Financial Review

Blink – More Records.

…Dow, S&P 500, Nasdaq, and Russell hit new record highs. Shutdown is over for a few weeks. Penn gerrymandered. Rocky Mountain high in Vermont. M&A galore. Netflix nation. IMF forecast calls for solid growth with a chance of a market correction.

Financial Review by Sinclair Noe for 01-22-2018

DOW + 142 = 26,214
SPX + 22 = 2832
NAS + 71 = 7408
RUT + 7 = 1605
10 Y + .03 = 2.66%
OIL + .29 = 63.66
GOLD + 2.50 = 1333.10


Record highs for the Dow, S&P 500, Nasdaq, and Russell.


You would think something like the threat of a government shutdown or an actual government shutdown would serve as a catalyst to spook some weaker holders out of the market, but that didn’t happen, which speaks to underlying strength of what we’re seeing right now in equity markets.


The government shutdown is almost over, maybe. Roughly 60 hours after the federal government first shut down, a bipartisan group of negotiators in the Senate prevailed with leadership, trading Democratic support for reopening the government for a commitment by Republicans to hold a vote resolving the status of young undocumented immigrants by mid-February. The final agreement did not include these protections, nor any specific guarantee of a vote on DACA – however, several senators from both sides of the aisle say they will hold Senate leader McConnell to honor his commitment.


The Senate voted 81-18 to end a filibuster of a spending bill that would fund the government through Feb. 8, reauthorize the Children’s Health Insurance Program for six years and roll back several health-care taxes. Permanent funding for CHIP, which provides health coverage for about 9 million children in low-income families, lapsed at the end of 2017 after lawmakers failed to reach an agreement. The program was shored up with a short-term patch of about $3 billion. The Senate just finalized a procedural vote and the House is expected to vote a bit later in the day. House Republican leaders have indicated they’ll swiftly pass the measure and send it to Trump for his signature.


Today’s proposed patch to reopen the government through Feb. 8 might mark the start of a high-stakes game when the government is expected to run out of cash by early April. The most significant showdown on the debt ceiling was back in August 2011, which led the Standard & Poor’s rating agency to strip its top-notch AAA-rating on the United States.


Pennsylvania’s top court threw out the state’s congressional map, ruling that Republican legislators unlawfully sought partisan advantage, and gave them three weeks to rework the map. In a 5-2 decision, the Pennsylvania Supreme Court ruled the electoral map violated the state Constitution by manipulating the district boundaries to minimize the voting power of Democratic voters, a practice called partisan gerrymandering. The U.S. Supreme Court is already weighing whether to set a legal standard for gerrymandering in two cases out of Wisconsin and Maryland. The court is expected to rule by the end of June in both cases.


Vermont became the ninth state and third in the Northeast to legalize recreational marijuana use when Republican Governor Phil Scott signed a bill passed by the legislature earlier this month. Vermont is the first state to take this step by an act of the legislature, rather than as a ballot initiative.


This was a big day for mergers and acquisitions. Shares in U.S. hemophilia specialist Bioverativ soared 61 percent after Sanofi agreed to buy the company for $11.6 billion. Juno Therapeutics jumped 26 percent after Celgene agreed to buy the biotech for about $9 billion in cash. That’s a quick $20 billion in biotech acquisitions. In other M&A news, AIG said it would buy reinsurer Validus Holdings for $5.5 billion, sending the target’s shares up 44 percent. Bacardi is buying Patron Spirits International in a deal valuing the company at $5.1 billion. The purchase will combine two of the world’s largest closely held distillers, putting Grey Goose vodka, Dewar’s scotch and Bacardi rum under the same banner as Patron’s famous tequilas.


Earnings growth of 12.4 percent is expected for the quarter, according to Thomson Reuters data. Of the 55 companies in the S&P 500 that have reported earnings through Monday morning, 80 percent have topped expectations, well above the 72 percent beat rate for the past four quarters.


Today’s big earnings announcement came after the closing bell. Netflix said revenue rose 32 percent to $3.3 billion in the quarter. Net income rose to $185 million, or 41 cents per share, from $66 million, or 15 cents per share, a year earlier. The key metric for Netflix is subscriber growth, and it looked strong. Netflix added 8.33 million total subscribers globally in the quarter. The company had forecast total subscriber additions of 6.3 million for the quarter. Netflix also forecast subscriber additions of 6.35 million for the first quarter, above analysts’ expectations. Netflix has been pouring money into new original shows and acquiring the rights to other TV series. In October, Netflix raised prices for two of its three main subscription plans to help fund the substantial content investment. Netflix shares popped in after-hours trade, up more than 8%, pushing the company’s market capitalization above $100 billion for the first time.


Halliburton said it earned 53 cents a share, on revenue that rose 47.7% year over year to $5.94 billion. Analysts were looking for earnings of 46 cents a share, on revenue of $5.63 billion.


Photoshop maker Adobe Systems lifted its forecast for yearly earnings per share, helped by new U.S. tax laws, saying it expects its effective tax rate to decline “substantially.” Adobe said it expects earnings of $6.20 per share for fiscal year 2018, up from a previous forecast of $5.50.


The Securities and Exchange Commission and the U.S. Attorney’s Office for the Southern District of New York announced charges against six certified public accountants – five former KPMG partners and one former staffer at the audit regulator, the Public Company Accounting Oversight Board. They allegedly misappropriated and used confidential information relating to the PCAOB’s planned inspections of KPMG audits. The SEC alleges that the misconduct allegedly began in 2015 when former PCAOB officials made unauthorized downloads of the regulator’s plans for inspections of KPMG audits, enabling the former KPMG partners to revise audit workpapers to minimize negative inspection results.


As the world’s biggest underwriter of bonds, JPMorgan’s views on the fixed-income market carry some weight. So, at a time when there’s no shortage of pundits pointing to the recent backup in yields as a sure sign the three-decade long bull market in bonds is coming to an end, it’s notable that JPMorgan expects to see a lot more buying from a very important source of demand: pension funds. In a research report late Friday, the firm said it expects pension funds in the Group of 4 economies to purchase at least $640 billion of bonds this year, up from $460 billion in 2017. That’s mainly the result of pension fund rebalancing, putting some of the big gains they have enjoyed from equities into fixed-income assets.


The International Monetary Fund released its updated Global Economic Outlook today. The outlook is generally optimistic. The fund raised its forecast for world expansion to 3.9 percent this year and next, up 0.2 percentage point both years from its projection in October. That would be the fastest rate since 2011, when the world was bouncing back from the financial crisis. IMF Managing Director Christine Lagarde said the strengthening recovery offers a “perfect opportunity now for world leaders to repair their roof.” About half of the IMF’s global upgrade stems from the Republican tax cuts passed in December and enacted this year. Cuts to the corporate tax rate will give the world’s biggest economy a shot in the arm, lifting U.S. growth to 2.7 percent this year. But in an unfortunate twist the nation’s current-account deficit will widen as stronger demand drives imports. The IMF also predicted that the tax plan will reduce U.S. growth after 2022, offsetting earlier gains, as some of the individual cuts expire and the U.S. tries to curb its budget deficit. The IMF also warned that a financial-market correction could spoil the party — a possible scenario it raises amid “rich asset valuations and very compressed term premiums.” Higher inflation could prompt the U.S. Federal Reserve to raise its benchmark interest rate faster than expected, causing financial conditions to tighten around the world and sideswiping economies with heavy debt loads.


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