Rudd’s MarketView for Monday, June 12, 2017

Summary

Apple shares added to last week’s drop on Monday to lead a market downturn as tech, still the best performing S&P 500 sector this year, succumbed under its own weight.

Mizuho Securities cut its rating on Apple to “neutral” from “buy” on Monday, saying the stock had outperformed this year and that the “upcoming product cycle is fully captured at current levels.” Apple shares, down 2.4 percent on Monday, are up about 26 percent so far in 2017.

The S&P technology sector fell 0.8 percent after dropping 2.7 percent Friday for its largest two-day decline in nearly a year. The tech-heavy Nasdaq Composite underperformed the S&P 500 as the ongoing rout in the sector sparked a search for value elsewhere.

Energy sector, the worst performing sector year-to-date, was among the sectors trying to stop the bleeding on the S&P 500.

General Electric was the S&P’s best performer with a 3.6 percent advance to $28.94. Jeff Immelt will retire as chief executive and would be replaced by John Flannery, the head of GE healthcare, who said he will conduct a swift review of the business portfolio.

The largest percentage gainer on the S&P 500 was Under Armor, which rose 5.8 percent, while the largest decliner was Netflix, down 4.2 percent.

Coherus BioSciences fell 23.8 percent to $15.73 after the FDA denied the approval of its biosimilar for Amgen’s Neulasta. Amgen edged up 0.5 percent to $164.88.

Approximately 7.89 billion shares changed hands on the major domestic equity exchanges, a number that was far above the 6.81 billion daily average over the last 20 sessions.

Treasury Suggests Easing Rules

The Treasury Department suggested major revisions to key Wall Street regulations that were put in place after the 2008 financial crisis in a lengthy report on Monday suggesting over 100 possible changes.

Most of the recommendations laid out in the Treasury’s 150-page report can be accomplished by regulators appointed by President Donald Trump without any legislative changes from Congress, Treasury Secretary Steven Mnuchin told lawmakers Monday.

The report relies heavily on those regulators, as the Trump administration cannot count on legislation from Congress. Democrats are resisting major changes to the 2010 Dodd-Frank Wall Street reform law that came out of the financial crisis and was a signature achievement for former President Barack Obama.

Among other things, the Treasury would expand the authority of the Financial Stability Oversight Council, ease up on the Volcker rule, which restricts banks’ ability to place speculative market bets, and reduce the authority of the Consumer Financial Protection Bureau.

It would also provide relief for smaller banks by raising a $50 billion asset threshold that now requires tougher regulatory scrutiny.

Recession Remote for 12-Months

Chances are remote the economy will fall into a recession during the next 12 months despite a recent flattening of the U.S. yield curve suggesting growing recession risk, Deutsche Bank’s economists indicated on Monday.

Based on other bond market indicators, they estimated the probability of a U.S. recession from now to June 2018 at less than 10 percent. This as compared to the yield curve, or the gap between long-dated and short-dated yields, which currently implies roughly a 33 percent chance of a recession.

“Despite this development, we do not see U.S. recession risk as particularly elevated; indeed, we think it is quite low for the next year,” Deutsche Bank economists wrote in a research note.

Historically, a sharp flattening of the yield curve has preceded a recession as traders pile into longer-dated Treasuries in anticipation of an economic contraction.

On Monday, the two-year to 10-year portion of the Treasury yield curve flattened to 83.80 basis points, its tightest since early October. It reached nearly 137 basis points in December, which was its steepest level in a year, Tradeweb data showed.

Analysts and traders have attributed the curve flattening to doubts about any forthcoming fiscal stimulus from Washington and recent economic data that fell short of expectations.

Still, some aspects of the economy, such as the labor market and housing, continue to perform well without signs they will overheat in the next 12 months, Deutsche Bank economists said.

However, a further tightening of the labor market in the next 18 months might force the Federal Reserve to accelerate its pace of rate increases, raising the chances of a recession by 2010, according to the bank’s economists.

“The more hawkish scenario would clearly move the Fed’s policy stance to a level that would make a recession likely by late-2019 or 2010,” they wrote.

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A Study of Verizon (VZ)

Streetwise for Sunday, June 11, 2017

Trying to forecast short-term trends on Wall Street is like trying to herd cats, a great idea but one with little probability of success. However, being patient will alleviate market volatility and enable you to benefit from a continual compounding of earnings.

Two companies requiring a high degree of patience are Verizon (VZ) and AT&T (T). When I last wrote about Verizon a year ago, my earnings target for 2016 was $3.95 per share, with a projected 12-month share price of $58. I have not written about AT&T for many years.

How has Verizon done? Earnings for the year came in at $3.87, a bit light of my estimate, while the shares recently closed at $46.44, also a bit light of my forecast.

Verizon’s market position is its key quality. As of the end of the first quarter of this year, Verizon was the leading wireless provider with just over 35 percent of all domestic wireless subscriptions.

And Verizon has always been a cash cow. Although Verizon’s capital expenditures are often quite large, in the past the company’s free cash flow generation has been impressive. On the negative side, its debt load is well over the $116 billion mark and its free cash flow is now negative.

Compounding the bad news, this year Verizon has been the worst-performing stock in the Dow Jones Industrial Average, declining 13 percent.

Nonetheless, Verizon has managed to grow its quarterly dividend for 12 consecutive years, showing a current dividend yield of 4.97 percent and a 12-year average dividend growth rate of 3.44 percent.

Verizon faces challenges from AT&T’s launch of DirecTV Now, an offshoot of AT&T’s 2015 purchase of Direct TV. There is also AT&T’s pending acquisition of content powerhouse Time Warner.

Verizon did acquire AOL in 2015, and is in the process of acquiring Yahoo. The company also launched its own ad-supported mobile video service go90. But it’s facing some hurdles in evolving its digital media offerings. It pushed back the closing date of its Yahoo acquisition, announced in July 2016 for $4.8 billion, to the end of the second quarter of this year.

While it does live a bit on the edge, let’s be clear that Verizon is not facing any short term financial problems, although its long-term debt level could become a concern if the Federal Reserve continues to raise interest rates.

Verizon’s total debt totals $221 billion, which is over 90 percent of its $244 billion in total assets. Yes, telecommunication companies usually carry a large debt load compared to other companies, which could impede its growth going forward.

For example, Verizon could potentially have trouble adding a new major debt offering needed to acquire companies or start new projects. The alternative is to issue new equity in future financing, thereby diluting current shareholders.

One carefully looked at statistic in evaluating companies is economic profit, a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital.

Verizon’s economic profit increased from 2014 to 2015, coming in at $15.005 billion as of December 31, 2015. However, it then declined significantly to $5.124 billion as of December 31, 2016.

This past February, Verizon resurrected its unlimited data plan. The move, an about-face after Verizon largely sat out the industry’s price wars, caters to customers who are spending more time watching videos on their mobile devices.†

Days later rival AT&T, the second-largest domestic telecommunications group by number of customers, quickly matched it. As a result, Street analysts have trimmed earnings expectations for both companies, fearing a possible price war.

The intrinsic value of the shares using the ValuePro.net free cash flow to the firm model, with zero percent revenue growth, is $78.68. My 2017 earnings estimate for Verizon is $3.78 per share, with a projected 12-month share price of $51 for roughly a 10 percent annual gain. We will analyze AT&T in an upcoming column.

Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddReport.com.

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Rudd’s MarketView for Friday, June 9, 2017

Summary

Technology stocks sold off sharply on Friday, sending the Nasdaq down sharply and holding back other major Wall Street indexes, which had thit record highs earlier in the session.

The technology sector, which has had strong gains this year and led the market’s rally, downward, falling 2.7 percent, although it pulled back from steeper declines during the day’s trading session.

Countering those losses was strength in the financial and energy sectors, two groups that have lagged the broader rally this year. Energy gained 2.5 percent and financials rose 1.9 percent.

Apple fell 3.9 percent and was the largest drag on the three major indexes, after a report that upcoming iPhones will utilize chips with slower download speeds than some rival smartphones.

Facebook and Alphabet ended down more than 3 percent, Microsoft fell 2.3 percent, while Nvidia fell 6.5 percent to $149.60 after Citron Research said the stock could trade back to $130.

A cautious Goldman Sachs report about tech stocks was la good part of the reason for a move out the tech sector. Shares of software company Cloudera closed down 15.6 percent after its earnings report.

Some the Street’s global concern revolved around the major political and economic events this week in both the United States and Europe. The equity markets had started the session strong after the results of the UK election, where British Prime Minister Theresa May’s Conservative Party lost its parliamentary majority.

The Street also viewed former FBI Director James Comey’s testimony on Thursday as not disruptive to the stock market.

Market watchers were concerned the result of the Congressional hearing could have derailed President Donald Trump’s plans for lower taxes, fiscal spending and looser regulations, which have helped drive the S&P 500 up 13.7 percent since his election.

The focus is now on the Fed’s meeting next week, where it is expected to overwhelmingly approve another increase in interest rates.

Approximately 8.7 billion shares changed hands on the major domestic equity exchanges, a number that was well above the 6.7 billion share daily average over the past 20 sessions.

Inventories Decline

Wholesale inventories declined in April to a greater extent than the government had previously estimated, posting their largest decline in more than a year as sales also fell sharply.

The Commerce Department reported on Friday that wholesale inventories fell 0.5 percent in April after increasing 0.1 percent in March. The department reported last month that wholesale inventories slipped 0.3 percent in April.

Automotive inventories fell 1.4 percent while petroleum inventories dropped 5.0 percent, their biggest fall since December 2015. Paper inventories fell 1.8 percent in the category’s biggest drop since January 2013.

Wholesale stocks of electrical goods also slipped 0.1 percent while machinery inventories were flat.

Sales at wholesalers fell 0.4 percent in April after falling 0.2 percent in March. Sales of electrical goods rose 0.7 percent while those of machinery fell 0.8 percent. Auto sales were up 1.3 percent.

At April’s sales pace, it would take wholesalers 1.28 months to clear shelves, unchanged from March.

Can You Predict Market Moves?

Streetwise for Friday, June 9, 2017

You must give those denizens of Wall Street credit; at least they show consistency; bulls and bears locked in a perpetual struggle each convinced the other is wrong.

Meanwhile, as I write this the S&P 500 has closed at 2,433.14, six points below its all-time high, while the Dow Jones Industrial Average closed at 21,173.69. Yet, it was not until May 15, of this year that the S&P 500 finally closed above 2,400, with a record of 2,439.07 chalked up on June 2, seven days ago. It was on that same day that the Dow hit its record high of 21,206.29.

Could anyone have predicted the markets’ recent moves? And if he or she could would they spill the beans to the rest of us? Not likely. Instead, they would be comfortably ensconced on a yacht somewhere with a direct line to some discount brokerage house.

Unfortunately, with no small amount of encouragement from the media, this predicting nonsense often gets out of hand. Take, for example, several recent divinations predicting a Dow of 6,000. That would be a 71 percent drop. Let’s get real. The worst bear market of my lifetime (72 years), was October 2007 to March 2009. A 17-month period during which the S&P 500 lost 56.4 percent, all of which has been subsequently recovered.

That decline was brought about by a long-feared bursting of the housing bubble, resulting in a rising mortgage delinquency rate that quickly spilled over into the credit markets. By 2008, Wall Street giants like Bear Stearns and Lehman were toppling and the financial crisis erupted into a full-fledged panic. By February the markets had fallen to their lowest levels since 1997.

As you peer into the black abyss of what lies ahead, keep in mind two of Wall Street’s key axioms. The first is that the performance of individual securities is uncertain at any moment in time. Second, the performance of a portfolio of securities is uncertain in the short-term.

Yes, I realize that no amount of prose can counter the emotions resulting from a loquacious news announcement about a day’s tumultuous treading activity. Therefore, consider once again the wise words of Wall Street legend Lucien O. Hooper, so often repeated here.

“What always impresses me,” he wrote, “is how much better the relaxed, long-term owners of stock do with their portfolios than the traders do with their switching of stocks. The relaxed investor is usually better informed and more understanding of essential values; he is more patient and less emotional; he does not incur unnecessary brokerage commissions; and he avoids behaving like Cassius by ‘thinking too much.’ ”

The thunderheads that roll over Wall Street are often dramatic but generally pass quickly, leaving behind clear blue skies that will once again invite one and all to come out and frolic in the sun. However, lest you become too complacent and leave the old umbrella at home, remember you are still faced with the dilemma of what constitutes fair and reliable value.

One often talked about way to investigate market valuation is to study an index’s historic price-to-earnings (P/E) ratio using trailing twelve months (TTM) earnings.

As of June 7, the trailing 12-month P/E was 24.08, a reading virtually unchanged from a year ago but considered to be too rich for bottom feeders. By the same token, the dividend yield on S&P 500 index stood at about 1.95 percent as compared to 2.18 percent a year ago and the index trades at about 2.75 times book value, as compared to 2.85 a year ago.

So, are the financial markets headed towards new highs during the remaining months of this year? Or are stock prices likely to remain under pressure due to what some believe to be over valuation, potentially higher interest rates and political uncertainty.

While only time will tell, it is dangerous to chase stocks simply because their prices are rising, it is also risky to conclude that they are attractive simply because prices have fallen. What’s cheap today could get even cheaper tomorrow and what is expensive today could become even more expensive tomorrow.

Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddReport.com.

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Rudd’s MarketView for Thursday, June 8, 2017

Summary

The “Trump trade” made a comeback on Thursday on Wall Street but the S&P and Dow industrials ended flat as former FBI director James Comey said President Trump fired him to undermine an investigation into Russian meddling into the November election.

The Nasdaq Composite posted a record closing high helped by gains in Nvidia and Yahoo. S&P 500 futures opened slightly lower for the overnight session after exit polls showed there was a likelihood for a hung British Parliament.

Traders had been on tenterhooks ahead of Comey’s testimony to a Senate committee, his first since being fired by Trump on May 9. His prepared remarks had been made public Wednesday.

The market’s concern on the issue is whether the Trump administration can put the investigation behind it and revive momentum for their agenda of lower taxes and looser regulations. Bets on that agenda are partly behind a rally that has taken stock indexes to record highs.

The Trump ‘reflation trade’ that favored banks and sectors linked to infrastructure spending, among others, was back Thursday, with the S&P 500 financial sector up 1.1 percent.

The S&P 1500 construction and engineering index rose 1.4 percent and a gauge of construction materials’ stocks added 1.5 percent.

Also supporting infrastructure stocks, specifically steel companies, was an announcement from Commerce Secretary Wilbur Ross that a national security review of our domestic steel industry will seek to protect the interests of both domestic steel producers and consumers.

The S&P 1500 steel sector index jumped 4.1 percent, the most since April 20.

In his statement, Comey said the president lied in describing their encounters and that he had no doubt that Russia interfered with the election, but was confident that no votes had been altered.

Some analysts were not so rosy about the effect of Comey’s testimony on the Trump agenda.

Utilities stocks fell the most on the S&P 500 as Treasury yields rose, tracking German Bund yields, after the European Central Bank upgraded its growth forecast for the euro zone even as it suggested its stimulus plan will remain in place as inflation remains subdued.

The S&P utilities sector was down 0.88 percent, the most since mid March.

Futures opened slightly lower after an exit poll unexpectedly showed Prime Minister Theresa May falling short of an overall parliamentary majority in Britain’s election.

Among specific stocks, Nordstrom (JWN.N) jumped 10.3 percent to $44.63 after the department store operator said that some members of the controlling Nordstrom family have formed a group to consider taking the company private.

Alibaba shares were up 13.3 percent to $142.34 after the company said it expects revenue growth of 45 to 49 percent in the 2018 fiscal year.

Yahoo, which has a 15.5 percent stake in Alibaba, gained 10.2 percent to $55.71.

Nvidia rose 7.3 percent to $159.94 after Citigroup reiterated its bullish view on the stock and said longer term it could hit $300.

Approximately 7.10 billion shares changed hands on the major domestic equity exchanges, as compared to the 6.62 billion share daily average over the last 20 sessions.

Jobless Claims Fall Again

The number of new claims for unemployment benefits fell last week, unwinding half of the prior period’s jump and suggesting the labor market was tightening despite a recent slowdown in job growth.

Initial claims for state unemployment benefits declined 10,000 to a seasonally adjusted 245,000 for the week ended June 3, the Labor Department said on Thursday. The report followed data on Tuesday showing job openings at a record high in April.

Claims surged by 20,000 in the prior week, with California, Tennessee, Kansas, and Missouri accounting for the bulk of the increase. Some of that increase was related to school summer breaks in which bus drivers and cafeteria workers were left temporarily unemployed.

Claims have now been below 300,000, a threshold associated with a healthy labor market, for 118 straight weeks. That is the longest such stretch since 1970, when the labor market was smaller. The labor market is near full employment, with the jobless rate at a 16-year low of 4.3 percent.

The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, increased 2,250 to 242,000 last week.

The dollar rose against the euro after the European Central Bank kept interest rates on hold but cut its forecasts for inflation and said policymakers had not discussed scaling back the central bank’s massive bond-buying program. Prices for U.S. Treasuries fell, while stocks on Wall Street were slightly higher.

A low level of layoffs and record high job openings suggest a deceleration in job growth in May was likely because companies could not find suitable workers. The economy created 138,000 jobs in May, well below the average monthly 181,000 jobs gained over the prior 12 months.

The Labor Department reported on Tuesday that job openings, a measure of labor demand, increased by 259,000 to a seasonally adjusted 6.0 million in April, the highest level since the government started tracking the series in 2000.

Labor market tightness will likely encourage the Fed to raise interest rates at its June 13-14 policy meeting.

Thursday’s claims number also showed the number of people still receiving benefits after an initial week of aid fell 2,000 to 1.92 million in the week ended May 27. The so-called continuing claims now have been below 2 million for eight straight weeks, pointing to diminishing labor market slack.

The four-week moving average of continuing claims slipped 750 to 1.91 million, the lowest level since January 1974.

Rudd’s MarketView for Wednesday, June 7, 2017

Summary

The major domestic equity indexes rose on Wednesday despite a sharp decline in energy shares after written testimony from former FBI director James Comey did not add major revelations about an investigation into Russian meddling with last year’s presidential election.

Comey, who was fired by Trump last month, wrote that President Trump asked him to drop an investigation of former national security adviser Michael Flynn. However, the details of Comey’s testimony, expected to be delivered Thursday to a Senate Committee, appeared to be priced into the stock market.

The Street’s concern is that any additional revelation could dampen already flagging momentum for Trump’s agenda of lower taxes and lax regulations. Bets that Trump can implement his agenda are partly behind a rally that has taken stock indexes to record highs.

Wall Street was weighed down by a near 2-percent drop in the S&P 500’s energy sector. All but two of the 34 components of the sector fell as domestic crude futures fell 5 percent due to an unexpected rise in inventories. Brent crude fell nearly 4 percent.

The largest percentage gainer on the S&P 500 was Signet Jewelers, which rose 4 percent, while the largest decliner was Newfield Exploration, down 7 percent.

The Street is also keeping an eye on Britain’s general election and the European Central Bank’s policy meeting, both on Thursday. Opinion polls have shown Conservative Prime Minister Theresa May’s lead over the opposition Labor party narrow over the last three weeks, with some even suggesting she could fall short of a majority government.

The election comes as Britain maps its exit from the European Union following a referendum on the subject last year. At the same time, the ECB is expected to reiterate its plan to maintain a very accommodative monetary policy at least until the end of the year.

Volume on the major domestic equity exchanges was 6.60 billion shares, a number that was roughly in line with the average over the last 20 trading days.

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Rudd’s MarketView for Tuesday, June 6, 2017

Summary

Major domestic equity indexes ended the trading day on Tuesday, near session lows as investors shied away from risky assets ahead of major political and economic headlines expected on Thursday.

Britain’s general election as it maps its exit from the European Union, the European Central Bank’s policy meeting and former FBI Director James Comey’s testimony before a Senate panel could all affect investor sentiment.

Comey was investigating whether Donald Trump’s presidential campaign and Russia colluded to sway the 2016 U.S. election when he was fired by Trump in May. His testimony could dampen already flagging momentum for the U.S. President’s agenda of rolling back regulations and overhauling the tax code.

British Prime Minister Theresa May could increase her parliamentary majority, an opinion poll showed on Tuesday, shortly after another survey suggested the race with the opposition Labor Party was neck-and-neck.

Investors will also watch out for the European Central Bank’s meeting, where policymakers are expected to take a more benign view of the economy, according to sources.

Safe-havens were bid up as traders sold out of stocks. Spot gold rose 1.1 percent to $1,293.47 after earlier touching its highest since November, while 10-year Treasury yields hit a session low of 2.129 percent, their lowest level since the days following the November U.S. Presidential election.

The largest weight on the S&P 500 was Amazon, down 0.8 percent. Walmart fell 1.7 percent to $78.93 after Amazon said it would offer its Prime subscription service at a discount to U.S. customers on government aid, taking aim at a piece of Walmart’s customer base.

Macy’s shares fell 8.2 percent to $21.90 after it warned its margins could shrink further. And the news hit other department stores: J.C. Penney fell 4.1 percent, Sears fell 2.5 percent and Nordstrom slid 3.6 percent.

Approximately 6.42 billion shares changed hands on the major domestic equity exchanges, as compared with the 6.6 billion share  daily average over the past 20 sessions.

Job Openings at Record High

Job openings reached a record high in April and employers appeared to have trouble finding suitable workers, pointing to a tightening labor market that could encourage the Federal Reserve to raise interest rates next month.

The Labor Department’s monthly Job Openings and Labor Turnover Survey, or JOLTS, published on Tuesday also suggests that a recent moderation in job growth could be the result of a skills mismatch rather than easing demand for labor.

JOLTS is one of the metrics on Fed Chair Janet Yellen’s so-called dashboard of labor market indicators. It came ahead of the U.S. central bank’s June 13-14 policy meeting, at which it is expected to raise its benchmark overnight interest rate by 25 basis points.

Job openings, a measure of labor demand, increased 259,000 to a seasonally adjusted 6.0 million in April, the highest since the government started tracking the series in 2000.

The monthly increase was the largest in just over a year and pushed the jobs openings rate to 4.0 percent, the highest since last July, from 3.8 percent in March.

Hiring, however, decreased by 253,000 jobs to 5.1 million. That lowered the hiring rate to a one-year low of 3.5 percent from 3.6 percent in March.

The gap between job openings and hiring points to a growing skills mismatch. A report from the National Federation of Independent Business last week showed the share of small business owners reporting job openings they could not fill in May was the highest since November 2000.

The JOLTS report also showed 1.6 million people were laid off in April, little changed from March. The layoffs and discharges rate was unchanged at 1.1 percent for five straight months. The number of people voluntarily quitting their jobs fell by 111,000 to 3.0 million in April.

As a result, the quits rate, which the Fed looks at as a measure of job market confidence, dipped to 2.1 percent from 2.2 percent in March.

Rudd’s MarketView for Monday, June 5, 2017

 

Summary

The major equity indexes were a bit lower on Monday as a decline in the price of Apple’s shares partly offset gains in energy and financial stocks, some of the market’s worst-performing sectors this year.

Energy, the worst-performing S&P 500 sector so far in 2017, and banks, widely underperforming the benchmark year-to-date, attracted attention despite a decline in crude prices and a yield curve that is near its flattest in eight months.

Banks are expected to perform better in a steepening-yield curve environment, in which bonds with longer maturities need higher rates to attract investors.

Monday’s data indicated that the services sector slowed in May on lower new orders. Together with an April fall in orders for manufactured goods and worker productivity unchanged in the first quarter, we could be facing limited economic growth.

Despite the softening economic numbers, traders still bet the Federal Reserve will raise rates at its June 13-14 meeting. Reuters data points to a 93.6-percent chance of a quarter-point hike.

With the 10-year Treasury yield near its lowest point in seven months, the consensus appears to be that there will be an upward spike in rates.

Utilities are expected to underperform as yields rise. The utility sector index fell 0.48 percent.

Energy stocks rose despite a decline in crude prices. Oil prices were lower over concerns that Saudi Arabia is cutting off ties with Qatar over its alleged support of extremist views inside Islam. The result could mean a falling apart of a global deal to reduce oil production.

The S&P 500 energy sector index rose 0.2 percent after falling 4.3 percent over the previous two weeks.

Wall Street is keeping an eye on other political developments coming up including a British election, testimony from former FBI director James Comey regarding the Trump campaign’s possible collusion with Russia, and the French legislative vote.

Apple fell 1.0 percent to $153.93 as the iPhone maker unveiled products and services in its annual developers’ conference.

Alphabet’s A-class shares edged above the $1,000 mark for the first time and were among the largest contributors to the S&P 500 index and the Nasdaq composite.

Bristol-Myers Squibb fell 4.7 percent to $52.36 after an underwhelming presentation at the American Society of Clinical Oncology’s annual meeting in Chicago over the weekend.

Herbalife was down 6.7 percent to $68.99 after the nutritional supplement maker lowered its sales outlook for the current quarter a month after a rosy guidance followed results.

Approximately 5.52 billion shares changed hands on the major domestic equity indexes, making it one of the lowest volume days of the year. The number was also below the 6.6 billion share average over the last 20 trading days.

Economic Activity Moderates

The services sector showed slower activity during May as new orders fell, but a rise in employment to a near two-year high pointed to sustained labor market strength despite a deceleration in job growth last month.

The moderation in services industries production, together with other data on Monday showing orders for manufactured goods falling in April for the first time in five months and worker productivity unchanged in the first quarter, suggest limited scope for faster economic growth.

The Institute for Supply Management (ISM) said its non-manufacturing activity index fell six-tenths of a percentage point to a reading of 56.9. A reading above 50 indicates expansion in the sector, which accounts for more than two-thirds of U.S. economic activity.

Services industries reported a 5.5 percentage points dive in new orders last month. Prices paid by non-manufacturing industries for materials and services declined after increasing for 13 straight months.

However, a measure of services sector employment rose 6.4 percentage points to its highest level since July 2015, suggesting labor market strength even as nonfarm payrolls increased 138,000 in May after rising 174,000 in April.

The decline in prices paid by services industries could attract attention from some Federal Reserve officials when they meet on June 13-14 to deliberate on monetary policy. The Fed is expected to raise its benchmark overnight interest rate by 25 basis points at that meeting after a similar increase in March.

The Commerce Department said factory goods orders were down 0.2 percent during April after chalking up a 1.0 percent increase during March. Orders rose 4.4 percent from a year ago.

Manufacturing, which accounts for about 12 percent of the economy, is being supported by a recovery in the energy sector that has led to demand for oil and gas drilling equipment.

A report from the Labor Department indicated that nonfarm productivity, which measures hourly output per worker, was unchanged in the last quarter. It was previously reported to have declined at a 0.6 percent annualized pace.

Productivity has increased at an average annual rate of 0.6 percent over the last five years, below its long-term rate of 2.1 percent from 1947 to 2016, indicating that the economy’s potential rate of growth has declined.

One theory is that low capital expenditure has resulted in a sharp decline in the capital-to-labor ratio, resulting in the weakness in productivity. There are also perceptions that productivity is being inaccurately measured, especially on the information technology side.

Rudd’s MarketView for Friday June 2, 2015

Summary

The Dow and S&P 500 eased on Friday as increasing expectations the Federal Reserve could raise rates as soon as September offset optimism over a recovery in the U.S. labor market. Stronger-than-expected jobs data for May and a pickup in wages were the latest signs of better momentum in the economy.

Wall Street’s top banks said they expect the Fed to begin raising interest rates in September, followed by another increase before the end of the year, according to a Reuters poll.

The S&P utilities index, which includes top dividend payers that tend to fall as prospects for higher rates rise, was down 1.3 percent and among the weakest-performing sectors. The domestic benchmark bond yield hit its highest since October.

The S&P financials sector, which benefit from higher rates, was up 0.6 percent, and was among the day’s best performing sectors, while the S&P energy index added 0.7 percent. Energy shares bounced with oil prices.

For the week, the S&P 500 fell 0.7 percent, its second straight week of losses, the Dow was down 0.9 percent and the Nasdaq was down 0.03 percent.

The Fed has kept overnight rates near zero since December 2008 because the economic recovery has been slow. Cheap credit, however, has helped bolster the U.S. stock market.

New York Fed President William Dudley said he was concerned the economy may not be growing fast enough to absorb the slack among workers sidelined by the financial crisis. Still, Dudley said he expects the Fed would be in a position to raise rates later this year.

Sending the Nasdaq higher were the shares of Regeneron Pharmaceuticals, which rose 4 percent to $539.40 after a preliminary FDA review of an experimental drug it makes with Sanofi.

Among decliners on Friday were gold miners, which dropped along with gold prices. Shares of Newmont Mining were down 3.3 percent at $25.91.

Zumiez (ZUMZ.O) dropped 19.3 percent to $24 as it estimated current-quarter profit and revenue below analysts’ expectations.

Approximately 6.2 billion shares changed hands on the major equity  exchanges, slightly below the 6.3 billion daily average for the last five sessions, according to BATS Global Markets.

Job Growth Up Sharply

Job growth accelerated sharply in May and wages picked up, signs of strong momentum in the economy that bolster prospects for a Federal Reserve interest rate hike in September. Nonfarm payrolls increased 280,000 last month, the largest gain since December, the Labor Department said on Friday.

While the unemployment rate rose to 5.5 percent from a near seven-year low of 5.4 percent in April, that was because more people, including new college graduates, entered the labor force, indicating confidence in the jobs market.

The report joined May automobile sales and manufacturing data in suggesting economic activity was gaining traction after a slow start in the second quarter.

Doubts had sprung up in financial markets over whether the Fed would be able to raise rates this year after a first-quarter contraction in GDP and a string of weak data in April, including soft figures on consumer spending and industrial production.

The jobs data helped dispel those doubts. The dollar raced to a 13-year peak versus the yen and surged against the euro. Prices for U.S. government debt fell sharply, with the yield on the two-year note rising to a more than four-year high.

Average hourly earnings, which had long been the missing piece in the jobs recovery and one closely watched by Fed policymakers, rose eights cents. In addition, payrolls for March and April were revised to show 32,000 more jobs created than previously reported, giving the report a healthy glow.

Economists had forecast payrolls rising 225,000 last month, with the unemployment rate steady. May’s payroll gains lifted job growth above last year’s average of 260,000 jobs per month.

Despite May’s rise in the jobless rate, it remains not too far from the 5.0-5.2 percent range that most Fed officials consider consistent with full employment. Policymakers will also be encouraged by the return of some discouraged job seekers to the labor market.

The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, increased 0.1 percentage point to 62.9 percent, a four-month high. The number of discouraged workers in May was the lowest since October 2008, and the percentage of the working-age population employed hit its highest level since June 2009.

In May, 28.6 percent of the unemployed had been out of work for 27 weeks or more, the lowest rate in six years. A broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment was unchanged at 10.8 percent.

Further gains are expected given firming demand for entry-level workers and a better composition of jobs that are being created. In addition, many states have raised the minimum wage and some corporations are increasing pay for workers.

Walmart (WMT.N), the largest private employer in the United States, this week announced it would raise minimum wages for more than 100,000 U.S. workers, its second wage hike this year.

Payroll gains last month were broad-based, though the mining sector purged jobs again as it continued to work through the thousands of cuts announced by oil-field companies. The 18,000 mining jobs lost in May marked a fifth straight monthly decline.

Among sector heavyweights, Schlumberger (SLB.N) has announced about 20,000 layoffs this year, while Baker Hughes (BHI.N) and Halliburton (HAL.N) are also cutting thousands of jobs.

Manufacturing employment increased 7,000, while construction employment payrolls rose by 17,000.

Rudd’s MarketView for Thursday, June 1, 2017

Summary

The S&P 500, Nasdaq Composite and Dow Jones Industrial Average set record closing highs on Thursday after the day’s economic data suggested the economy was picking up speed.

The ADP private sector employment report showed 253,000 jobs were added in May, well above the 185,000 estimated by economists polled by Reuters.

The report could signal a strong government payrolls report on Friday that includes hiring in both public and private sectors, which would cement expectations for an interest rate hike by the Federal Reserve in two weeks.

Forecasts are for 185,000 nonfarm jobs created in May. In addition to the ADP data, a separate report showed factory activity ticked up in May after two straight months of slowing.

San Francisco Federal Reserve Bank President John Williams said on Wednesday that while he sees three interest rate hikes this year as his baseline scenario, four rate increases would also be appropriate if the economy got an unexpected boost.

Fed Governor Jerome Powell, an influential policymaker, told CNBC that he expects three rate hikes this year.

Forecasts from Fed officials suggest that a median of two more hikes are planned before the end of the year.

Traders are currently pricing in an 88.9-percent chance of a quarter-percentage-point rate hike at the Fed’s June 13-14 meeting, according to Thomson Reuters data.

Gains were broad, with each of the 11 major S&P sectors on the plus side, led by gains in materials, with the materials index up 1.09 percent and healthcare, up 1.18 percent.

Deere’s shares were up 1.8 percent to close at $124.70 after the company said it would buy privately held German road construction company Wirtgen Group for $5.2 billion, including debt.

Hewlett Packard Enterprise fell 6.9 percent to $17.52 as the largest drag on the S&P 500 after the company reported a steep fall in quarterly revenue.

Palo Alto Networks rose 17.2 percent to a more than four-month high of $138.99 after the cybersecurity company’s profit forecast exceeded expectations.

About 6.89 billion shares changed hands in U.S. exchanges, compared with the 6.72 billion daily average over the last 20 sessions.

Day’s Economic Data

Factory activity increased during May, after slowing for two straight months. At the same time, private employers stepped up hiring, thereby reinforcing the idea that the economy is regaining strength after struggling at the beginning of the year. One likely outcome of the continuing economic strength is that it will encourage the Federal Reserve to raise interest rates later this month.

The Institute for Supply Management (ISM) said its index of national factory activity ticked up to a reading of 54.9 last month from 54.8 in April. The index hit a 2-1/2-year high of 57.7 in February amid optimism over President Trump’s pro-business policy proposals.

The index had declined for two consecutive months as concerns mounted in the business community that political scandals could derail the Trump administration’s economic agenda, including its push to cut corporate and individual taxes.

A reading above 50 in the ISM index indicates an expansion in manufacturing, which accounts for about 12 percent of the U.S. economy. The manufacturing recovery remains underpinned by the energy sector as steady increases in crude oil prices boost drilling activity, fueling demand for machinery.

The ISM survey’s new orders sub-index increased to 59.5 last month from 57.5 in April. A measure of factory employment jumped to a reading of 53.5 from 52.0 in April. Manufacturers of food and fabricated metals products reported difficulties finding qualified workers.

Manufacturers continued to steadily increase inventories and still viewed their customers’ stocks as too low, according to the survey. While raw materials prices rose for a 15th straight month, the pace of increase slowed sharply in May.

Although its numbers are traditionally not too reliable, the ADP National Employment Report indicated that private payrolls increased by 253,000 jobs last month, exceeding Street expectations for a gain of 185,000 jobs. Private payrolls rose by 174,000 jobs in April.

The ADP report is jointly developed with Moody’s Analytics and was released ahead of the Labor Department’s more comprehensive nonfarm payrolls report on Friday, which includes both public and private-sector employment.

In a third report on Thursday, the Labor Department said initial claims for state unemployment benefits rose by 13,000 claims to a seasonally adjusted 248,000 claims for the week ended May 27.

It was the 117th straight week that claims were below 300,000, a threshold associated with a healthy labor market. That is the longest such stretch since 1970, when the labor market was smaller.

A Labor Department official said claims for California and seven other states were estimated because of the Memorial Day holiday on Monday, which could have distorted the data. The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose only 2,500 to 238,000 last week.

Meanwhile, the minutes of the Fed’s May 2-3 policy meeting, which were published last week, indicated that while policymakers agreed they should hold off hiking rates until there was evidence the growth slowdown was transitory, “most participants” believed “it would soon be appropriate” to raise borrowing costs.

The Fed said on Wednesday in its Beige Book report of anecdotal information on business activity collected from contacts nationwide that labor markets continued to tighten from early April through late May. It also said “most” districts had cited worker shortages across a broadening range of occupations and regions.

A fourth report by global outplacement consultancy Challenger, Gray & Christmas indicated announced layoffs rose 41 percent to 51,692 in May. Nearly 40 percent of the job cuts were announced by Ford, according to the report.