Financial Review

Big Bounce

….Best day for Wall Street since March. Earnings on parade: Goldman, Morgan Stanley, Domino’s, Netlfix, IBM, UnitedHealth, United Air, Target-ing Toys. More than one job for everybody. Paul Allen passes.
Financial Review by Sinclair Noe for 10-16-2018

DOW + 547 = 25,798
SPX + 59 = 2809
NAS + 214 = 7645
RUT + 43 = 1596
10 Y – .01 = 3.16%
OIL + .11 = 71.89
GOLD – 2.20 = 1225.50


Stocks bounced back for the best single-session gain since March.


A record 85% of fund managers surveyed by Bank of America Merrill Lynch said they think the global economy is in a late cycle, a jump of 11 percentage points from the previous record high from December 2017. A net 38% of respondents said they expect the global economy to decelerate over the next year, the worst outlook since late 2008.


Goldman Sachs reported earnings that topped estimates, with strength in its investment banking business. The bank reported earnings of $6.28 per share, versus the $5.38 expected. Revenue registered at $8.65 billion for the quarter, exceeding estimates of $8.4 billion. Net revenues for underwriting in investment banking were $1.06 billion, or 20% higher than the year-ago quarter.


Morgan Stanley shares rose after the bank beat Wall Street’s expectations in its fixed income, equities trading and investment banking businesses. Fixed-income sales and trading revenue rose by 1% to $1.2 billion, while equity sales and trading revenue climbed to $2 billion from $1.9 billion. The bank delivered net income of $1.17 per share, exceeding expectations of $1.01.


Domino’s Pizza shares declined after the company reported that its domestic same-store sales fell shy of expectations. Same-store sales in the U.S. grew by 6.3%, the company reported Tuesday, falling just short of average expectations of 6.4%. Earnings were $1.95 per share in the third quarter, exceeding expectations of $1.75 per share. However, revenue fell short of expectations, with the pizza chain posting revenue of $786 million in the period versus expectations of $789.6 million. The stock fell 5.%.


Shares of UnitedHealth Group gained 4.7%, helping to push the Dow higher, after the managed health-care company beat analysts’ earnings and revenue targets, while raising its outlook for full-year 2018 earnings.


Johnson & Johnson rose 2% after the consumer staples giant beat earnings and revenue estimates. The New-Jersey based firm also raised its earnings outlook for the year.


Shares of United Airlines’ parent company rose more than 5 percent in aftermarket trading after it posted third quarter profit grew nearly 30%, despite a surge in fuel costs.


Walmart cut its full-year earnings outlook following its acquisition of Flipkart, an Indian e-commerce company. Walmart, the world’s largest retailer, lowered its fiscal 2019 forecast for adjusted earnings to $4.65 to $4.80 per share, from its previous guidance of $4.90 to $5.05 in adjusted earnings per share. The company purchased a 77% stake in Flipkart for $16 billion in May in a move to help boost its e-commerce business. Walmart delivered an upbeat outlook for domestic same-store sales, which the company says will grow 2.5% to 3% in its next fiscal year, excluding fuel. Walmart was the pioneer of the big box retail outlet, but that might be changing. With the U.S. market already having more than 3,500 Walmart supercenters and a focus to increase spending on eCommerce and India, Walmart said Tuesday it will open a mere 10 supercenters in 2019. Walmart has opened a fewer number supercenters in the past three years. This year, it plans to open only 15 supercenters.


Target announced its plans to roll out a new toy experience in stores and online just in time for the holiday season and ahead of the first Christmas since Toys R Us liquidated its business. Target will make a handful of major changes within the toy category, including devoting more aisles to selling toys and hosting play days in stores. First, Target said it plans to add a quarter-million square feet of space dedicated to toys across more than 500 stores by Nov. 2. The company said the extra space will be “absolutely permanent,” lasting beyond the gifting season. Target will give a fuller remodel to 100 stores, which will allow those locations to showcase larger items. Then, Target will also host 25,000 “hours of joy” events across stores later this year, allowing kids to test out the latest toys and meet fictional characters.


Netflix stock shot up 13% in after-hours trade. Netflix posted better-than-expected third-quarter subscriber growth expectations. The company announced it added a net of 6.96 million subscribers in the most recent quarter, beating the consensus of 5.32 million and Netflix’s own forecast of 5.0 million. Net income rose to $403 million, or 89 cents a share, up from $129 million, or 29 cents a share, in the same quarter a year ago. The consensus estimate for the third quarter was 68 cents a share. Revenue rose to $4.0 billion, beating estimates.


IBM shares fell 4.1% after hours, following a 2.8% rise to close the regular session at $145.12. IBM posted better than expected earnings but revenue declined.


Volkswagen announced it has been ordered to pay $926 million by German prosecutors over diesel emissions cheating by its subsidiary Audi, the latest fine to hit the group as a consequence of the scandal that emerged in 2015. Volkswagen said it accepted the fine, and added that the new penalty will hit its earnings for the year.


The United States had 7,136,000 job openings in August. The nation now has more than one job opening for every unemployed person, a dramatic turnaround from the Great Recession, when there were more than six unemployed people for every job on offer. Unemployment was at 3.7 percent in September, the lowest level since 1969. Now is an ideal time for workers to look for a new job or ask their current employer for a raise or promotion, as so many businesses complain they cannot find enough employees, especially ones with skills and industry knowledge. The last time unemployment was about this low in the late 1990s, wages were routinely growing around 4 percent or more. In August, wage growth hit 2.9 percent — the highest in nine years, but still disappointing by historical standards. In the third quarter, wage growth ticked up to 3.1%. The median weekly earnings of a full-time worker rose to a seasonally adjusted $893, up from $866 in the third quarter of 2017.


Now might be a good time to quit your job. For much of the recovery, people who switched jobs were more likely to get higher pay than those who stayed, according to Automatic Data Processing, the company that processes millions of Americans’ paychecks. But that has changed lately. Workers who stay and new entrants into the labor force are now getting about the same pay bumps as workers who job hop. This is especially true for workers ages 25 to 34, who ADP says are receiving wage increases of over 8 percent, on average, whether they change jobs or remain in their current role. Workers continued to show confidence in the jobs market, evidenced by a quits rate that edged just a shade lower from July to 3.58 million. The rate, which counts those who voluntarily left positions, jumped 12.7 percent from August 2017.


Industrial production rose a healthy 0.3% in September. Year-over-year, manufacturing is up 5.1%, the biggest gain in almost eight years. For the third quarter as a whole, industrial production advanced at a 3.3% annual rate, down from a 5.3% rate in the second quarter.


A judge ruled that an Obama-era set of consumer protections for defrauded students will go into effect immediately, despite repeated attempts by the Trump administration and the for-profit college sector to delay the regulation. Now that the regulation, known as borrower defense, is in effect, there is a clear process through which defrauded students can have their federal student loans cancelled. Certain students whose schools closed while they were enrolled will be entitled to an automatic discharge of their debt. In addition, schools that receive federal funding can’t force their students into arbitration or require them to forgo class actions.  More than 160,000 people have claimed to the government that their school defrauded them, and new applications continue to pour in. Almost all of these complaints come from for-profit schools, of which there are some 7,000 around the country.


Paul Allen, the co-founder of Microsoft has died of cancer at age 65. When Paul Allen signed the Giving Pledge in 2010, becoming one of 40 people to agree to give at least half their fortune to philanthropy, he was worth $13.5 billion. It was money he’d amassed from co-founding Microsoft, which he then put into the company Vulcan Inc., a group that handled both his philanthropic and investment initiatives. Over the past few years, Allen gave away hundreds of millions of dollars to causes across the globe. When Allen died last night, he was worth $20 billion—48 percent more than he was when he signed the pledge.


Yesterday we told you the federal budget deficit for the last fiscal year grew to $779 Billion. Senate Majority Leader Mitch McConnell blamed rising federal deficits and debt on a bipartisan unwillingness to contain spending on Medicare, Medicaid and Social Security, and said he sees little chance of a major deficit reduction deal while Republicans control Congress. McConnell failed to mention the GOP’s tax cuts, bipartisan spending increases and rising interest payments on the national debt.

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