Financial Review

Halftime Report

Stocks bounce back but not all the way. Jobless claims up. Puerto Rican default imminent. Big banks pass test and dish out buybacks. Swipe this Visa and MC. Mondelez Hershey – no kisses. Change your password.

Financial Review by Sinclair Noe for 06-30-2016

DOW + 235 = 17,929
SPX + 28 = 2098
NAS + 63 = 4842
10 Y + .01 = 1.49%
OIL – 1.48 = 48.40
GOLD + 3.40 = 1322.70
Today is the end of the month, end of the second quarter, and end of the first half of trading, so let’s break down some numbers at halftime.

 

The Dow and S&P 500 and Nasdaq are now back in the black for 2016 and for the second quarter. The Dow is up 106 points since the start of the year. The S&P is up 40 points year to date. The Nasdaq is up 106 for the year.

 

For the month of June, the Dow added 64 points, the S&P gained 2 points, and the Nasdaq is down 106. June included some brutal Brexit related losses. The Dow is still down about 80 points from last Thursday (pre-Brexit), the S&P is still down about 15 points, and the Nasdaq is down about 68 points. Still, it was a nice bounce back; the best 3-day rally in 4 months, following the worst 2-day decline for Wall Street in 10 months.

 

Tomorrow, July 1st is the most bullish day of the year; according to the Stock Trader’s Almanac, on July 1, over the past 21 years, the S&P 500 has advanced 85.7% of the time on the first trading day of July. The average gain is 0.46%. Of course, not every July 1 is created equal.

 

European stocks and the pound held on to a third day of gains as the immediate market flurry over Britain’s vote to pull out of the European Union settled. The rebound was not enough, however, to offset the sharp losses suffered in the aftermath of last week’s vote which have put global stocks on track for their worst monthly performance since January. And this does not mean that we have seen the end of Brexit related problems or fallout in financial markets.

 

Oil closed down almost 3% today but still posted its best quarter in 7 years. Back in January, West Texas Intermediate crude oil touched a 14-year low, falling below $27 a barrel. It gained about 26.1% for the second quarter, and trades roughly 30.5% higher year to date. Still, WTI has had a hard time cracking $50 a barrel, which seems to be the level that sees producers ramping up output.

 

Initial U.S. jobless claims rose by 10,000 to 268,000 for the week stretching from June 19 to June 25. Still, new claims remained below the key 300,000 mark for the 69th straight week, the longest streak since 1973.

 

The Senate passed and sent to the White House a relief measure to help Puerto Rico deal with its fiscal crisis, just two days before the territory planned to default on a large debt payment. President Obama said he will sign the measure. The rescue package will not prevent Puerto Rico from missing the $2 billion debt payment due on Friday, but the bill would bar lawsuits by creditors for nonpayment retroactive to December – an important provision in light of the imminent missed debt payment. The legislation would allow the island’s government to restructure its $72 billion total debt so that it can manage payments and create an oversight board to guide the recovery process; at least that is the theory. There will likely be further defaults in the not so distant future.


Nearly all of the largest U.S. banks
 are on steady enough footing to issue dividends or make share buybacks after passing the final round of the Fed’s annual stress tests. The US units of Deutsche Bank and Santander were the only lenders to fail for a second year in a row, meaning they cannot increase shareholder payouts until they establish a new plan. “Material weaknesses” were also seen at Morgan Stanley, but the Fed allowed the bank to proceed with a dividend hike and $3.5 billion buyback while it rectifies the issues.

 

After passing the Dodd-Frank stress tests, Wall Street banks announced their stock-buyback plans. Among the notables, JPMorgan will buy back $10.6 billion worth of stock, while Citi and Bank of America will repurchase $8.6 billion and $5 billion worth of shares. Goldman Sachs will also buy back shares, but it did not release an amount. All told, the 31 banks are planning to dish out about $96 billion.

 

Separately, the International Monetary Fund says Deutsche Bank is the riskiest financial institution in the world as a potential source of external shocks to the financial system: “Among the globally systemically important banks, Deutsche Bank appears to be the most important net contributor to systemic risks, followed by HSBC and Credit Suisse,” according to the IMF Financial Sector Assessment Program. The institution also said the German banking system poses a higher degree of possible outward contagion compared with the risks it poses internally.

 

What is the cost of being labeled a systemically important financial institution? In the case of General Electric, the magic number looks to be about $50 billion. GE officially shook off the designation on Wednesday that had been applied by the Financial Stability Oversight Council to its GE Capital finance unit. April last year, GE began selling off almost all of GE Capital’s assets, about $200 billion in sales. Since G.E. announced its plans to offload the financial side of the business, the company’s stock has added about $5.25 a share, or roughly $50 billion in overall market capitalization. G.E.’s stock is up more than 20 percent, even as the S&P 500 has gone nowhere; and while Morgan Stanley, Citigroup and Goldman Sachs have all lost more than 20 percent of their former value.

 

A federal appeals court threw out a $7.25 billion antitrust settlement among Visa, MasterCard and millions of retailers over credit card fees. The settlement was intended to resolve nearly a decade of litigation concerning whether Visa and MasterCard improperly fixed fees that merchants were charged when customers used credit or debit cards, also known as swipe fees. The settlement would have allowed Visa and MasterCard to impose higher and higher swipe fees. The 2nd U.S. Circuit Court of Appeals in New York said the accord was unfair to retailers that stood to receive no payments, and in the court’s view, little or no benefit at all. It also decertified the case as a class action. Circuit Judge Pierre Leval, a member of the three-judge panel that unanimously struck down the settlement wrote: “This is not a settlement; it is a confiscation.” The case could now be renegotiated or it could go to trial.

 

Looking to free up TV spectrum for cellular use, the FCC has acquired $86 billion worth of wireless airwaves from television broadcasters in the first phase of a complex auction. The agency hopes bidders will be willing to spend that much when it resells the airwaves in an auction that will start later this summer, but it may have to sell less spectrum than expected, or use multiple rounds to settle bidding by broadcasters.

 

The movie studio Lionsgate agreed to buy Starz, the premium cable channel home to hit shows like “Outlander,” for about $4.4 billion.

 

Theater chain Carmike Cinemas dropped today’s scheduled shareholder vote on its proposed sale to AMC Entertainment Holdings, saying it was adjourning until next month and throwing the $1.1 billion deal into doubt. The deal was opposed by some of Carmike’s biggest shareholders. Carmike said the adjournment was made at the request of AMC and that the special meeting will reconvene on July 15.

 

The big deal announced today comes from Mondelez International, a $23 billion offer for Hershey, the chocolate company.  Hershey said that Mondelez had offered to pay $107 a share in cash and stock, a premium of about 10 percent to Hershey’s closing stock price. Hershey said that its board had “rejected the indication of interest and determined that it provided no basis for further discussion between Mondelez and the company.” winning Hershey could prove tricky for Mondelez, since the smaller chocolate maker is effectively controlled by a charitable trust that owns about 81 percent of the company’s voting power. The Hershey Trust, established by Milton Hershey and his wife, Catherine, in 1905, has opposed takeovers of the company in the past. In 2002, the trust halted an auction of the company at the 11th hour as it was about to accept a $12 billion deal from Wm. Wrigley Jr. Company. News of the offer approach sent shares in Hershey up 16 percent, to $113.49, which is more than the offered amount. So, if Mendelez is serious, they will clearly have to sweeten the deal. (sorry, I couldn’t resist.)

 

The Justice Department has told Anthem its planned takeover of Cigna threatens competition and probably can’t be fixed by selling parts of their businesses. A decision on the $48 billion merger is expected by mid-July.

 

If you decide to just kick back for the Fourth, you might take advantage of the downtime to grab your mobile device and reset your passwords. Oculus VR CEO Brendan Iribe, is the latest, high-profile victim of a Twitter account takeover, and he allegedly used an old password. The hackers took over his Twitter account by posting: “Imagine creating the coolest s**t to ever be introduced to gaming and technology but using the same pass for 4 years lol… silly mr CEO.” It got worse from there.

 

Millions of U.S. travelers flying during the busy Fourth of July holiday weekend will face heightened security and increased delays due to the deadly attacks at Istanbul’s main airport. Following the Istanbul attacks, which took place outside security checkpoints, U.S. airports are likely to focus on surveillance and armed personnel in similar public spaces not subject to screening. The security measures are not limited to airports; look for more officers at July 4th celebrations as well. A record number of Americans, 43 million, are expected to travel between June 30 and July 4, according to AAA. The vast majority will go by car, AAA said, but 3.3 million are expected to fly.

 

 

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