…Stocks string together 3 wins. US-China talking trade, again. Manufacturing slips. Auto sales strong. Earnings season includes Apple, Starbucks and NYTimes. Criminal charges in 1MDB. Google’s 10-minute global walkout.
Financial Review by Sinclair Noe for 11-01-2018
DOW + 264 = 25,380
SPX + 28 = 2740
NAS + 128 = 7434
RUT + 33 = 1544
10 Y – .01 = 3.14%
OIL – .13 = 63.56
GOLD + 18.80 = 1233.90
For the first time in 6 months, stocks moved higher for a third consecutive session. The 3-day gain for the Dow tops 900 points.
The Institute for Supply Management’s manufacturing index fell to a six-month low of 57.7% in October from 59.8% in September. Any reading above 50% indicates improving conditions.
Total light weight vehicle sales in October reached a seasonally adjusted annual rate of 17.57 million, up from 17.44 million last month and the best showing since November. Ford reported a 5 percent decline in sales for its pickup trucks, while overall sales fell 3.9 percent. Fiat Chrysler Automobiles said US sales rose 16 percent on higher demand for its Jeep and Ram vehicles. Toyota Motor separately said its US sales rose about 1.4 percent. Earlier this year, General Motors switched to reporting sales quarterly instead of monthly.
The number of Americans losing their jobs each week fell slightly in late October and clung near the lowest level in decades.
Trump said his administration is finalizing a plan to end what he called the abuse of the U.S. asylum system, as he also signaled progress on trade after speaking with China’s president Xi Jinping. Trump hinted at progress by saying the discussions were “moving along nicely.” The two leaders are scheduled to meet at a G-20 summit in Argentina later this month. Speaking in the Roosevelt Room of the White House, Trump said he’d issue a comprehensive executive order on immigration next week. An indictment alleges state-owned Chinese company Fujian Jinhua Integrated Circuit, Taiwan’s United Microelectronics and three Taiwan individuals tried to steal secrets from Micron, which has up to a quarter of the market share in the dynamic random access memory microchip market. Still, there was a positive response to US-China trade talks and that set off a short squeeze. FANG stocks rallied to a one week high, and Apple rallied into the close and earnings.
After the closing bell, Apple posted quarterly results. For the quarter ended in September, Apple brought in $62.9 billion in revenue and $2.91 per share in profits, beating expectations of $61.5 billion and $2.79, respectively. Apple warned that sales for the crucial holiday quarter would likely miss Wall Street expectations. CEO Tim Cook blamed the projected shortfall on weakness in emerging markets, foreign exchange costs and uncertainty whether the iPhone maker can keep up with demand for new products. Apple dropped about 7% in after-hours trade. Apple briefly fell below its $1 trillion market cap after hours.
Apple now has $237.1 billion in cash on hand. It now has about $6 billion less cash on hand than last quarter, when it reported $243.7 billion. Apple’s cash hoarding has led to M&A speculation although the company has more recently shelled out on content creation, emerging markets and creating U.S. jobs.
Apple said in January it would contribute $350 billion to the U.S. over the next five years, in part through taxes for cash it plans to bring back from overseas. It also announced plans to create 20,000 new jobs in the U.S., including on a new campus.
Starbucks posted fiscal fourth-quarter adjusted profits above Wall Street expectations. Starbucks said it earned $756 million, or 56 cents a share, in the quarter, compared with $789 million, or 54 cents a share, in the year-ago quarter. Revenue rose 11% to $6.3 billion from $5.7 billion a year ago. Starbucks is planning to open 2,100 new stores globally next year. Starbucks added about 600 new stores in the most recent quarter and has over 29,300 restaurants overall.
TV broadcaster and media company CBS beat analysts’ estimates for third-quarter revenue and profit. Advertising revenue during the reported quarter rose 14.2 percent to $1.26 billion. This is the first quarterly earnings report since Chief Executive Officer Leslie Moonves resigned amid allegations of sexual assault and harassment. At stake is $120 million in severance payments owed to Moonves if the investigation proves Moonves did not leave the company for cause. The investigation and a board review of the findings is due by Jan. 31, 2019.
The New York Times is not failing. The Times signed up more than 200,000 paying online subscribers in the third quarter, helping it top Wall Street estimates for both profit and revenue. Shares in the publisher rose 8 percent after quarterly results showed digital-only subscribers rose to 3.1 million at the end of September, the result of a combination of aggressive discounting and heavy spending on marketing. The company’s stock has now risen 54 percent this year.
Action camera-maker GoPro reported a 13 percent drop in third-quarter revenue. GoPro reported a net loss of $27.1 million, or 19 cents per share, in the three months ended Sept. 30, compared with a profit of $14.7 million, or 10 cents per share, a year earlier.
Shake Shack reported impressive third-quarter earnings after the bell. The company earned 21 cents per share, which was higher than consensus of 13 cents per share. Revenue also came in better-than-expected. Shak Shack dropped about 6% in after-hours.
US prosecutors have filed criminal charges against two former Goldman Sachs bankers and Malaysian financier Low Taek Jho tied to the alleged theft of billions from Malaysian sovereign wealth fund 1MDB. Tim Leissner, former partner for Goldman Sachs in Asia, pleaded guilty to conspiracy to launder money and conspiracy to violate the Foreign Corrupt Practices Act, and agreed to forfeit $43.7 million. Roger Ng, the other charged former Goldman banker, was arrested in Malaysia and is expected to be extradited. The third person, the financier popularly known as Jho Low, remains at large. The government of former Malaysian Prime Minister Najib Razak set up 1Malaysia Development Berhad, or 1MDB, in 2009. An estimated $4.5 billion was misappropriated from 1MDB by high-level officials of the fund and their associates between 2009 and 2014. While U.S. prosecutors have previously filed civil asset forfeiture suits for assets allegedly bought with some of the stolen funds, these are the first criminal charges the Justice Department has brought against individuals in the case under the Foreign Corrupt Practices Act, a federal law targeting official bribery abroad. At least six countries, including Malaysia, the United States and Switzerland, have been investigating alleged thefts from 1MDB.
Thousands of Google employees and contractors staged brief midday walk-outs at offices across Asia, Europe and North America to protest sexism, racism and unchecked executive power in their workplace. Organizers said demonstrations spanned dozens of Google office globally. The actions follow a New York Times report last week detailing the alleged misconduct of senior executives, as well as Google’s admission that it fired 48 people for sexual harassment over the past two years. The Times report said Google in 2014 gave a $90 million exit package to Andy Rubin after the then-senior vice president was accused of sexual harassment. In a statement late on Wednesday, the Google walkout organizers called on Google parent Alphabet to add an employee representative to its board of directors and internally share pay-equity data. They also asked for changes to Google’s human resources practices intended to make bringing harassment claims a fairer process.
On Sunday, November 4, at 2 am, clocks will be turned back one hour, heralding the end of daylight saving time for much of the country. The biggest consequence: The change shifts daylight back into the morning hours. For 9-to-5 office workers, it means saying goodbye to leaving work while it’s still light out. And for weekend workers, it means an additional glorious hour of sleep on Sunday. For Arizona, we mainly leave the clocks untouched, but we still have to do calculations with folks around the country to coordinate times. Fifty years ago, the state legislature opted to keep the clocks in most of the state in standard time all year. One reason: Arizona summers are very hot, and an earlier sunset gives residents more time to enjoy tolerable temperatures before bed, or perhaps it is just the contrary nature of Arizonans. (What’s confusing: The Navajo Nation in Arizona does use DST.) As of Monday, Arizona will be 2 hours behind New York and one hour ahead of Los Angeles. Good luck.
Despite the fact that daylight saving time was introduced to save fuel, there isn’t strong evidence that the current system actually reduces energy use — or that making it year-round would do so, either. Studies that evaluate the energy impact of DST are mixed. It seems to reduce lighting use (and thus electricity consumption) slightly but may increase heating and AC use, as well as gas consumption. It’s probably fair to say that energy-wise, it’s a wash.
Tomorrow morning the markets will be digesting the Apple earnings news, plus new quarterly reports from Exxon Mobil and Chevron. Tomorrow morning the labor Department will publish the monthly non-farm payroll report. It is estimated the economy added about 190,000 new jobs in October – enough to keep the unemployment rate at 3.7%. Investors will also be keeping a close eye on wage growth, with average hourly earnings expected to grow 0.2% over last month and 3.1% over last year. The 3.1% annual gain over last year would be the highest since 2009.