Financial Review

3 or 4?

…More Facebook fallout. Waiting on the Fed. Protectionism semantics. Spending bill? Self-driving liability. Amazon in second place.

Financial Review by Sinclair Noe for 03-20-2018

DOW + 116 = 24,727
SPX + 4 = 2716
NAS + 20 = 7364
RUT – 0.16 = 1570
10 Y + .03 = 2.88%
OIL + 1.36 = 63.42
GOLD – 5.80 = 1311.80


Stocks bounced back, at least a little. Oil prices rose more than 2 percent to touch a three-week high, driven by tensions in the Middle East and the possibility of further declines in Venezuelan crude output. Facebook did not bounce. The Federal Trade Commission is probing Facebook over the use of personal data by an analytics firm tied to Trump’s campaign. The FTC is looking into whether Facebook violated terms of an earlier consent decree when data of up to 50 million of its users was transferred to Cambridge Analytica. For now, it’s just a probe. But you know how one thing leads to another. European and U.S. lawmakers calling for investigations. In the UK, Mark Zuckerberg is being called before Parliament; and investors are asking even more questions about the social media company’s operations. Facebook’s shares closed down nearly 7.0 percent on Monday. Facebook ended up down 9.5% over the two days, effectively wiping $49.6 billion off the company’s market capitalization.  Today, Facebook dropped another 2.5%. Meanwhile, British broadcaster Channel 4 News mounted a “sting operation” in which it secretly recorded Cambridge Analytica Chief Executive Alexander Nix saying he had met the then presidential candidate Trump “many times” and that his firm played a central role in the final months of the campaign. Nix was suspended by the board of directors of Cambridge Analytica on Tuesday, the company said shortly before the second part of the British news program’s expose on the company. Still waiting for the raid on company headquarters.


Federal Reserve policymakers began another FOMC meeting today; tomorrow they will publish their results, plus their forecasts, plus a press conference with the new Fed Chair Jerome Powell. It is almost certain the Fed will raise rates by 25 basis points, or one-quarter of one percent. That is widely expected. Will there be three or four interest rate increases this year? That is the big question. The economy seemed on solid ground late last year, and then Republicans decided to add some extra fiscal stimulus in the form of lower taxes and higher spending. Fed officials didn’t know the true extent of the stimulus in the last forecast round in December, but they still did mark up their forecasts for 2018. That might happen again at this meeting. That means the Fed might lower their unemployment rate forecast, already at 3.9% and raise their expectations for core inflation, which is now at 1.9% The Fed could also move up their growth forecast. At the moment, the central bank is forecasting a 2.5% annual growth rate this year. The market is pricing in a not insignificant 30 percent chance that the central bank will hike rates four times this year. The Fed could also take a more aggressive stance at this meeting, in part because there is no advantage to being dovish. So, they can talk tough, hint at 4 rate hikes – but that doesn’t mean they have to deliver 4 hikes; it’s just a way to jawbone the market.


For most of 2017, the main driver of equities was the notion that the global economy was enjoying its first synchronized upswing since 2010. That helped boost earnings and justified valuations. The MSCI All-Country World Index some 6 percent below its intraday peak of 550 on Jan. 29. Maybe it is just a pause in a bullish trend, or maybe it is a wobble as the cycle runs out of steam, or maybe it’s a response to concerns about potential trade wars. Treasury Secretary Steven Mnuchin said that U.S. tariff actions are “not about protectionism” but about defending American interests against unfair trade practices. I think that sounds like protectionism.  Mnuchin told a news conference at the end of a trade-dominated meeting of G20 finance ministers and central bank governors in Buenos Aires that Trump was not afraid of a trade war.


Congress must pass a funding bill before midnight on Friday to prevent the federal government from shutting down, but there is a near infinite number of thorny issues that fall under the heading of spending. And the bill has not been completely written. And there is an early spring snow storm hitting Washington DC. House Republican leaders aim to release the bill by midnight tonight and vote on it by Thursday afternoon. That timeline leaves a tight window for passage, and the potential for issues, in both the House and Senate. Negotiations on the legislation to fund the government through the end of September have slowed, despite a deal in Congress earlier this year setting spending levels. Familiar points of contention such as immigration and health care have tripped up the talks. The conservative wing of the House Republican caucus, in particular, has expressed problems with the legislation.


The death of a pedestrian hit by a self-driving Uber vehicle in Arizona this week could offer a test of who can be held legally responsible for accidents when a human is no longer at the wheel. Any litigation that arises from the accident, the first fatality involving a fully autonomous vehicle, could pit the ride-hailing service against technology suppliers and the vehicle’s manufacturer. It could also provide a window into confidential indemnification agreements that companies developing self-driving car systems may have reached to shield themselves legally. Until now, most litigation over non-fatal accidents involving self-driving vehicles has been confidentially settled. Liability in the Tempe case would depend on the facts of the accident and the results of U.S. National Highway Safety Administration and National Transportation Safety Board investigations. By contrast, a lawsuit involving an autonomous vehicle could revolve around whether the self-driving system had a design defect. If any litigation in the Arizona accident alleges design defect claims, it could set legal precedent and be “very impactful” on the nascent autonomous vehicle industry.


Amazon has passed Alphabet and now trails just Apple among the list of the world’s most valuable companies.  Amazon rose 2.7 percent on Tuesday lifting its stock market value to $768 billion. Alphabet, the parent of Google, fell 0.4 percent and is now valued at $762.5 billion. While the tech mega-caps have rallied in the past year, Amazon’s performance has dwarfed them all, with the stock surging 85 percent over the past 12 months, including 35 percent to start 2018. Google and Amazon once had very different core businesses. Now, the two are increasingly going head-to-head on several fronts. Google has invested heavily in the cloud market, which offers computing power and data storage, to catch Amazon Web Services. Google is also chasing Amazon in the market for voice-controlled digital assistants — the Amazon Echo outsells competing devices and, more alarming to Google, could replace searching on the web for most users.


Travel website, a subsidiary of Expedia, said it had been hacked. The breach happened between Oct. 1, 2017 and Dec. 22, 2017, on a legacy booking platform. The company said the information accessed was submitted for purchases made between Jan. 1, 2016 and June 22, 2016, and likely included full names, payment card information, date of birth, phone numbers, email addresses, billing addresses and gender on about 880,000 accounts.


FedEx shares rose 3 percent post-market following the release of its earnings report, but then pared its gains. The delivery company reported earnings per share and revenues that beat analyst expectations. It also raised its guidance and trimmed its capital spending budget for this fiscal year.


Shares of MuleSoft gained nearly 5 percent in the extended session. agreed to acquire the integration software maker for approximately $6.5 billion. MuleSoft will power the new Salesforce integration cloud. MuleSoft went public last year with a valuation around $3 billion.


Oracle dropped more than 9% after the business software maker reported lower-than-expected quarterly revenue.


Nordstrom announced that it has ended talks with the Nordstrom family about taking the company private. Shares of the retailer fell 4 percent in after-hours trade.


Tesla shares closed today at $310.55, more than 20% below the high set in September of 2017, sinking into bear-market territory, as investors worry the company may not hit a key production milestone. Enthusiasm over the Model 3 had been one of the major factors that drove Tesla shares to its all-time high in 2017. The car represents a major leap for the company, from a niche maker of high-end electric cars to a mass-market automaker. But the production ramp has been rocky. Tesla had initially aimed to hit a target of producing 5,000 Model 3 cars a week by the end of 2017 but has had to repeatedly push that goal into the future. When Telsa reported its fourth-quarter results it said it would hit 2,500 cars per week by the end of the first quarter of 2018 and 5,000 cars per week by the end of the second.


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