…..Dow and S&P record high closes. A short-term deal on ACA. NAFTA talks fail. Travel ban blocked. Morgan Stanley and Goldman report. IBM declining-revenue streak continues. Netflix the new movie giant. Volvo v. Tesla.
Financial Review by Sinclair Noe for 10-17-2017
DOW + 40 = 22,997
SPX + 1 = 2559
NAS – 0.35 = 6623
RUT – 5 = 1497
10 Y – .01 = 2.30%
OIL + .14 = 52.01
GOLD – 9.70 = 1285.80
The Dow Industrials and the S&P 500 hit another record high close. The Nasdaq Composite barely missed. The Dow briefly moved above 23,000 intraday – for the first time ever. Wait for 24,000 before you buy a hat. It took 53 trading days for the Dow industrials to move from 22,000 to the 23,000 mark. don’t know how long you might have to wait. Valuations seem a bit high at these levels. But a 1,000 point move isn’t what it used to be. If the Dow picks up another 1,000 points to reach 24,000, that will represent a 4.3% advance from the 23,000 mark.
Two senators announced a bipartisan breakthrough to shore up Obamacare, a least for the short-term. The agreement worked out by Republican Senator Lamar Alexander and Democratic Senator Patty Murray would meet some Democratic, including a revival of the subsidies for Obamacare and restoring $106 million in funding for a federal program that helps people enroll in insurance plans. In exchange, Republicans would get more flexibility for states to offer a wider variety of health insurance plans while maintaining the requirement that sick and healthy people be charged the same rates for coverage. The deal still has to make it through both houses of Congress and be signed by Trump. If it becomes law, it could end a chaotic situation for insurers after the White House moved last week to dismantle parts of the Affordable Care Act. Shares of U.S. hospital operators moved higher after news of the deal. Tenet shares were up 4 percent, while HCA was 2.3 percent higher. Shares of some health insurers also extended their gains on the day, with Anthem up 2.5 percent and Centene rising 2.8 percent. UnitedHealth, the largest US health insurer, is the first health insurer to report and its third-quarter net earnings rose 26.3 percent, beating analysts’ expectations. Its shares rose more than 5 percent
Trade ministers from the United States, Canada and Mexico wrapped up a contentious round of NAFTA negotiations. The three sides agreed to carry on with talks and said they would negotiate into the first quarter of 2018, beyond the end-year framework initially envisaged to complete the negotiations. Canada and Mexico have rejected U.S. proposals involving the dairy and auto sectors, dispute resolution, government procurement and a sunset clause that would effectively end NAFTA after five years unless all parties agree to extend it.
A federal judge in Hawaii on Tuesday granted a temporary restraining order against Trump’s third travel ban, just hours before it was set to take effect at midnight. Trump issued a proclamation last month restricting travel to the US from nationals of eight countries, including Iran, Syria, Yemen, Somalia, Venezuela, Chad, Libya, and North Korea. Those restrictions came after the first two iterations of the travel ban, which targeted majority-Muslim nations, faced court challenges. Trump’s second travel ban was partly implemented, and the Supreme Court was scheduled to hear arguments on its constitutionality in October. But the justices removed oral arguments from the schedule after part of the second ban expired and Trump issued the third ban as a replacement in September. The third ban will likely make its way to the Supreme Court, as well, though it must go through the appellate court system first. Another federal court is also expected to rule on the ban in a separate legal challenge. Almost immediately, the Department of Justice announced it would appeal the ruling.
Morgan Stanley and Goldman Sachs reported earnings and they followed a pattern of weak results due to calm markets. Like JPMorgan Chase and Citigroup, the firms that reported today showed a decline in fixed-income trading revenue. Low volatility has been problematic for Wall Street, especially compared with what was an active trading environment in the third quarter of 2016. Goldman’s fixed-income trading revenue dropped 26 percent from a year ago, while Morgan Stanley posted a 21 percent decline. Still, both banks’ debt trading units slightly beat analyst expectations for the quarter. Morgan Stanley, Wells Fargo and JPMorgan all posted record revenue from their wealth- and asset-management units as stock markets hit records and after the Federal Reserve hiked interest rates three times in the past year. Goldman Sachs also gained from rising markets, as its revenue from equity investments climbed to the highest in almost four years. JPMorgan, Citigroup, Bank of America and Wells Fargo boosted provisions for consumer loan losses from the previous quarter, which could be a leading indicator of a turn in the credit cycle. Goldman Sachs reported earnings of $5.02 per share vs. $4.17 expected. Also, revenue of $8.33 billion also easily beat expectations of $7.54 billion. Goldman Sachs was down 2.6%. Morgan Stanley posted earnings of 93 cents a share – topping estimates of 81 cents. Morgan Stanley was up slightly.
IBM reported third-quarter net income of $2.7 billion, or $2.92 a share, compared to $3.2 billion, or $2.98 a share, in the year-ago period – still, that beat estimates. Revenue fell slightly to $19.1 billion from $19.2 billion in the year-ago period, marking the 22 consecutive quarter of revenue declines. IBM shares popped 4% in after-hours trade.
Yesterday, after the closing bell, Netflix reported earnings – a modest beat, but they added a whole bunch of subscribers. And one of the major reasons they keep adding subscribers is because they keep adding movies. Netflix has released at least 34 original movies so far in 2017. It plans to release 80 next year. That’s more titles than most movie studios release in a year. Disney—which also owns Pixar, Marvel Studios, and Lucasfilm—released 13 movies in the US in 2016; Time Warner’s Warner Bros., New Line, Fine Line, Warner Independent, and Picturehouse studios released a combined 23 films; and Sony, which released the most, put out 38 movies throughout its studio portfolio last year, less than half of what Netflix is proposing. Netflix is padding its already massive content budget to support the ambitious movie-release schedule it has planned. It expects to spend between $7-8 billion on content overall next year, up from $6 billion in 2017. Even with a recently announced hike in subscription fees, you have to wonder if Netflix is experiencing a bit of cash burn. Netflix shares dropped about $3 today.
Volvo and Chinese parent company Geely unveiled the first model of its new Polestar electric brand, and announced a more than $750 million investment to develop the brand further. It is the first step to developing high-performance electric cars that are aimed at some of the same customers targeted by makers such as Tesla. The first production car will be the Polestar 1, a hybrid 600-horsepower two-door, four-seater hybrid coupe, with just above 90 miles of pure electric range. That car will go into production in 2019. It will be followed soon by an all-electric car aptly named the Polestar 2.
Industrial production in the U.S. rebounded in September after two straight declines, rising 0.3% in September. Capacity utilization rose to 76% from 75.8% but remained below summer levels. Production for July, meanwhile, was revised to show a small decline instead of a 0.4% gain. The decline in August lowered to 0.7% from 0.9%. Most industries boosted output in September, led by construction and utilities. Manufacturing production edged up 0.1%. The most notable decline was in chemicals, an industry concentrated in the South. A pair of major storms that swept through the region from Texas to Florida held down U.S. production by about 0.25 percentage points. Industrial production fell at a 1.5% annual rate in the third quarter, but the Fed said its index would have risen at least 0.5% if not for the hurricanes. Other indicators of heavy industry points to steadily rising sales and production and that’s likely to help keep the U.S. on its current 2% annual growth path.
The cost of imported goods jumped 0.7% in September in the biggest gain in more than a year, led by fuel prices and industrial supplies. Excluding fuel, import prices rose a smaller 0.3%.
Sentiment among home builders spiked in October after faltering over the summer. The National Association of Home Builder’s monthly confidence gauge jumped four points to a reading of 68, the highest reading since May. The NAHB warned that builders need to be mindful of long-term repercussions from the recent hurricanes, such as intensified material price increases and labor shortages.
And a final note, if you follow the metals markets you may have noticed that palladium is now trading around $980, while platinum is just $938 an ounce. That reverses long-term price trends.