Financial Review


…More records for Do, S&P. New home sales slip. LEI jumps higher. ECB holds pat, Draghi hits US over dollar talk. Trump in Davos – say what? Deaton says US has a poverty problem. Earnings parade: Starbucks, Intel, Cat, 3M.

Financial Review by Sinclair Noe for 01-25-2018

DOW + 140 = 26,392
SPX + 1 = 2839
NAS – 3 = 7411
RUT + 2 = 1601
10 Y – .03 = 2.62%
OIL – .38 = 65.23
GOLD – 10.40 = 1348.30


Record high close for the Dow and S&P 500.


The Commerce Department reports new home sales dipped 9.3% from the prior month, but 14.1% higher than a year ago. Despite the month-to-month choppiness, full-year 2017 new-home sales were 8.3% higher than in 2016. The median price of new houses sold in December 2017 was $335,400, 2.5% higher than a year ago. At the current pace of sales, it would take 5.7 months to exhaust available inventory, a healthy ratio.


Rates for home loans jumped to the highest level since March. The 30-year fixed-rate mortgage averaged 4.15% during the week ending Jan. 25, according to Freddie Mac; that’s up from 4.04% in the prior week. The 15-year fixed-rate mortgage averaged 3.62%, up thirteen basis points. Those rates don’t include fees associated with obtaining mortgage loans.


The leading economic index jumped 0.6% in December, marking the third straight strong increase and suggesting the U.S. is likely to grow rapidly in early 2018. The index also rose 0.5% in November and 1.3% in October. A measure of current economic conditions rose 0.3% in December. A “lagging” index that looks back at the recent past moved up 0.7%.


Initial jobless claims climbed 17,000 to 233,000 in the seven days ended Jan 20. But the small increase comes just one week after new claims had fallen to a 45-year low.


Tomorrow’s economic calendar includes fourth quarter GDP. The first quarter has been soft in recent years, and this year January’s cold weather may have slowed consumption, still analysts are looking for gross domestic product growth of 3%, which would make it the third quarter of 3 percent growth in a row for the first time since 2005.


Next week’s economic calendar includes the Federal Reserve FOMC meeting, the first under new Chair Jerome Powell – plus, the monthly labor Department Jobs Report.


Today, the European Central Bank wrapped up a policy meeting, leaving interest rates unchanged. The euro now trades 7 percent higher than in December, when the ECB unveiled its latest economic projections, suggesting some downward pressure on import prices. Having bought more than 2 trillion euros worth of bonds over the past three years, the ECB has almost single-handedly depressed borrowing costs in the euro zone to kick start growth and lift prices. The purchases, already twice reduced, are set to run until the end of September and investors are betting on their end in the fourth quarter. While ECB President Mario Draghi did not shoot down those expectations, he also argued that inflation has yet to show convincing signs of a sustained rise, a message also aimed at tempering expectations for policy tightening.


Draghi took a swipe at Washington for talking down the dollar, a move he said threatened a decades-old pact not to target the currency and might force his bank to change its own policy. Draghi said any unjustified move could force the ECB to rethink its strategy as a strong currency could put a lid on inflation, thwarting its efforts to lift prices.


Trump waded into the unusual public debate over currency valuations, claiming he favored a strong greenback just a day after his Treasury secretary endorsed a weak dollar. Speaking in Davos, Switzerland, Trump said, “The dollar is going to get stronger and stronger and ultimately I want to see a strong dollar.” Not sure what he plans to do to make the dollar stronger, but he talked about it. Trump also said the US would stay in the Trans-Pacific Partnership, also known as TPP, if American negotiators were able to create a better agreement. So, I’m not sure what he’s talking about now.


The World Bank says people who live on less than $1.90 per day are the world’s poorest. In a New York Times op-ed on Thursday, Nobel Prize-winning economist Angus Deaton says the poverty data used by international organizations masks a deep poverty problems in our own backyard. Deaton said that figure should be more like $4 a day in the US. When the data is adjusted for $4 a day, there are 5.3 million Americans who are absolutely poor by global standards, Deaton said. That is more than Sierra Leone or Nepal and about the same as in Senegal. In the article, Deaton says that it is time to stop thinking that only non-Americans are truly poor and that some of the charitable giving flowing from the U.S. to Asia and Africa should be diverted to domestic relief agencies.


S&P 500 companies on average are expected to have increased their fourth-quarter earnings by 12.7 percent. Of the S&P 500 companies that have already posted results, 78.8 percent have topped expectations, versus an average of 72 percent over the previous four quarters.


Starbucks fell more than 3% after the company reported same-store sales below expectations and narrowly missed sales forecasts. Starbucks said it earned $2.25 billion, or $1.57 a share, in the quarter, compared with $752 million, or 51 cents a share, in the year-ago period. Adjusted for one-time items, Starbucks earned 65 cents a share, including a 7-cent benefit from the U.S. tax overhaul. Sales rose to $6.1 billion, from $5.7 billion a year ago. Analysts had expected adjusted earnings of 57 cents a share on sales of $6.2 billion. Starbucks’ same-store sales rose 2% globally.


Intel shares rose 4% to $47.10 after hours. The company reported a fourth-quarter loss of $687 million, or 15 cents a share, compared with net income of $3.87 billion, or 73 cents a share, in the year-ago period. Adjusted earnings, factoring out the $5.4 billion tax loss from recently passed U.S. tax overhaul legislation, were $1.08 a share. Revenue rose to $17.05 billion from $16.37 billion in the year-ago period. Intel’s board also increased the annual dividend by 10% to $1.20 a share.


Western Digital reported a slightly better-than-expected 9.2 percent jump in quarterly revenue on Thursday, as it benefited from healthy pricing for NAND memory chips.


Caterpillar’s profit topped Wall Street forecasts for the seventh straight quarter. Equipment sales surged 35 percent on strong global demand for construction, mining and energy machines. The world’s largest heavy-duty equipment maker, which serves as a bellwether for global economic activity, is benefiting from a global economy that is having its best run since 2011. The biggest sales increase came from North America, its biggest market, led by better demand for construction and on-shore oil & gas machinery. In the fourth quarter, in adjusted terms, it made a profit of $2.16 per share. On that basis, analysts had expected $1.79 per share.


3M, the maker of everything from Post-it notes to dental varnish reported fourth-quarter and annual earnings that beat estimates, after backing out a charge related to the recently passed U.S. tax legislation. Organic revenue climbed 5.2 percent for the full year, as sales rose at every single one of 3M’s businesses and in each of its geographic areas. That’s remarkable, particularly a day after General Electric Co. — generally a hot mess these days — said its revenue excluding the impact of currency and M&A was flat last year as declines at certain parts of its industrial mishmash overwhelmed good news elsewhere.


The Doomsday Clock, a symbol of scientific concerns about humanity’s possible annihilation, was advanced by 30 seconds, to 2 minutes to midnight. The last time the clock was moved so close to midnight was in 1953, during the Cold War. the Bulletin of Atomic Sciences’ science and security board, which oversees the clock, said in a statement: “In 2017, world leaders failed to respond effectively to the looming threats of nuclear war and climate change, making the world security situation more dangerous than it was a year ago — and as dangerous as it has been since World War II.” The scientists cited the risks from North Korea’s nuclear program; discord between Russia and the United States; tensions in the South China Sea; the build up of the nuclear arsenals of Pakistan and India; and uncertainty over the Iran nuclear deal. The scientists also warned that the sustained reductions in greenhouses gases needed to prevent disastrous warming of the planet had not yet occurred, and cited the dangers that technology disruption is causing for democracies, including disinformation campaigns intended to manipulate elections and undermine confidence in democracy.



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