…..Dow breaks losing streak. Consumer confidence bumps on labor strength. Goods deficit falls. Case Shiller home sales rise. ACA death by a thousand cuts. Repealing Fair Pay and Safe Workplaces. Coal? Brilliant. Elon Musk’s neural lace. Brexit tomorrow.
Financial Review by Sinclair Noe for 03-28-2017
DOW + 150 = 20,701
SPX + 16 = 2358
NAS + 34 = 5875
RUT + 9 = 1367
10Y + .04 = 2.41%
OIL + .71 = 48.44
GOLD – 2.50 = 1252.30
Yesterday, we noted that the Dow Industrial Average had been down for 8 straight sessions – the longest losing streak since 2011. We also noted that the market seemed to be taking a break or a pause; the losses during that time were not big enough to reverse the uptrend. Sure enough, the uptrend resumed today. Even though stocks wobbled out of the opening gate, they gained their footing with the help of some good economic reports.
Consumer confidence surged to a more than 16-year high in March. The Conference Board said its consumer confidence index jumped 9.5 points to 125.6 this month, the highest reading since December 2000. Consumers’ assessment of both current business and labor market conditions improved sharply in March. They also anticipated an increase in their incomes. The survey’s so-called labor market differential, derived from data about respondents who think jobs are hard to get and those who think jobs are plentiful, was the strongest since 2001. When consumers feel good about their jobs or job prospects, their confidence goes up. And then the hope is that the confidence translates into increased spending, especially for a retail sector that has been underperforming in the first quarter.
Separately, the Commerce Department said in its advance economic indicators report the goods deficit fell 5.9 percent to $64.8 billion last month as imports and exports fell. It also said inventories at retailers and wholesalers both rose 0.4 percent last month.
And another report showed the S&P CoreLogic Case-Shiller composite index of 20 metropolitan areas rose 5.7 percent in January on a year-over-year basis after increasing 5.5 percent in December. The 10-City Composite posted a 5.1% annual increase, up from 4.8% the previous month. The National Index was up 5.9% year-over-year in January, setting a 31-month high. House prices are being driven by tight inventories. The recent interest rate hikes from the Fed didn’t seem to affect home buyers – at least not yet; 2 or 3 more hikes this year could pinch affordability. Seattle, Portland, and Denver reported the highest year-over-year gains among the 20 cities over each of the last 12 months. In January, Seattle led the way with an 11.3% year-over-year price increase. In Phoenix, home prices were flat in January, but up 5.1% over the past 12 months.
Hospital stocks dropped today as Republicans in the House of Representatives said they were considering a renewed push to repeal and replace Obamacare, after the effort failed last week. Shares of Community Health Systems dropped 7.6 percent and Tenet Healthcare shares fell 4.8 percent. HCA Holdings, Universal Health Services and Envision Healthcare were all down around 2 percent. A full-blown push at the repeal and replace is going to be extremely difficult to pull off, but there are other ways to attack the ACA. Health and Human Services Secretary Tom Price already stalled the rollout of mandatory Medicare payment reform programs for heart attack treatment, bypass surgery and joint replacements. Hospitals and physician groups have been counting on support from Medicare – the federal insurance program for the elderly and disabled – to continue driving payment reform policies built into the ACA that reward doctors and hospitals for providing high quality care at a lower cost. Repeal may be difficult but death by a thousand cuts, that’s another story.
After failing to repeal and replace the Affordable Care Act, President Trump said it was time to move on; and he is. Yesterday, behind closed doors and without his typical fanfare, Trump signed Congress’s repeal of Obama’s Fair Pay, Safe Workplaces executive order that would have mandated that companies with substantial federal contracts be required to disclose past violations of federal labor laws – such as wage and hour laws and workplace safety standards. The rule aimed at raising standards across the economy by leveraging the federal government’s purchasing power; companies with federal contracts employ roughly one in five American workers.
President Trump has signed an executive order to undo a slew of Obama-era climate change regulations. The decree’s main target is the Clean Power Plan that required states to cut carbon emissions from power plants – a critical element in helping the United States meet its commitments to a global climate change accord reached by nearly 200 countries in Paris in 2015. The so-called “Energy Independence” order does not directly address the Paris accord, but it reverses a ban on coal leasing on federal lands, undoes rules to curb methane emissions from oil and gas production, and reduces the weight of climate change and carbon emissions in policy and infrastructure permitting decisions.
Trump has denied climate change, calling it a Chinese hoax. While Trump’s administration has said reducing environmental regulation will create jobs, some green groups have countered that rules supporting clean energy have done the same. The number of jobs in the US wind power industry rose 32 percent last year while solar power jobs rose by 25 percent, according to a Department of Energy study. The benefits of energy-efficiency rules and clean-power programs are passed to workers, too; clean-energy jobs surpassed oil and gas-drilling jobs in the US for the first time last year, and job growth in the solar energy sector was 12 times faster than that of overall economy. Several groups have already announced plans to challenge the order in the courts, so there will be a few jobs for attorneys. The Clean Power Plan required states to collectively cut carbon emissions from power plants by 32 percent below 2005 levels by 2030. Some 85 percent of US states are on track to meet the targets despite the fact the rule has not been implemented.
Wind and solar accounted for more than half of the new capacity added to U.S. grids in the past two years, thanks to two economic trends. The first is low natural gas prices, which have driven down the price of electricity and forced record numbers of aging coal-fired generators to close. The second is that wind and solar farms have become much cheaper to build, making them an attractive replacement for shuttered fossil-fuel plants.
Power prices have already dipped to historic lows, forcing conventional power-plant owners including FirstEnergy and NRG Energy to write down billions in assets. Utilities know that coal and nuclear just aren’t competitive in this era of low gas prices and increasing renewables, absent special treatment to keep them running. And even then, it is not enough to build any new coal powered plants.
State laws requiring utilities to source a portion of their electricity from renewables play an important role. So do federal tax credits for wind and solar farms that were extended in 2015 with support from Republican lawmakers. And these policies remain intact, at least for now. Today’s executive order will probably have little impact on the US wind and solar industries. After years of being supported by subsidies, prices have plunged so much that renewables can compete with fossil fuels. That’s why energy companies are pushing forward with long-term plans to generate power with clean alternatives, even as Trump vows to breathe life back into coal country. Nobody actually believes that coal is the future of energy.
Elon Musk has managed to start up an electric car company, Tesla. Then he bought into a solar power company and he’s building a gigantic battery factory, so he can capture power from the sun and store it. Then he started Space X, a re-usable rocket company to launch satellites, with eventual plans to colonize Mars. And while all that is mildly entertaining, you are probably asking if he can come up with something new and innovative. How about this: Neuralink – what Musk calls “neural lace” technology, implanting tiny brain electrodes that may one day upload and download thoughts. In other words, hook your brain into a computer. Business filings suggest that Neuralink would build devices designed to treat or diagnose neurological conditions, and conceivably augment human cognitive powers, maybe a way to alleviate brain disorders like epilepsy. In a Vanity Fair article published online today, Musk discussed the idea of merging biological intelligence with machine intelligence, saying: “For a meaningful partial-brain interface, I think we’re roughly four or five years away.”
Compared to neural lace, the debut of yet another new smartphone seems downright pedestrian, but it is still kind of a big deal for Samsung. Tomorrow they are expected to unveil the new Galaxy S8. Look for two different sizes; big and bigger; curved screens, fingerprint scanner, faster processor, and better camera. And a new AI assistant called Bixby. And while it actually is pretty cool new technology, the most important thing is that the battery does not explode.
The Scottish independence referendum, could be facing a re-run as a direct result of Brexit. By a 69-59 vote, members of Scottish Parliament backed First Minister Nicola Sturgeon’s pursuit of a new independence referendum. Sturgeon wants to hold a vote between fall 2018 and spring 2019, which she says would give enough time for Brexit negotiations (set to start Wednesday and likely to last for two years) to make substantial progress, but would also leave time for Scotland to leave the UK and still remain in the EU
Tomorrow, a letter personally signed by UK Prime Minister Theresa May will be deliver to European Union President Donald Tusk. The instant the letter exchanges hands marks the moment the UK has officially served its partner of four decades with divorce papers. The invocation of Article 50 of the EU’s Lisbon Treaty triggers two years of negotiations to secure Britain’s departure from the bloc. May herself considers it “one of the most important documents” in Britain’s recent history. Exactly what is in the letter remains a mystery, at least until tomorrow.