Financial Review

Dog Days

….Nasdaq moves higher – other don’t. Tail end of earnings outweighs trade wars. Oil tumbles. Nat gas bridge. Canadians v. Saudis. Home prices spiral higher. Android Pie. Alexa, buy me something.

Financial Review by Sinclair Noe for 08-08-2018

DOW – 45 = 25,583
SPX – 0.75 = 2857
NAS + 4 = 7888
RUT – 1 = 1686
10 Y un = 2.97%
OIL – 2.40 = 66.77
GOLD + 3.00 = 1214.50

The Nasdaq Composite posted its 7th consecutive day of gains; the longest streak since March as Facebook and Amazon close higher. Facebook and Amazon led the index higher, rising 0.8 percent and 1.3 percent, respectively. Google-parent Alphabet also rose 0.4 percent. But the rest of the market closed down, slightly.

 

Wall Street has reached the tail end of the latest corporate earnings season. Nearly 90 percent of S&P 500 companies have released their calendar second-quarter results. Of those companies, 76 percent have reported better-than-forecast quarterly profits, according to FactSet.

 

CVS Health posted better-than-expected earnings, sending its shares up by 4.2 percent.

 

Yelp’s stock jumped more than 11 percent in the extended session after the company reported strong second-quarter results.

 

Roku shares rose more than 8 percent during after-hours trading following the release of its second-quarter results. The company earned 0 cents per share, beating Wall Street’s expectations of a 15 cents per share loss.

 

Jack in the Box’s stock was up more than 7 percent in the extended session, after the fast-food restaurant beat earnings and revenue estimates for its third quarter.

 

Yesterday the US published a $16 billion list of Chinese products that will be hit with new tariffs effective August 23. Today, China announced it is slapping additional import tariffs of 25 percent on $16 billion worth of U.S. goods ranging from oil and steel products to autos and medical equipment. Just keep telling yourself, trade wars are easy. China’s tit-for-tat response to Trump’s latest round of tariffs dragged down shares of trade-sensitive stocks such as Caterpillar and Boeing. The two companies weighed the most on the Dow Industrials.

 

Meanwhile, China is defending its business ties with Iran despite a set of U.S. sanctions targeting Tehran, potentially setting up further trade conflicts between Beijing and Washington. The Chinese Foreign Ministry issued a statement that China’s business dealings with Iran comply with all United Nations sanctions currently applied to Iran, and that the country would ignore new measures implemented by the U.S. on Tuesday. China, Iran’s top oil customer, buys roughly 650,000 barrels a day of crude oil from Tehran, or seven percent of China’s total crude oil imports. At current market rates, the imports are worth about $15 billion.

 

Several factors weighed on oil today. Oil prices slumped after Chinese import data showed a slowdown in demand. China’s crude imports recovered slightly in July after falling for the previous two months, but were still among the lowest this year due to a dropoff in demand from the country’s smaller independent, or “teapot,” refineries. WTI, West Texas Intermediate, the US crude benchmark slipped for the fourth time in five weeks on growing concerns about oversupply after the OPEC cartel hiked production by 340,000 barrels per day in July to 32.66 million barrels per day. Also, the U.S. Energy Department’s inventory release showing a weekly build in crude stockpiles, pressured oil futures. British energy giant BP reported strong second-quarter 2018 results. BP shares dropped 0.2%. U.S. energy firm Apache reported second-quarter earnings per share – excluding one-time items – of 50 cents, topping estimates of 35 cents, and up from a loss in the year ago period. Apache shares dropped 0.5%.  Concho Resources reported strong second-quarter 2018 revenues and earnings, but shares dropped just over 1%. Brazil’s state-run energy giant Petrobras announced second-quarter earnings per ADS of 44 cents, topping estimates of 30 cents. Petrobras dropped over 2%.

 

For around 10 years, the conventional wisdom in the energy sector has been that natural gas is ascendant. Coal is dirty, and it’s getting expensive, but it’s too early to jump all the way to renewable energy. To get from the fossil fuel present to the renewable future, we will need a bridge. Natural gas is meant to be that bridge, a way to reduce our emissions relative to coal while we work on scaling up renewables. (The shift from coal to gas is a big part of why US emissions have declined over the past few years.) The thinking is that natural gas would be around for a long time before renewable energy eventually and inevitably takes over. The natural gas bridge might be shorter than imagined. First, wind and solar costs fell so far, so fast that they are now undercutting the cost of new gas in a growing number of regions. And then batteries — which can “firm up” variable renewables, diminishing the need for natural gas’s flexibility — also started getting cheap faster than anyone expected. It happened so fast that, in certain limited circumstances, solar+storage or wind+storage is already cheaper than new natural gas plants. The price of controllable, storable renewable energy is tethered only to technology costs, which are going down, down, down. Recent forecasts suggest that it may be cheaper to build new renewables+storage than to continue operating existing natural gas plants by 2035. That means natural gas plants built today could be rendered uncompetitive well before their rated lifespan. They could become “stranded assets,” saddling utility ratepayers and investors with the costs of premature decommissioning.

 

Saudi Arabia and Canada are in the middle of a full-on diplomatic crisis. In the past week, Saudi Arabia has: Kicked out the Canadian ambassador; Recalled its ambassador from Canada; Suspended new trade and investment with Canada; Canceled direct flights to Toronto by Saudi’s state airline; Started selling off its Canadian assets; Announced a plan to relocate Saudi scholarship students in Canada to other countries; Begun to transfer all Saudi patients out of Canadian hospitals. So what did Canada do that was so offensive? Canada tweeted out criticism of the Saudi’s recent arrests of women activists, as Prime Minister Justin Trudeau upheld his stance on human rights. Today, the Kingdom of Saudi Arabia executed a man by crucifixion in the holy city of Mecca. Because nothing says human rights like crucifixion.

 

Chris Collins, a Republican congressman from upstate New York, was arrested this morning on charges of insider trading. Collins serves as a board member for Australian biotech company Innate Immunotherapeutics. Collins allegedly received information about a failed drug trial; he then called his son with the info. The son told his fiancée’s father,  and both men traded on the non-public information. Textbook case of insider trading.  Attorneys for Collins issued a statement claiming that Congressman Collins did not personally trade the stock. If that is their best defense, I’m guessing he goes to jail.

 

Home prices continue to spiral higher, defying economic gravity and analyst, and raising questions about how sustainable recent trends can be. Prices were up 6.8% compared to a year ago in June, according to CoreLogic’s Home Price Index. That’s the fastest annual rate since May 2014, and it marks the 14th-straight month in which prices have either stayed steady or increased. In other words, home price growth is speeding up. As CoreLogic put it, the “affordability challenges thwart younger buyers.” At some point that will start to thwart healthy market progress, too. For Arizona, home prices increased 0.9% from May to June, and prices are up 7.4% over the past 12 months.

 

New York City is reining in the growth of Uber, Lyft and other app-based ride services with a temporary cap on new cars picking up fares. The City Council approved a package of bills that included a one-year moratorium on new licenses for for-hire vehicles while the city studies the rapidly changing industry. The Council also voted to set a minimum driver wage equivalent to the yellow cab wage for app-based drivers. Backers of the proposals said both the traditional yellow cab industry and drivers for app-based services are suffering as Uber cars flood the city’s streets. They said the growth of ride-hailing apps has also worsened traffic congestion. But opponents said Uber and Lyft provide needed service to neighborhoods outside Manhattan that are poorly served by yellow cabs.

 

Following months of beta releases, Android 9 is being officially released to the public today. And its name is Pie; like the dessert. As is usually the case, this release of Android 9 Pie comes about two months before the expected launch of the Pixel 3 line of phones — meaning current Pixel owners get the latest and greatest software exclusively for a while. Android Pie is where Google starts to make the software something new and different through the use of AI. Google aims to have Android 9 Pie learn from you, so it can, over time, improve. On its own. With Pie, your phone will try to predict what you’re going to do next. It will help preserve your battery by knowing what apps you use most and prioritizing those over others. It will make it easier to switch from the thing you’re doing right now to the thing you want to do next. And at the end of the day, it will help you shut down and tune out so you get the break you deserve.

 

Only 2 percent of people who use Alexa-equipped “intelligent assistant” devices have used them to make a purchase this year, despite Alexa’s connection to online shopping behemoth Amazon.com. No word yet, however, on the timing until the singularity, when Alexas themselves begin buying Alexas, which in turn buy Alexas, and so forth, quickly draining what remains of the world’s usable resources and sparking violent riots, thereby effectively casting aside their primary competition: us. Alexa, order me a survival kit.

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