. 

The jobs report showed the creation of 252,000 jobs in December, above expectations of approximately 240,000.  The unemployment rate fell to 5.6% from 5.8%.  Average earnings per employee fell by .2%, the biggest drop since 2006.  The continued progress in job creation keeps the Fed on track to raise interest rates, most likely in the second half of the year, though the current low inflation environment will allow the Fed to move gradually once it does so.

The European Central Bank continues to progress toward the enactment of stimulus measures, presenting on Friday a plan to buy $500 billion euros of assets in a move much like the US undertook to boost economic growth.  The ECB next meets on January 22 and a formal implementation of quantitative easing is anticipated in an effort to reverse the current deflationary environment.  

Oil fell $.60 Friday to $48.19 per barrel, its lowest level since April 2009.  One piece of positive data on Friday showed the US oil drilling rig count experienced its largest weekly drop since 1991 as 61 oil rigs went offline.  The number of rigs in operation has fallen in 10 of the past 13 weeks, an indicator of a decrease in future production. 

OPEC meets on June 5.  At this meeting OPEC members may agree to reduce production.  Production only needs to be reduced 2% worldwide to eliminate the surplus of crude and reduce pricing.  OPEC plus Russia is 43% of world production.

Next week’s economic calendar highlights include December retail sales on Wednesday, weekly jobless claims on Thursday and inflation data on Thursday and Friday.  Expect retail sales to fall slightly from November, inflation to remain in check and weekly jobless claims to settle in the 290,000 – 300,000 range (from 294,000 this week).  Fourth quarter corporate earnings reports will begin next week as well.

 

Ulland Investment Advisors

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