Financial Review

Chugging Higher

….Record highs for S&P, Dow, Nasdaq, Russell. Market drips higher. Trump goes to Puerto Rico, hilarity ensues. Automakers surge on flooded cars. Equifax unites politicians. Yahoo hack 3 times worse. Wells Fargo on Capitol Hill. ATM fees up.

Financial Review by Sinclair Noe for 10-03-2017

 

DOW + 84 = 22,641
SPX + 5 = 2534
NAS + 15 = 6531
RUT + 2 = 1511
10 Y un = 2.33%
OIL – .22 = 50.36
GOLD + .60 = 1272.10

 

The S&P 500, the Dow, Nasdaq and the Russell 2000 indexes all posted record high closes for the second straight day. Enjoy it while you can. The market has been slowly, steadily climbing. The more unusual factor is that it hasn’t been dropping. Even in a secular bull market we have pullbacks but dips as small as even 3% have been in incredibly short supply. If you’ve been waiting to buy the dips – sorry – there are no dips. Historically speaking, on average, the domestic equity market corrects every 11 months—the last correction was in November 2015. Meanwhile, on average, the U.S. equity market dips three to four times per year. The last dip was in June 2016. In addition to the nearly nonexistent downside, market volatility has also been hard to come by. Thus far this year, the S&P 500 SPX has only closed with a 1% move in either direction in eight sessions. That’s on track to be the fewest such moves since 1995, when there were 13. A larger move, such as a 4% swing in a day, hasn’t occurred in nearly six years. Throughout 2017, Wall Street has been supported by signs of improving economic conditions, including better-than-expected earnings and strong data. Third-quarter earnings for S&P 500 companies are expected to have risen 5.5 percent from a year earlier, according to Thomson Reuters research, after rising a stronger-than-expected 12.3 percent in the second quarter. That might be enough to keep stocks rolling along, even though valuations are sky high. Just how long the market keeps chugging uphill is hard to say but it won’t last forever. And we are closer to the end of the bull market than the beginning. It’s easy to be lulled into complacency and that can be expensive.

 

Stay alert to telltale signs. Major U.S. stock indexes have reached new highs again this week, but one very important part of the market is sending a very disturbing signal. The technology-stock-heavy Nasdaq 100, stuffed with names such as Apple, Amazon.com and Facebook, crossed the 6,000 level for the sixth time in a month on Monday, but again failed to hold on. It has closed above that mark just once, on Sept. 13. Large speculators last week reduced their net long positions in mini futures tracking the gauge to the lowest level since May 2016. And one more thing – don’t forget the Fed. This month the Federal Reserve transitions to a more restrictive monetary policy program known as quantitative tightening under which it starts shrinking its $4.47 trillion balance sheet.

 

Making his first appearance in Puerto Rico since Hurricane Maria’s landfall, Trump offered a hearty round of congratulations to federal relief efforts, giving them and him a grade of A+. It didn’t take long until he offered a strange comparison on hurricanes, saying: “Every death is a horror, but if you look at a real catastrophe like Katrina, and you look at the tremendous hundreds and hundreds and hundreds of people that died, and you look at what happened here and what is your death count? Sixteen people, versus in the thousands,” Trump said. “You can be very proud. Sixteen versus literally thousands of people.”

 

That’s kind of like saying the wreck of the Edmund Fitzgerald was great because it wasn’t nearly as bad as the sinking of the Titanic. The American citizens of Puerto Rico might argue that Maria is just as real a catastrophe as Katrina. And while the official death count is 16, it hasn’t been updated in at least 5 days the unofficial count is growing rapidly. Most of the island is still blacked out. Clean water and sanitation is still a huge problem. The recovery is just beginning.

 

Automakers posted higher new vehicle sales in September as consumers in hurricane-hit parts of the country replaced flood-damaged cars. Up to 500,000  to 1 million cars were damaged or destroyed during Harvey and another 200,000 cars during Irma. GM’s sales jumped nearly 12 percent versus September 2016 as a 43 percent increase in sales of crossovers and a 10 percent rise for pickup trucks offset an 11 percent decline for passenger cars. Ford sales rose 8.7 percent in September, with sales to consumers up 4.4 percent and lower-margin fleet sales up 25.1 percent. F-Series pickup truck sales soared 21.4 percent. Side note: today Ford offered up plans to cut $14 billion in costs, using part of that money to go deeper into electric cars, and allocate more money to SUVs and trucks rather than cars. Fiat Chrysler reported a 10 percent decline in sales, driven by a 41 percent drop in lower-margin fleet sales. The company is cutting back on fleet sales. Fiat’s sales to consumers rose 0.3 percent. Since Harvey made landfall, GM stock has risen 24 percent, Ford is up 16 percent and Fiat Chrysler has rocketed 44 percent.

 

If you plan to buy a used car — and that goes for anywhere in the country –  there are steps you should take to make sure you don’t drive away in a car that was flooded. Cars have a record — known as a “vehicle history report.” Most states require that the report include a flood or salvage title disclosure for flood-damaged cars. Using the vehicle identification number, located on the driver’s side dashboard, you can check the car’s history. Cars are basically rolling computers and even after the water dries, problems can crop up.

 

Former Equifax CEO Richard Smith — who retired last week — was on Capitol Hill today to testify about the company’s massive data breach, which potentially put the personal data of as many as 145 million consumers in the hands of criminals. Just yesterday, the number of consumers potentially affected in the breach was revised upward. For three hours, Republicans and Democrats on a House Energy and Commerce subcommittee blasted Equifax for allowing its trove of consumer data to be hacked and then bungling the rollout of measures to help consumers deal with the breach. There was unanimous agreement that Equifax was a colossal, stupid failure. Ah, bipartisanship at last.

 

It is recommended that all consumers should assume their information was compromised and take steps to protect their credit – first, by monitoring their credit report or better yet, freeze your credit. The basic benefit of freezing your credit report is that if a scammer attempts to take out a loan or establish credit using your personal information, the lender will be unable to check your credit score or history and generally won’t approve the application.

 

Yet to do so costs anywhere from $2 to $10. Only eight states require that credit be offered free of charge, which means about 158 million consumers between ages 18 and 65 would face a hefty tab – to the tune of over $4 billion.  In some states, you’ll also pay a fee to unfreeze your report when you need a lender to approve a valid application. Equifax is offering all consumers free credit-monitoring for a year, with a signup deadline now set for Jan. 31, 2018. The service includes free freezes. The problem with that is it still leaves fees at the other two major credit-reporting firms, TransUnion and Experian.

 

Now you might think the hack is bad for business but Equifax has picked up a new customer – the IRS. The Internal Revenue Service will pay Equifax $7.25 million to verify taxpayers’ identities and help prevent fraud under a no-bid contract issued last week. According to a report in Politico the credit agency will “verify taxpayer identity” and “assist in ongoing identity verifications and validations” at the IRS.

 

Yahoo said last December that data from more than 1 billion user accounts was compromised in August 2013. Today Yahoo, now part of Verizon, said that an investigation showed all 3 billion of its user accounts were affected in a 2013 data theft, tripling its earlier estimate of the largest breach in history. However, the company said the investigation indicated that the stolen information did not include passwords in clear text, payment card data, or bank account information.

 

The new rule of thumb – unless you are a complete Luddite – you have been hacked.

 

Wells Fargo’s chief executive Timothy Sloan testified before the Senate Banking Committee today and defended the bank against criticism from lawmakers that it has not done enough to reform itself since admitting last year it had opened millions of fake accounts customers didn’t want. In prepared testimony, Sloan apologized for the creation of unauthorized accounts and said the bank has hired back more than 1,000 workers who were wrongly fired or left under a cloud.

 

This year marks the 11th consecutive annual increase in bank ATM fees for customers using out-of-network machines, according to a new Bankrate.com report. Over the past decade, such fees have risen 55 percent. The average cost of such a transaction is now over $4.50. ATM fees aren’t rising due to overwhelming demand. In fact, it’s the opposite. It keeps getting easier to avoid the fees, and people are transitioning away from cash. With fewer people making out-of-network ATM withdrawals, the cost of maintaining that network is being spread over fewer transactions.

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