…..Dow closes above 22,000. Apple lifts the markets. Dollar at support. How a weak dollar helps some companies. Watching the debt ceiling. Trump signs Russian sanctions. Tesla cash burn, but better than expected.
Financial Review by Sinclair Noe for 08-02-2017
DOW + 54 = 22,016
SPX + 1 = 2477
NAS – 0.29 = 6362
RUT – 15 = 1412
10 Y + .01 = 2.26%
OIL + .45 = 49.61
GOLD – 2.00 = 1267.20
The Dow closed above 22,000 for the first time ever. Not a big surprise. After the closing bell last night, Apple reported a really strong quarter for earnings, and the stock moved to a record high, which carried over to today’s trading. Apple jumped 4.73 percent to a record high. It is up 36 percent this year. Apple’s gains helped push the Dow to a record closing high, although tech heavyweights Microsoft, Facebook and Alphabet all lost ground following recent strong gains that have made the sector the strongest performer in 2017. The Dow has risen 11 percent in 2017 and hit its sixth straight record close today. The Dow hit the 20,000 level in late January and crossed the 21,000 mark on March 1. The last time the S&P pulled back by 5 percent or more was just ahead of the election when it gave back 5 percent. There also was a sell-off after the June 2016 Brexit vote of 6 percent. The last large correction was the more than 11 percent pullback that ended in February 2016. So, some of the techs are pulling back now but it is not a sharp pullback, rather a pause to catch your breath; all very orderly and neat, at least for now. The bears haven’t had enough power to break it down and there is still buying interest.
Two-thirds of S&P 500 companies have reported their second-quarter earnings so far and 72 percent of them have beaten Wall Street’s expectations, according to Thomson Reuters I/B/E/S. In a typical quarter, 64 percent of companies beat expectations.
The Dollar index was down slightly again today at 92.7, and it is now at a critical level of long-term support. At some point over the next few days, we should see a bounce or a breakdown. The U.S. dollar index has fallen more than 9 percent this year to its lowest since May 2016. A weaker dollar is good for US companies with international exposure. Goldman has developed a basket of 50 S&P 500 stocks with a high percentage of international sales. Those companies should do well with a weaker dollar. So far the group has climbed 18 percent this year, versus 7 percent gains for Goldman’s basket of stocks with domestically-generated sales. The S&P 500 has risen 10.5 percent this year.
Can anything stop the euro? That’s a serious question. Europe’s shared currency briefly rose through $1.19 on Wednesday for the first time since the start of 2015 and rising from as low as $1.0570 in April when the rally started. Although much of the euro’s strength is a function of the dollar’s weakness, there’s no denying that the euro zone economy is gathering pace. Eurostat data showed the economy expanded 2.1 percent in the second quarter from a year earlier, the fastest pace since 2011. To be sure, a stronger euro could start to bite into the profits of European exporters, and there are signs that analysts are starting to temper their earnings estimates as a result. Keep an eye on the Bank of England tomorrow. The BOE’s Monetary Policy Committee kept rates unchanged when it last met, in June. But the split vote suggested that some members were worried about the risk of a persistent inflation overshoot.
A weaker dollar has also helped oil prices move higher, but in the oil field, it is still a matter of supply and demand. The shale surge that’s tied down global oil prices shows no signs of abating, as four of the biggest U.S. drillers said this week that they’re not backing away from lofty production targets for 2017. Shale production is going up. It’s not a matter of if; it’s just a matter of how much.
Much of the discussion in markets the next couple of months is likely to center around the U.S. debt ceiling and whether lawmakers raise it or if there will a big battle between Republicans and Democrats that results in a government shutdown that hurts markets. Traders are already willing to pay up for Treasury bills maturing after Oct. 19 to avoid being caught holding securities vulnerable to a technical default.
President Trump signed into law new sanctions against Russia, a move Moscow said amounted to a full-scale trade war and an end to hopes for better ties with the Trump administration. Congress overwhelmingly approved the legislation last week, passing a measure that conflicts with the Republican president’s desire to improve relations with Moscow. While Trump signed the bill, he criticized it as infringing on his powers to shape foreign policy and said he could make “far better deals” with governments than Congress can.
Data showed U.S. private employers added 178,000 jobs in July after adding 191,000 in June. The more comprehensive non-farm payrolls report is due on Friday.
Tesla shares gained 6 percent after the company reported a narrower-than expected loss. The electric automaker also reported strong revenue as they start making deliveries of the new, more-reasonably-priced Model S sedans. Tesla continues to burn through cash as it ramps up manufacturing capabilities. Tesla reported negative free cash flow of $1.1 billion in the second quarter in a letter to shareholders Wednesday, less than the $1.3 billion projected by analysts. The burn rate was still a quarterly record and almost double the amount of money Tesla went through in the first three months of the year. Tesla forecast spending $2 billion in capital expenditures in the second half of the year, up from $1.5 billion in the first six months of the year. Tesla had said it planned to produce 500,000 vehicles annually by 2018 and would ramp up costs to meet that goal.
Shares of Fitbit gained as much as 8 percent after the company posted better-than-expected quarterly results. Co-founder and CEO James Park said Fitbit saw strong sales with unexpectedly strong demand, leading to a reduction in inventory.
Square ticked 1 percent higher after the company reported results that bested analyst expectations. The Jack Dorsey-led company posted a loss of 4 cents per share on $552 million in revenue. Wall Street had expected a loss per share of 5 cents on revenue of $536 million.
Shares of AIG edged higher after the company reported earnings per share above analyst expectations. The company posted earnings per share of $1.53, easily besting the consensus estimate for about $1.20 a share.
Cheesecake Factory shares fell 7 percent after the company reported a decline in comparable restaurant sales, outweighing earnings and revenue that were roughly in-line with expectations. The company said same-restaurant sales declined 0.5 percent during the period.
AutoNation fell 7 percent after the largest U.S. auto retail chain reported lower quarterly profits.
Cardinal Health fell 8.2 percent after the drug distributor’s 2018 profit forecast missed analysts’ estimate.
Theranos just reached a settlement with Walgreens. In November 2016, Walgreens filed a $140 million lawsuit against Theranos, accusing Theranos of a breach of contract. Walgreens had ended its relationship with Theranos a few months prior in June 2016. It had operated Theranos Wellness Centers, where people could go have their blood tested in the company’s stores. Until October 2016, Theranos’s business model was based around the idea that it ran blood tests using proprietary technology that requires only a small amount of blood. Theranos has been under fire since October 2015 after the Journal published an investigation that questioned the accuracy of its blood test. Eventually, one of the company’s lab-testing locations was shut down, and its founder — Elizabeth Holmes — was originally barred for two years from running a clinical lab. The settlement with Walgreens is the last in a series of major settlements between Theranos and investors, as well as the state of Arizona.