Mind the Gap
DOW – 22 = 19,804
SPX + 4 = 2271
NAS + 16 = 5555
RUT + 6 = 1358
10 Y + .06 = 2.39%
OIL – 1.09 = 51.39
GOLD – 12.70 = 1205.00
The Dow Industrials spent most of the day in slightly negative territory. The S&P 500 traded in a tight range between negative and positive. If it seems like the stock market’s crawl to nowhere over the past month has been particularly strange, that’s because it has been. It turns out the gap between the Dow’s high and low prices over the past month is a tiny 1.4 percent — the narrowest gap in data going back to 1957.
On December 13, the Dow crossed 19,900 and pushed toward 20,000 – getting within a fraction of a point, then falling to a low of 19719, or a 1.4 percent range. So, something has to give – the question is whether we will see a break out or a break down. The long-term trend is still higher, but we really must wait and let the market show us.
Consumer prices rose in December as households paid more for gasoline and rent. Consumer Price Index rose 0.3 percent last month after gaining 0.2 percent in November. In the 12 months through December, the CPI increased 2.1 percent, the biggest year-on-year gain since June 2014.
The so-called core CPI, which strips out food and energy costs, rose 0.2 percent last month after the same increase in November. As a result, the core CPI was up 2.2 percent in the 12 months through December. Rents rose 4% compared to a year ago, in December, the Labor Department said Wednesday.
That’s the strongest yearly gain since December 2007, the month the Great Recession began. Rising inflation comes against the backdrop of a strengthening economy and tightening labor market, which raises the prospects for more, and faster interest rate hikes from the Federal Reserve.
Fed Chair Janet Yellen delivered a speech today and said the economy is close to the Fed’s objective of full employment and stable prices and she’s confident it will continue to improve. That, in turn, means “it makes sense to gradually reduce the level of monetary policy support,” although Yellen said the timing of the next interest-rate increase “will depend on how the economy actually evolves over coming months.” Yellen said, “Right now our foot is still pressing on the gas pedal.”
Meanwhile, Fed Governor Lael Brainard said fiscal policies that boost demand when the economy is already around full employment and 2 percent inflation are “relatively more likely to be accompanied by increases in interest rates.”
Meanwhile, Minneapolis Fed President Neel Kashkari is launching a research institute to generate ideas elected officials might use to help more Americans benefit from a growing economy and address issues such as racial disparity and income inequality.
Meanwhile, the Fed published its Beige Book, reports from all 12 Fed districts which is released 2 weeks before FOMC policy meetings. Manufacturers in “most” of the Federal Reserve System’s 12 regions reported increased sales.
Companies reported uncertainty surrounding the change of administrations in Washington but remained generally optimistic about growth prospects for 2017. Labor markets were reported to be tight or tightening and pricing pressure intensified.
Central bank policy might have a problem, according to the central banks’ bank. A working paper by the Bank for International Settlements found cuts in interest rates and asset purchase programs can help reduce volatility in stocks and bonds, but it also found lower rates, or lower term-premium, doesn’t appear to spark economic growth.
Industrial production rebounded in December due to the biggest jump in utilities since 1989 as temperatures cooled across the country. The Federal Reserve said industrial output rose 0.8 percent last month. The bulk of December’s increase was due to the 6.6 percent rise in the utilities index. Overall industrial production, however, fell at an annual rate of 0.6 percent in the fourth quarter.
The oil market got a stark reminder that rising oil production in the U.S. could upend efforts by major producers to bring global supply and demand for crude back in to balance. The Energy Information Administration released a report on drilling productivity—forecasting a monthly rise of 41,000 barrels a day in February oil production to 4.75 million barrels a day.
Citigroup reported a 7 percent rise in quarterly profit, beating estimates. However, adjusted revenue fell 9 percent to $17 billion due to divestitures and missed the average estimate.
Goldman Sachs Group reported net income of $2.2 billion, a nearly fourfold rise in quarterly profit. The fifth largest U.S. bank by assets, which relies more on revenue from trading stocks and bonds than other Wall Street companies, posted a 25 percent jump in trading in the fourth quarter compared with the prior year. Goldman beat on the top and bottom lines.
HSBC became the first major bank to detail plans to move jobs out of London after Brexit, saying it will relocate staff responsible for generating around a fifth of its UK-based trading revenue to Paris after Britain leaves the EU.
The United States sued JPMorgan Chase, accusing the bank of discriminating against minority borrowers by charging them higher rates and fees on home mortgage loans between 2006 and at least 2009. Separately, the Labor Department claimed the bank “systematically discriminated” against 93 women technology workers in its investment bank by paying them lower wages since at least 2012.
The Labor Department asked an internal administrative judge to cancel all government contracts and prevent JPMorgan from entering future federal contracts if it fails to provide relief.
United Continental’s fourth quarter profit tumbled. The airline announced fourth-quarter earnings of $1.78 a share on revenue of $9.1 billion but said its profit fell 51% to $397 million because of its tax bill.
American Airlines is introducing its Basic Economy fares, because Economy fares weren’t basic enough. The new fares, also known as Sub-Cattle Class, mean you can’t store carry-ons in the overhead compartments, no assigned seating, last to board, and no changes at all, no upgrades, and no soup for you.
Meanwhile, American’s flight attendants have a problem with their new uniforms – they claim it is causing skin rashes, itchy eyes, sore throat and blisters. The airline spent $1 million on tests and still don’t know what is wrong.
Target cut its quarterly earnings forecast after sales for the holiday season came in lower than expected due to weak demand for electronics, food and other products. Sales at Target stores open at least a year declined 1.3 percent in the November-December period, while total sales fell 4.9 percent. Target follows rivals Macy’s and Kohl’s, which also cut their profit forecasts after reporting disappointing holiday sales.
J.C. Penney shares sank about 2% after announcing a new partnership with Nike to add Nike shops in 600 of its stores. I’m not sure why that would be bad news.
After the closing bell, Netflix report earnings of 15-cents per share, beating estimates by 2-cents. The company said it added 7.05 million subscribers during the quarter, well above its own expectations of 5.2 million. Its stock has risen by a dazzling 35% in the past six months and is tacking on 8% in after-hours trade.
Essilor of France said it would merge with Luxottica Group of Italy, owner of the Ray-Ban and Oakley brands in a $49 billion deal. The combined company would be known as EssilorLuxottica, and would be the largest player in the eyewear market. The new company would have more than 140,000 employees in 150 countries with 2016 revenue of $16 billion.
Navient, the nation’s largest student loan servicer was hit with a Consumer Financial Protection Bureau lawsuit over allegations that it has “systematically and illegally” failed borrowers. Navient, formerly part of Sallie Mae, created repayment obstacles for tens of thousands of student borrowers by providing incorrect payment information, processing payments incorrectly and failing to act when borrowers complained.
British bookies will bet on almost anything, including specific words or phrases Donald Trump might say in his inaugural address on Friday. Ladbrokes, for example, is offering odds of 1/50 for “Make American Great Again”, indicating there’s a good chance Trump will repeat his campaign slogan in Friday’s speech.
That means a $1 bet would only yield 2 cents in case of a win. With slightly longer odds, “Reagan” comes in at 1/5, followed by “tremendous”, “ISIS” and “China” at 1/2. Further down the list sit “fake news” at 3/1 and “totally false” at 5/1. Aside from the buzzword betting, gamblers can also try their luck with Trump’s tie color and speech length.
It’s official, according to the National Oceanic and Atmospheric Administration (NOAA) 2016 was the hottest year on record, again. The planet sizzled to its third straight record warm year in 2016, and 16 of the 17 warmest years have occurred since 2001. The average temperature across the Earth’s land and ocean surfaces in 2016 was 58.69 degrees, a whopping 1.69 degrees above average.
It was the largest margin by which an annual global temperature record has ever been broken. Record high temperatures were set in 2016 on nearly every continent. No land areas were cooler than average for the year. Eight straight months (January through August) were also each the warmest since records began 15 years after the Civil War ended.