…..Record highs, again for Dow, S&P, Nasdaq, and Russell. CPI up on higher gas; + 2.5% over past year. Strong retail sales in January. Empire State MFG report strong. Yellen goes before the House. Retailers meet Trump, oppose border adjustment tax. Humana pulls out of ACA. Puzder pulls out of labor bid. Bebe won’t pull out of settlements. Time Warner votes “yes”. SoftBank buys FIG. Verizon wants a new deal.
Financial Review by Sinclair Noe for 02-15-2017
DOW + 107 = 20,611
SPX + 11 = 2349
NAS + 36 = 5819
RUT + 7 = 1404
10 Y + .03 = 2.50%
OIL – .23 = 53.48
GOLD + 5.40 = 1234.20
The consumer price index, or cost of living, rose by a seasonally adjusted 0.6% in January. The prices Americans pay for goods and services jumped in January by the largest amount in four years, mostly because we paid more for gasoline. Also, rents and medical costs have increased. Food costs rose slightly in January but are down 2% in the past year. Headline inflation rose 2.5% over the prior year. Stripping out the volatile food and energy categories, Core consumer prices advanced a slower 0.3% in January. The core rate has moved up 2.3% in the past year. Real hourly wages fell by 0.5% in January, reflecting the squeeze put on consumers by higher gasoline prices. Real or inflation-adjusted wages are flat over the past 12 months.
Most US retailers posted strong sales in January. Retail sales rose 0.4% last month, and December sales were revised up to 1% from 0.6%. Every major retail sector reported higher sales except for auto dealers, whose business tends to tail off after the Christmas shopping season. Auto purchases account for about one-fifth of all retail spending. If autos and gasoline are excluded US retail sales rose 0.7%. Electronics and appliance stores saw a 1.6% rise in sales, the largest gain in a year and a half. Stores that sell clothing and sporting goods also posted sales gains of 1% or more. Sales at bars and restaurants advanced 1.4%. Nonstore retailers — which includes online retailers like Amazon — saw sales rise 12% over last year. One negative was a 2.3% spike in sales at gas stations.
The New York Fed’s Empire State manufacturing report came in at 18.7, better than 7.0 that was expected. Any reading over 0 indicates expansion of activity in the region. This was the best reading for the index is over two years, and the unfilled orders index rose above 0 for the first time in 5 years. All of this data follows Tuesday’s latest Small Business Optimism report from the NFIB, which showed an additional increase in optimism about the economy from America’s small business owners.
World stocks hit 21-month peaks, and the dollar rose for the 11th straight day after Federal Reserve Chair Janet Yellen flagged a possible interest rate rise next month during upbeat comments on the US economy. Treasuries sold off on her testimony. Probabilities for a March rate hike jumped to 34 percent, but some are still worrying that the Fed will have to move faster than the market currently expects. Yellen continued her semi-annual Humphrey-Hawkins testimony today, this time before the House Financial Services Committee. The hearing was contentious from the start. Republicans pressed Chair Yellen relentlessly to concede that the American economy is broken, that the Fed has failed to fix the underlying problems, and that excessive regulation is making things worse. Members of the committee frequently interrupted Yellen. She acknowledged that economic growth has been “quite disappointing,” but she said the Fed’s efforts had contributed to strong job growth since the financial crisis, and she defended the value of the changes in regulation that followed it. She did not endorse a rollback of regulation of big banks.
The chief executives of major retailers including Target, JCPenney, Best Buy and Gap met with President Trump today. They made the trip to lobby against a “border adjustment tax” proposed by congressional Republicans. Retailers are particularly vulnerable to such a tax because they sell a high volume of imported items – clothes, electronics or general merchandise – that could be 20% more expensive under the proposal. Retailers called the hour-long meeting positive and productive, though they offered few details.
Humana said it will pull out of the Affordable Care Act marketplace in 2018, making the announcement after it ended a merger agreement with Aetna. Humana also announced plans to repurchase $2 billion worth of its own shares. The company has steadily scaled back its presence, selling policies for 2017 in just 11 states. In early January, the company said the number of its customers buying coverage through the exchanges had dropped to about 150,000. President Trump immediately seized on the company’s decision as evidence that the Affordable Care Act needed to be repealed and replaced; tweeting that “Obamacare continues to fail.” So far Trump has not come up with a replacement.
There have been plenty of distractions. Trump’s nominee for labor secretary abruptly withdrew his nomination today. Andrew Puzder, the CEO of CKE Restaurants (parent of Carl’s Jr. and Hardees) pulled out when it became obvious he did not have enough Republican support for confirmation. This follows the firing of Trump’s first national security advisor, Michael Flynn, after he lied about his communications with Russians. And this follows news that a number of associates linked to President Trump’s campaign and business interests are part of the federal inquiry into communications with Russian government officials who sought to meddle in the November election. The extent and purpose of those alleged contacts continue to be weighed, including whether the associates were aware they were communicating with Russian intelligence officials or those working on behalf of the Russian government.
Also today, Trump met with Israeli Prime Minister Benjamin Netanyahu and urged him to curb settlement construction even as Trump dropped a U.S. commitment to a two-state solution to the Israeli-Palestinian conflict, a longstanding bedrock of Middle East policy.
Time Warner shareholders met today to decide on the company’s proposed $86 billion merger with AT&T, and 79% voted “yes”. The transaction still needs approval from federal regulators.
Japanese telecommunications, internet and solar company SoftBank Group is buying US investment company Fortress Investment Group for $3.3 billion. SoftBank has set up a $25 billion private fund for technology investments that it says may grow to $100 billion. It already owns the US wireless company Sprint and Britain’s ARM Holdings.
Verizon is close to a revised deal to buy Yahoo’s core internet business for $250 million to $350 million less than the original agreed price of $4.83 billion. Since last year, Verizon had been trying to persuade Yahoo to amend the terms of the acquisition agreement to reflect the economic damage from two cyber attacks. Today, Yahoo was warning users that their accounts had potentially been compromised, but it declined to say how many people were affected. The newly reported malicious activity revolved around the use of “forged cookies” — strings of data that are used across the web and can enable people to access online accounts without reentering their passwords.
In its biggest year to date, the US solar market nearly doubled its annual record, according to Greentech Media, topping out at 14,625 megawatts of solar PV installed in 2016. For the first time, US solar ranked as the number one source of new electric generating capacity, while growth of nonresidential installations surpassed residential solar for the first time since 2011.
The National Safety Council released estimates that 40,200 people died in motor vehicle crashes in 2016. It would be the first time that more than 40,000 people died on U.S. roads since before the Great Recession. The council pointed to low gas prices and an improving economy as contributors to the uptick. The National Safety Council also estimated the cost of traffic deaths, injuries and property damage was $432 billion in 2016. The estimate is a 6% increase in deaths from 2015, and the council pointed to low gas prices and an improving economy as contributors to the uptick.
Warren Buffet continues to shine. Berkshire Hathaway, disclosed in a regulatory filing yesterday that it loaded up on Apple’s stock during the fourth quarter, increasing its stake to 57.36 million shares as of Dec. 31, up from 15.23 million shares as of September 30. Apple stock was up 2.5% in the fourth quarter, and up 16.6% since the start of the year, to close at record highs yesterday. If the stake remained unchanged, Buffett’s Apple shares would be worth $1.1 billion more than they were just a little over six weeks ago.