Financial Review

February Sucked

….Stocks down to finish a bad month. 4Q GDP revised lower. Pending home sales drop in January. Earnings season still strong. Dick’s Sporting Goods ends AR-15 sales. Spotify’s IPO.

Financial Review by Sinclair Noe for 02-28-2018

 

DOW – 380 = 25,029
SPX – 30 = 2713
NA – 57 = 7273
SRUT – 24 = 1512
10 Y – .04 = 2.87%
OIL – 1.48 = 61.53
GOLD + .10 = 1318.80

 

Today, stocks started strong and then cratered into the close. Fed Chairman Jerome Powell once again raised speculation of a more aggressive Fed. He told Congress that he’s more optimistic about the economy, which led some investors to anticipate four rate increases for 2018, up from three last year.

 

February was not a good month for Wall Street. The Dow suffered its biggest-ever one-day point loss on Feb. 5 – down 1175 – with an intraday decline of 1597. The Dow plummeted more than 3,200 points, or 12%, in just two weeks. On a total-return basis, the S&P 500 dropped about 2.7% on the month. That monthly drop represents the benchmark index’s first such decline since October 2016, meaning an uninterrupted 15-month rally is snapped. This is by far the longest such streak in the history of the S&P; the previous record, according to Dow Jones data, was a 10-month rally that ended in September 1995. Over the entire 15-month period, the S&P advanced more than 36% on a total-return basis. The S&P hit dozens of records over that period, and the 5.7% advance seen in January of this year represented the biggest monthly advance since March 2016. Since March 2016, the S&P has only had two negative months on a total-return basis, including this month. On a purely price basis, the S&P dropped right 3% in February, its first negative month of the past 11. Before February, its most recent negative month was in March 2017, when it fell 0.04%. The losses were broad; of the 11 primary S&P 500 industry groups, only technology finished the month in positive territory.

 

The Dow Jones Industrial Average dropped 3% decline for February; it is also coming off 10 straight positive months. The Nasdaq Composite is down 1.1% for February, ending a seven-month rally. It has risen in 17 of the past 20 months. Most of the declines came in the first 10 days of the month. Markets have recovered much of the ground they lost in the correction, though the major indexes remain below record levels. There have been just four other times in history where the Dow has snapped a winning streak of at least 10 months, the last occurring nearly 60 years ago, in March 1959. Afterwards, the DJI went on to resume its long-term uptrend in a big way. A similar story for gains in the S&P 500, after snapping a streak of monthly gains.

 

The Commerce Department released its second estimate of fourth quarter growth. Economic growth slowed slightly more than initially thought in the fourth quarter after the strongest pace of consumer spending in three years depleted inventories and drew in imports as businesses struggled to produce enough goods and services. Gross domestic product expanded at a 2.5 percent annual rate in the final three months of 2017, instead of the previously reported 2.6 percent pace. That was a deceleration from the third quarter’s brisk 3.2 percent pace. The downward revision to the fourth-quarter growth estimate largely reflected a smaller inventory build than previously reported. The economy grew 2.3 percent in 2017, an acceleration from the 1.5 percent logged in 2016. GDP estimates for the first quarter of 2018 are as low as a 1.8 percent rate.

 

The National Association of Realtors says pending home sales fell 4.7% in January. Dropping to the lowest reading since October 2014, after the biggest monthly decline since 2010, when the recovery was just getting started. The NAR’s index of pending home sales, which tracks real-estate transactions in which a contract has been signed, but the transaction hasn’t closed, had been grinding slowly higher. But December’s reading was revised down, and the index is now 3.8% below year-ago levels. NAR called the lack of housing-market inventory a “crisis” when it reported on existing-home sales in January. Realtors are seeing lots of traffic, the industry group said, even as the number of available listings at the end of January was at an all-time low for the month and 9.5% lower than a year earlier.

 

The U.S. Energy Information Administration made some revisions to recent monthly reports, and now concludes that US oil drillers pumped 10.057 million barrels a day in November. That edges out the previous record of 10.044 million barrels a day set in November 1970. While the new all-time high production shows American drillers pulled ahead of Saudi Arabia to briefly become the world’s second biggest producer, the United States may have slipped back into third place in December. The first monthly reading for December shows U.S. output slid back to 9.949 million barrels.

 

Stocks in the red include Celgene as the FDA rejected a drug application for the drugmaker’s experimental MS drug, claiming it was ‘insufficient,’ Hertz as the car rental operator posted a much wider loss than was expected, and Lowe’s – shares dropped as the home improvement chain missed on earnings, with analysts concerned profit margins are getting squeezed, as rival Home Depot grows faster.

 

Stocks in the green include Snap as TechCrunch reports that despite backlash about the new app, downloads are up, Etsy as the crafts marketplace beat on profit and revenue, and United Technologies – shares climbing on reports Bill Ackman’s Pershing Capital is building a stake in the industrial manufacturer. Booking Holdings, formerly known as Priceline, rose 7.7 percent after reporting upbeat quarterly profit, helped by higher hotel bookings, while off-price apparel seller TJX  jumped about 10 percent after posting upbeat same-store sales. Salesforce stock rose 2 percent and then lost that gain after the company reported better-than-expected earnings for the fourth quarter.

 

About 76 percent of the S&P 500 companies that have reported so far have topped profit estimates, according to Thomson Reuters I/B/E/S. That is above the average 72 percent recorded in the past four quarters.

 

Dick’s Sporting Goods said it will permanently stop selling assault-style rifles. They will also stop selling high-capacity magazines and will not sell any guns to people under age 21. The accused gunman in the recent Parkland school massacre, legally purchased a weapon at Dick’s in November, although not the type used in the shooting. The largest U.S. retailer, Walmart, stopped selling assault style firearms, bump stocks, other assault style accessories and magazines for such products since 2015.

 

Music streaming service Spotify filed for a direct listing of up to $1 billion with the SEC, becoming the first major company in the recent past to do so. A direct listing is an unconventional way to pursue an IPO and will help Spotify list without the need to raise new capital or hire a Wall Street bank or broker to underwrite the offering. In its filing, the company said it has 71 million premium subscribers and about 159 million monthly average users. By comparison, Apple Music, which was launched in 2015, has 36 million paying subscribers. Among the many things that distinguish Spotify’s upcoming share sale from a typical IPO, there’s this gift for existing investors: they can cash out whenever they want – no lock-up period.

 

German drug and crop chemicals maker Bayer is set to win conditional European Union antitrust approval for its $62 billion bid for world No. 1 seed company Monsanto. Bayer has already pledged to sell certain seed and herbicide assets for $7 billion to BASF to address EU regulatory concerns.

A dark day for retailers in the UK. Toys “R” Us and electronics chain Maplin have collapsed in the UK, putting a combined 5,300 retail jobs at risk. Administrators were appointed to run both businesses after executives failed to find buyers. Toys “R” Us is one of the UK’s largest toy retailers with 3,000 staff and 105 stores across the country. Maplin employs just over 2,300 staff at more than 200 stores, selling electronics, tech toys and smart-home devices. Investors took fright at the news, selling off shares in some other British retailers.

 

 

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