Financial Review

End of Quarter, Hit Pause

…Q3 strong for stocks. Oil remains bullish. FBI to investigate Kavanaugh. No gov shutdown for now. Italy in debt. Tesla tanks. Facebook breached, again. BK for that place that sells that thingy thing.

Financial Review by Sinclair Noe for 09-28-2018

DOW + 18 = 26,458
SPX – 0.02 = 2913
NAS + 4 = 8046
RUT + 6 = 1696
10 Y un  3.06%
OIL + 1.44 = 73.56
GOLD + 9.80 = 1193.20

Today marks the end of trading for September and for the third quarter.

Week Month        Quarter

S&P 500    -0.5%         +0.4%        +7.2%

Dow           -1.1%         +1.9%        +9%

Nasdaq      +0.7%        -0.8%         +7.1%

 

In the third quarter, the S&P 500 rose more than 7% for its best quarter since the end of 2013. The Dow advanced 9% with both indexes rising in 11 of the past 12 quarters. The Nasdaq gained more than 7% over the quarter, and is up for its ninth straight quarter.

 

While October can be a very volatile month for trading, it probably gets a bad rap due to 1929, 1987, and 2008. October will kick off earnings reporting season, which will be a major factor in the markets. Bolstered by a growing economy, deep corporate tax cuts and increased stock buybacks, S&P 500 companies are expected to report earnings per share up 21.6 percent over the year before, according to Thomson Reuters I/B/E/S.

 

WTI crude prices popped 2% today. Oil prices are up 6% in the third quarter and up 32% from the start of the year. A new round of U.S. sanctions on Iran kick in on Nov. 4. Washington is demanding that buyers of Iranian oil cut imports to zero to force Tehran to negotiate a new nuclear agreement and to curb its influence in the Middle East. Potential for a supply shock because of declining oil production in Iran and Venezuela will likely continue a bullish move in oil prices, and the second round of U.S. sanctions on Iran in November will further support the sentiment.

 

On the economic front, consumer spending rose 0.3% in August, the slowest pace since February. Personal income also rose by 0.3%. The 12-month increase in the PCE index, the Federal Reserve’s preferred inflation gauge, fell to 2.2% from 2.3%.

 

The Chicago Purchasing Manager’s Index fell to a five-month low 60.4 in September, below expectations for a reading of 62. A reading of consumer sentiment came in at 100.1 in September, slightly below expectations.

 

Political drama over the nomination of Judge Brett Kavanaugh to the Supreme Court continued to dominate the headlines but is not expected to have a direct impact on the market for now. The Senate Judiciary Committee has voted to advance Brett Kavanaugh’s nomination to the to the Senate for a full vote — but only after Arizona Senator Jeff Flake said he wants a one-week delay in the Senate vote so the FBI can conduct an investigation into the allegations against Kavanaugh. A delay presents both peril and promise for Kavanaugh. On the one hand, it means investigators will likely talk to Mark Judge. On the other hand, if a probe doesn’t turn up new evidence, it gives senators on the fence an easier time voting yes. Senate Judiciary Chairman Chuck Grassley released a statement saying “ The Senate Judiciary Committee will request that the administration instruct the FBI to conduct a supplemental FBI background investigation with respect to the nomination of Judge Brett Kavanaugh to be an Associate Justice on the Supreme Court. The supplemental FBI background investigation would be limited to current credible allegations against the nominee and must be completed no later than one week from today.” That doesn’t explain exactly which allegations will be investigated. Still, it looks like there will be an investigation; it looks like the vote will be postponed. Nothing is completely certain but we shall see.

 

The government will stay open. Earlier today, Trump signed a massive spending package that funds a large section of government and averts a shutdown. The bill includes a continuing resolution that will fund remaining unfunded parts of government until December 7. There was some uncertainty over whether Trump would sign the appropriations bill, and top congressional Republicans made clear that the political fallout of a shutdown, even a small one, would be potentially devastating ahead of the midterm elections. Trump was sending mixed signals over whether he would sign the bill because of its lack of money for his signature campaign promise of a border wall.

 

Italy’s new government proposed a 2019 budget with a deficit three times bigger than the previous administration’s target, that sparked a sell-off in European stock markets and a drop in U.S. Treasury yields as some investors looked for a safe haven play. With growth in many European, Asian and emerging markets mostly uninspiring, the United States is increasingly the main motor behind the global economy. But recent growth in the US economy has been fueled in part by fiscal stimulus, which will be nearly impossible to maintain this late in the economic cycle, especially in light of higher interest rates, which the Federal Reserve boosted again on Wednesday.

 

Shares of Tesla sank 14%, it worst daily drop since 2013, after the Securities and Exchange Commission sued Elon Musk, the electric-car maker’s chairman and chief executive officer. The SEC is alleging that Musk misled investors when he tweeted that he was considering taking the company private, and it is seeking to ban him from serving in his role of CEO. While Tesla has a limited impact on the broader indexes — it isn’t a component of the S&P 500 — it is sometimes seen as a proxy for high-risk and high-growth stocks, a segment of the market that have been fueling the market’s gains in 2018.

 

Intel jumped 3 percent and was the biggest boost on the three major indexes after the chipmaker said it had enough supplies to meet annual revenue targets and was boosting PC chip output, allaying fears that rival Advanced Micro Devices was eating into its market share due to supply constraints. Smaller rival Advanced Micro Devices tumbled 5.2 percent. Nvidia also posted a 5 percent gain.

 

Someday, businesses – both brick and mortar or online – will realize the importance of safeguarding their customers’ privacy. That day is not today. Once again, Facebook has failed its customers. An attack on Facebook discovered earlier this week exposed information on nearly 50 million of the social network’s users. The attackers exploited a feature called “View as” that lets users see their Facebook page the way someone else would. The attackers could then potentially use it to take over the accounts and use them exactly as if they were the account holders. The company says it does not know if the affected accounts were misused in any way or if any user information was actually accessed.

 

Facebook said it does not know who the attackers were or where they were based. It also said it has already fixed the issue and informed the FBI and other law enforcement, as well as lawmakers and regulators. It has also informed the Irish Data Protection Commission about the breach, a step required by Europe’s GDPR regulations. The commission said it received the notification but expressed concern with its timing and lack of detail. More than 90 million users were forcibly logged out of their accounts by Facebook and had to log back in on Friday for security reasons. Facebook says users do not need to take any additional security precautions or reset their passwords. But the reality is that if you were logged out, your account might have been compromised and it would seem prudent to change your passwords.

 

America’s malls haven’t been this empty in nearly six years. The vacancy rate at metro and regional malls around the United States hit 8.6% last quarter, the highest since the end of 2012. Back then, the economy was still working its way out of a recession and an excess of malls had been built in the preceding decades. Retail vacancies peaked at 9.4% during the middle of 2011.

 

Brookstone filed for bankruptcy and will close its remaining 101 mall stores. The mall and airport seller, best known for massage chairs, quirky gadgets, and travel luggage, filed for Chapter 11 bankruptcy in federal court. It was Brookstone’s second bankruptcy round in four years. The company will keep its 35 airport stores and website open and running while it attempts to find a buyer. It has secured a $30 million loan to finance operations during the sale. In a bankruptcy filing, Brookstone said it had liabilities totaling up to $500 million and assets between $50 to $100 million.

 

Once upon a time, Sears Roebuck was the largest retailer in the country. Today, Sears is a penny stock. The share price fell below $1 for the first time in the company’s history, dropping as much as 15% to 85 cents. Falling into loose-change territory is more than embarrassing. Nasdaq, the exchange where Sears stock trades, could delist the company. That’s a long process and would happen next year at the earliest. Shares of Sears Holdings  had already plunged 88% in the past year. They took another blow Monday, when CEO and primary shareholder Eddie Lampert warned the board that the company was running out of time and cash. He said Sears must restructure and cut its debt “without delay.” Lampert pointed to a $134 million debt payment due on October 15, and said the company must demonstrate to lenders by Monday that it has required levels of cash in reserve, which could itself prove difficult.

 

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