…..Stocks bounce back. Banks pass test and start handing out money. Pending home sales dip on tight inventory and affordability. Everybody hates BCRA. Petya spreads. New airline security, sorta. Blue Apron cuts price. Philps buys Spectranetics. Pink slime settlement. Illinois junk. No Brazilian passports. Facebook 2 billion. Sycamore buys Staples.
Financial Review by Sinclair Noe for 06-28-2017
DOW + 143 = 21,454
SPX + 21 = 2440
NAS + 87 = 6234
RUT + 21 = 1425
10 Y + .02 = 2.22%
OIL + .54 = 44.78
GOLD + 2.10 = 1249.80
Well, isn’t this familiar. The markets have a down day only to bounce back. The S&P 500 posted its largest one-day gain in two months while Nasdaq Composite recorded its best day in eight months. The S&P 500 has been somewhat fickle this month with three of this year’s biggest gains and two of its worst losses having occurred in June.
For the first time in seven years, the Federal Reserve did not object to any of the capital plans of 34 banks it reviewed in the second part of the annual stress tests implemented in the wake of the financial crisis. Only Capital One Financial needed to submit a new capital plan by Dec. 28 in order to address “weaknesses in its capital planning process.” Last Thursday, all 34 banks passed the Dodd-Frank Act Stress Tests for the third time by topping the Fed’s requirements for being able to handle a severe recession. Wednesday’s results from the Comprehensive Capital Analysis and Review, or CCAR, marked the first time since the test launched seven years ago that the Fed did not object to any of the banks’ capital plans. The passing grade means banks can use extra capital for stock buybacks, dividends and other purposes beyond a cushion against possible catastrophe.
And we are already hearing from big banks. Citigroup announced plans to repurchase up to $15.6 billion of common stock over the next 12 months and double its quarterly dividend to 32 cents per share, bringing total payouts to $18.9 billion.
Fewer buyers signed contracts to buy existing homes in May, likely because they can’t find or afford what they want. The pending home sales index from the National Association of Realtors dropped 0.8 percent month to month and is now 1.7 percent lower than May 2016. The number of home sales that closed this spring was slightly higher than a year ago, but the lack of listings clearly held the market back. The supply of homes for sale at the end of May was down more than 8 percent from a year ago, and homes that were listed sold at the fastest rate on record. The tight supply is pushing home prices higher, considerably faster than income growth. Low mortgage rates have not been much help in offsetting these big price gains, and in fact may be exacerbating the problem, especially if rates begin to rise as is widely expected. The inventory crisis is worst on the low end of the market, where demand is highest. The number of starter and trade-up homes currently on the market is down 15.6 percent and 13 percent, respectively, compared with a year ago, according to Trulia. The inventory of premium homes has fallen 3.9 percent. The supply situation has buyer confidence in the housing market dropping. Just over half of renters say they think now is a good time to buy. That is down from 62 percent one year ago. While about 80 percent of current homeowners think now is a good time to buy, they are not listing their homes for sale. This may have more to do with weakening affordability than anything else. They don’t want to sell if they can’t afford a move-up home.
Senate leadership has reportedly set a Friday deadline for a new draft of the Better Care Reconciliation Act. The Congressional Budget Office could score it next week, setting up a mid-July vote. The vote has been delayed, but the Senate’s repeal and replace efforts are far from over. When it comes to public support, there’s room for improvement. Just 17 Percent of Americans approve of the Republican Senate Health Care Bill – that’s almost as low as the approval rating for Congress. Fifty-five percent say they disapprove, while about a quarter said they hadn’t heard enough about the proposal to have an opinion on it.
Yesterday, we told you about the new Petya cyber virus that started in Ukraine and was infecting computers around the globe. The malicious code locked machines and demanded victims post a ransom worth $300 in bitcoins or lose their data entirely, similar to the extortion tactic used in the global WannaCry ransomware attack in May. Day 2 of the ransomware attack and the situation is getting worse. Danish shipping giant A.P. Moller-Maersk said it was struggling to process orders and shift cargoes, congesting some of the 76 ports around the world run by its APM Terminals subsidiary.
FedEx shares temporarily halted trading before the package delivery giant disclosed that an information system virus significantly affected the global operations of its TNT Express subsidiary. In a statement, FedEx said that while TNT’s operations and communications systems were disrupted, “no data breach is known to have occurred.” The company noted that operations of all other FedEx companies were unaffected. FedEx shares finished the day up 1.3%.
United Parcel Service will freeze a pension plan for about 70,000 nonunion U.S. employees because of escalating costs and volatility in determining future payments, replacing it with a different retirement benefit. UPS’s pension plans in the U.S. had a $9.85 billion shortfall at the end of last year, meaning they were about 76 percent funded. The shift won’t occur until Jan. 1, 2023, giving affected workers more than five years to prepare.
The US announced today it’s rolling out a set of new, largely undisclosed security measures targeting some 2,000 international flights arriving at American airports every day. The new rules will apply to 180 airlines flying out of 280 airports in 105 countries, and could prompt additional screening time for the 325,000 airline passengers arriving in the United States daily. The move aims to end a limited in-cabin ban on laptops and other large electronic devices and prevent its expansion to additional airports. Officials said that travelers can expect intensified screening at airports, in the form of sniffing dogs, or more screening equipment. Details are still sketchy, including when the new confidential rules will be put in place. Sometime in the short and medium term.
Blue Apron Holdings cut the expected price range for its initial public offering to $10 to $11 per share from its previous estimate of $15 to $17 per share after potential investors expressed concerns about Amazon’s Whole Foods deal as well as Blue Apron’s marketing costs and lack of profitability. Blue Apron’s new pricing guidance gives the company a valuation of up to $2.08 billion, below both the $3.2 billion implied by its previous estimate and the $2.2 billion by its latest private fundraising round two years ago. Blue Apron is the biggest U.S. meal-kit company and the first set to go public. Amazon already has a small meal-kit business, delivering ingredients and recipes to customers in a handful of cities, and the Whole Foods deal announced could provide a ready-made distribution system for food delivery in the form of brick-and-mortar grocery stores.
Dutch healthcare company Philips has agreed to buy U.S.-based Spectranetics for $2.1 billion including debt. Spectranetics uses techniques including lasers and tiny drug-covered balloons to clean the insides of veins and arteries that have become clogged due to heart disease.
Beef Products Inc has settled its defamation lawsuit against the ABC television network over news reports on its processed beef product known as “pink slime.” The settlement came 3-1/2 weeks after the trial in the case got under way. Terms of the settlement were not disclosed. ABC used the term “pink slime” more than 350 times across six different media platforms including TV and online. ABC said it is not retracting or apologizing for anything. Bon Appetit.
Facebook tops 2 billion users. CEO Mark Zuckerberg made the announcement on his personal Facebook page. Facebook now becomes the unofficial least exclusive club in the world.
Brazil’s federal police have halted issuing new passports on the eve of school vacations, citing insufficient funds. The federal police exhausted its budget for immigration control and travel documents and won’t be able to restore the service until additional funds are approved.
For the third year in a row, the state of Illinois is poised to begin its fiscal year on July 1 with no state budget and billions of dollars in the red. If that happens, S&P Global Ratings says Illinois will probably lose its investment-grade status and become the first U.S. state on record to have its general obligation debt rated as junk. Illinois is already the worst-rated state at BBB-, S&P’s lowest investment-grade rating. The state owes at least $800 million in interest and late fees on its unpaid bills. Any further downgrade will make it more expensive the next time the state needs to sell bonds. Two years ago, Illinois’s budget impasse meant that the state’s lottery winners had to wait for months to get their winnings. Now, with $15 billion in unpaid bills, Illinois is on the brink of being unable to even sell Powerball tickets. And winning the Powerball was probably their best chance of breaking the budget impasse.
KB Homes announced earnings of $0.33 a share on revenue of $1 billion, both better than expected. KB Home climbed 5 percent.
General Mills rose 1.9 percent after the maker of Cheerios cereal, Yoplait yogurt and other packaged foods served up fourth-quarter earnings and revenue that beat expectations.
Staples will be acquired by Sycamore Partners for about $6.9 billion in one of the largest retail deals of the year. Sycamore is paying $10.25 a share for the retailer; that represents a 12 percent premium to its share price on Tuesday, before reports surfaced that the transaction was close to be being completed.