Investment Commentary –October 19th, 2016

Market Indices as of Market Close October 19th, 2016
Dow 18,202 (4.46% YTD)
S&P 2,144 (4.91% YTD)
NASDAQ 5,246 (4.77% YTD)
Global DOW 2,452 (2,033 week low/high 2,489)
10-year Treasury 1.74 (1.32 52 week low /2.38 high)
Gold 1,270 ($1,053 52 week low /high $1,384)
Oil $51.44 ($34.10 52 week low /high $53.39)

U.S. stocks climb as crude oil rallies to 15-month high

U.S. stocks closed higher for a second session Wednesday, boosted by a rally in the energy sector and stronger-than-expected quarterly results from Morgan Stanley. The Federal Reserve’s Beige Book, an anecdotal economic survey, also indicated that the U.S. economy continues its modest, albeit steady, expansion.

Crude oil futures CLX6, +2.31% jumped 2.6% to settle at their highest level in about 15 months. The rise of oil futures came as Saudi Arabia’s oil minister Khalid Al-Falih said improving fundamentals and market rebalancing would continue to aid the recovery in the commodity, and futures extended gains after the U.S. Energy Information Administration said domestic crude supplies fell by 5.2 million barrels in the week ended Oct. 14.

“For a number of weeks we’ve had unexpected inventory draws in the U.S. [so] part of the bear case on oil is being damaged,” said Patrick Kaser, a portfolio manager at Brandywine Global Investment Management. “Skeptics said we’d have inventory builds after recent storms, but they’ve simply been wrong so far.”
The S&P energy sector rose 1.4%, by far the biggest gainer on the day, helping the S&P 500 index SPX, +0.22% rise 4.69 points, or 0.2%, to close at 2,144.29.

U.S. single-family house building jumps in September, building permits up also

The construction of U.S. single-family housing surged in September, though a drop in apartment building pushed overall home building activity to an 18 month low.

But Wednesday’s report from the U.S. Commerce Department also showed building permits jumping last month, suggesting overall residential construction may rise again in the fourth quarter.

In its Beige Book report also published on Wednesday, the Federal Reserve struck an upbeat note on the housing market, saying residential real estate activity expanded in most districts in recent weeks.

“Home construction is in decent shape, despite the volatility in the multi-family segment,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “Activity is growing in the key single-family segment and permit requests are strong.”

Single-family housing starts, which account for the largest share of the residential housing market, jumped 8.1 percent to a 783,000-unit pace last month. That was the highest level since February.

Low U.S. unemployment, slowly rising wages, and low mortgage rates are underpinning demand for housing. Single-family starts are also getting a boost from a chronic shortage of existing homes available for sale.

Overall groundbreaking activity, however, declined 9.0 percent to a seasonally adjusted annual pace of 1.05 million units last month, the lowest level since March 2015. It was dragged down by starts for the volatile multi-family segment, which plunged 38.0 percent to a 264,000-unit pace in September.

Starts for multi-family buildings with five or more units crumbled to their lowest level since June 2013. But with rents rising at their fastest pace in 10 years amid strong demand, September’s drop in groundbreaking activity could be temporary.
The Federal Reserve’s Beige Book report on business activity nationwide published on Wednesday also noted real estate activity expanded in September and early October.

The U.S. central bank said some evidence suggested optimism about future growth, though shortages of skilled labor remained a constraint on construction activity in some districts.

Google signs up CBS for Internet TV service:

Alphabet Inc (GOOGL.O) unit Google has reached an agreement with CBS Corp (CBS.N) to carry the network on its web TV service and is in talks with 21st Century Fox (FOXA.O) and Viacom Inc (VIAB.O) to distribute its channels, three sources told Reuters on Wednesday.

The service, which will be part of Google’s YouTube Platform, is expected to launch in the first quarter and will include all of CBS’ content, including live NFL games, one of the sources said. Google’s “skinny” bundle will cost $30 to $40 a month, the source said.

It is unclear which Fox and Viacom networks would be part of the Google service, two of the sources said.

The Economics Of The Cold War

On this day the U.S. Government decided to stop exports to Cuba, signaling a surge in efforts to weaken Fidel Castro’s communist government.

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.