Financial Review

Down on Trade

…PPI mild. Retail sales slip. Inventories tighten. China talks retaliation. Theranos fraud. Equifax insider busted. Ford recall Toys R Us closing. Groceries delivered. Happy Pi Day.

Financial Review by Sinclair Noe for 03-14-2018

 

DOW – 248 = 24,758
SPX – 15 = 2749
NAS – 14 = 7496
RUT – 7 = 1584
10 Y – .03 = 2.82%
OIL + .22 = 60.93
GOLD – 1.70 = 1325.20

 

Stocks started the session slightly higher, following some fairly benign economic reports. In afternoon trading, the Dow dropped more than 300 points. The Nasdaq wavered between positive and negative. The Nasdaq Composite Index returned to record levels earlier this week, erasing all the losses it suffered in a recent decline. On an inflation-adjusted basis, the Nasdaq’s recent peak allowed it to finally surpass 5,048, the record it touched at the top of the dot-com bubble in March 2000. It hit that milestone in late February and subsequently exceeded it, though it has since pulled back a bit. Adjusted for inflation, the Nasdaq is only 2.0% above the peak in 2000. That comes out to a whopping annualized return of 0.10% over the past 18 years. Something to consider when you are trying to figure out if tech is facing another bubble. So far this year, the Nasdaq has been by far the best performer of the major indexes. It is up 8.5% (not on an inflation-adjusted basis) compared with the 2.8% rise of the S&P 500. The Dow Jones Industrial Average is up about 0.1%.

 

 

A busy day for economic data. First, the Producer Price Index (PPI), also known as the “other shoe dropping” from yesterday’s Consumer Price Index (CPI), followed by Retail Sales for the month of February. Results were mixed, but neither was out of range.

 

Yesterday’s CPI report showed inflation at the retail level was up last month, but the modest increase was expected. Today’s Producer Price Index, or inflation at the wholesale level, was higher than expectations. Wholesale prices rose a mild 0.2% in February. The 12-month rate of wholesale inflation edged up to 2.8%. Wholesale inflation rose a stronger 0.4% in February if the volatile categories of energy, food and trade margins are stripped out. The cost of services such as lodging, passenger flights and telecommunications rose in February to account for most of the increase in PPI. The wholesale price of services rose 0.3%. Prices of wholesale goods fell 0.1%, however. The cost of energy and food both declined.

 

Retail Sales missed the mark — pretty widely, at that — when it posted a negative 0.1% versus a +0.3% expected. January’s headline number was revised to -0.1% as well. Ex-autos, this retail figure improves to +0.3%, suggesting the sales miss is relatively contained from last month.

 

Business inventories in the U.S. rose 0.6% in January. Inventories in December were also revised up to a 0.6% gain from the prior estimate of 0.4%. Sales fell 0.2% in the month after a 0.5% gain in December. The rise in inventories and the drop in sales brought up the ratio of inventories to sales to 1.34 in January from 1.33 in the prior month. That’s how many months it would take to sell all the inventory on hand.

 

So, the bigger picture – retail sales are mild, business inventories are tight; we are seeing some signs of inflation, but still historically low and no big jumps in prices. Carry on.

 

A spokesperson for China’s National People’s Congress threatened to retaliate to Trump’s proposed new tariffs on steel and aluminum. China doesn’t want a trade war, the politician said, but it will respond in kind if Trump’s tariffs harm it economically. Meanwhile, Trump is seeking tariffs on $60 billion worth of Chinese imports, particularly technology and telecommunication products. A source speaking on the condition of anonymity told Reuters that the tariffs could be imposed on more than 100 products as punishment for the alleged theft of American intellectual property. A senior Trump administration official told Reuters these steep tariffs against China are likely “in the very near future.” One company particularly susceptible to Chinese retaliation is Boeing. About a quarter of Boeing’s jetliners went to China last year, and analysts estimate that Chinese orders could account for up to a fifth of its backlog. China does not manufacture its own aircraft, but they do not have to rely on Boeing. The past year and a half has indeed been good to Boeing. Its share price went up by 90 percent in 2017, making it the best performer in the Dow Jones industrial average. It has performed spectacularly so far this year. Not today – Boeing shares dropped 2.5%. The shares have now dropped $24.26, or 6.8%, so far this week, headed for the worst weekly losses in 2 years. Shares are down 9.4% from a record high, which coincided with the announcement of steel and aluminum tariffs.

 

Elizabeth Holmes, founder and chief executive of the blood-testing company Theranos, has been charged with an “elaborate, years-long fraud” by the Securities and Exchange Commission in which she and former company president Ramesh “Sunny” Balwani allegedly “deceived investors into believing that its key product — a portable blood analyzer — could conduct comprehensive blood tests from finger drops of blood.” Holmes agreed to a $500,000 penalty and a 10-year ban on serving as an officer or director of a public company to settle the charges but did not admit nor deny the allegations. Theranos, a blood-testing start-up that promised to revolutionize consumers’ access to their medical information, was a Silicon Valley darling once valued at $9 billion. There is no evidence that the fast, easy blood testing technology ever actually worked.

 

Federal prosecutors on Wednesday charged a former Equifax executive with insider trading, alleging that he profited from confidential information about the massive data breach at the company that compromised sensitive data of 148 million people. Jun Ying, former chief information officer of a business unit of Equifax, faces both civil and criminal charges. Ying allegedly used confidential information to conclude that his company had suffered a massive data breach, and he dumped his stock before the news went public.

 

Ford Motor is recalling nearly 1.4 million cars in North America after the company discovered that steering wheels in two vehicle models could come off while driving. The two affected models are the Ford Fusion and the Lincoln MKZ.

 

Toys ‘R’ Us told employees today that it will sell or close all its U.S. stores, a collapse that threatens up to 33,000 Americans jobs in the coming months. The 70-year-old chain, which filed for bankruptcy protection in September, has more than 700 remaining U.S. locations. Toys ‘R’ Us plans to file liquidation papers this evening in advance of a bankruptcy court hearing on Thursday.

 

Last summer, Amazon purchased Whole Foods, a $13 billion acquisition that came with the promise to shake up the grocery business. In October, Costco introduced a two-day delivery option for dry groceries and a same-day alternative for fresh goods through Instacart, a delivery service. Target said in December that it would purchase the online same-day delivery service Shipt for $550 million in cash. Earlier this month, Amazon said it would offer same-day delivery of groceries from Whole Foods in six cities. On Monday, Kroger followed suit with an announcement that it would expand the number of cities eligible for home delivery of groceries through Instacart. And today, Walmart announced it is expanding its online grocery delivery service to more than 100 metro areas, covering about 40% of all American households by the end of the year. Walmart charges a $9.95 fee for its grocery delivery service, and requires a minimum order of $30.

 

Yesterday, there was a special election in western Pennsylvania for the 18th Congressional District. It looks like the Democrat Connor Lamb defeated the Republican candidate, Rick Saccone in an extremely tight race, that could go to a recount. Almost $18 million was spent on the election. The Republicans spent more than $105 per vote and the Dems spent about $50 per vote.

 

Exactly one month after one of the deadliest school shootings in US history took place in Parkland, Florida, students across the country took matters into their own hands. Today was National Walkout Day, in which hundreds of thousands of students across America walked out of school and held protests calling for solutions to gun violence, sensible gun legislation, and protections for children in US schools.

 

Today is also Pi Day, March 14th or 3.14, the first three digits of pi, (that’s pi, not pie). Pi represents the ratio of a circle’s circumference to its diameter. It’s an important part of the foundation of mathematics, most importantly geometry, where pi is key to equations calculating the area of a circle and the volume of a cylinder. Pi is an irrational number, meaning it has an infinite number of digits that never repeat. Feel free to challenge that assertion. Of course, any such challenge would be pointless.

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