Financial Review

Hangover

…Fed stands pat on rates. Oil enters bear market. Court rules DACA must continue. Mass shootings as a health issue. Earnings season: Disney, Roku, TripAdvisor and Hertz. Ford and VW talk alliance. Sears closing more stores.

Financial Review by Sinclair Noe for 11-08-2018

DOW + 10 = 26,191
SPX – 7 = 2806
NAS – 39 = 7530
RUT – 3 = 1578
10 Y + .02 = 3.23%
OIL – .90 = 60.77
GOLD – 2.60 = 1224.50

 

Stocks rallied yesterday, after the midterm elections. Today, not so much. The Federal Reserve wrapped up its policy meeting released its statement leaving the federal funds target range unchanged at between 2% and 2.25%, as had been widely expected. However, Fed officials did say in the statement that they expect “further gradual increases,” supporting analysts’ expectations of a fourth rate hike this year in December. In September, the Fed removed language that said its policy was “accommodative,” indicating that Fed officials see interest rates moving closer to a “neutral” setting that would support full employment and inflation running at the Fed’s 2% target. The Fed’s own interest rate forecast last updated in September indicated that one more rate hike would likely be appropriate in 2018. Policymakers, however, noted that business investment had “moderated from its rapid pace earlier in the year,” a possible drag on future economic growth. The Fed will make its final policy announcement of the year on December 18.

 

When new sanctions were announced against Iran, there was a concern that any cut in global supply of oil would push prices higher. Those new sanctions went into effect on Monday, but the price of oil is down for the last 9 sessions, and today oil prices moved into bear market territory, down 20% from recent highs. WTI is clinging to a gain for the year, up 0.5% in 2018. Energy stocks were the S&P’s biggest drag with a 2.2 percent drop

 

A U.S. appeals court in California ruled the Trump administration must continue a program begun under former President Obama that protects hundreds of thousands of illegal immigrants who were brought into the country as children. The decision preserves the Deferred Action for Childhood Arrivals (DACA) program introduced in 2012 that has shielded from deportation a group of immigrants dubbed “Dreamers” and has given them work permits, though not a path to citizenship. DACA currently protects roughly 700,000 young adults, mostly Hispanics, with the number previously as high as about 800,000 people. The three-judge panel unanimously upheld a federal judge’s January injunction maintaining the program, rejecting the administration’s claim that the decision to end DACA was not reviewable by the courts. The ruling was the first by a federal appellate court to review the merits of the decision to rescind DACA. Lawsuits both challenging and supporting Trump’s decision to end DACA have been working their way through the courts, making it likely the issue will wind up in front of the Supreme Court. Separately, the Trump administration just unveiled new rules that will restrict migrants’ ability to seek asylum at the Mexican border.

 

Last night 12 people were shot and killed at a bar in Sherman Oaks California, a suburb of Los Angeles; another 2 dozen were injured. Meanwhile, the Centers for Disease Control and Prevention released new figures showing gun deaths on the rise across the country. Doctors and medical officials have increasingly taken on gun violence as a public health issue. Last month, the American College of Physicians issued new guidelines for doctors to follow in helping protect patients from firearms dangers, and published several reports on gun violence in its flagship publication, the Annals of Internal Medicine. On Wednesday, the NRA took issue with the ACP, tweeting: “Someone should tell self-important anti-gun doctors to stay in their lane.” Doctors across Twitter piled back on.

 

Doctors have increasingly fought for more freedom to research gun violence and deaths and to speak to patients about the risks. In Florida, lawmakers sought to prevent doctors from asking about guns in the home but in 2017 a federal appeals court ruled against the law. And Congress had quietly limited CDC research into firearms violence using carefully worded legislation and budget cuts that precisely matched the CDC’s budget for such research. The CDC published new data today showing that gun deaths rose in 2015-16 after having started to fall in earlier years. The report says the rise in deaths is driven by both violent crime and by suicides.

 

The CDC report says more than 27,000 people were killed by guns in 2015-16 and nearly 45,000 people died by suicide using a firearm. During 2015–2016, homicide was the 16th leading cause of death among persons of all ages in the United States and the third leading cause among youths aged 10–19 years; a firearm injury was the underlying cause of death in 74 percent of all homicides and in 87 percent of youth homicides.

 

Walt Disney reported fourth-quarter earnings that beat expectations. Overall revenue rose 12 percent to $14.3 billion, driven by summer crowds at the company’s theme parks and big audiences for Marvel movie “Ant-Man and the Wasp.” Disney is trying to transform itself into a broad-based digital entertainment company as ESPN and its networks lose viewers to Netflix, YouTube and other streaming options. It is on the verge of gaining new film and television properties in a $71 billion purchase of assets from Twenty-First Century Fox, and it will pull its own film library from Netflix to launch Disney+ in 2019.

 

Tesla appointed current board member Robyn Denholm to replace Elon Musk as the chair of the board. Denholm’s appointment comes in the wake of a settlement between Musk and the SEC, which included terms requiring that Musk step down as chairman of the board for at least three years. Denholm, currently CFO of Australian telecommunications company Telstra, will head the electric car-maker as it faces pressure to improve its balance sheet and deliver on its promise of achieving long-term profitability. Shares of Tesla rose 0.93% to $351.40 each.

 

VW and Ford are in “exploratory talks” about an alliance to develop self-driving and electric vehicles and to complement each other’s global production and sales footprints. Ford has strong sales and profits in the United States thanks to its exposure to the lucrative pickup truck segment, while Volkswagen dominates the market for passenger cars in Europe. The companies are considering cooperation deals in the areas of commercial, electric and autonomous vehicles. Plans for VW’s electric car, known as “MEB entry” and with a production volume of 200,000 vehicles, are due to be discussed at a supervisory board meeting on Nov. 16. The November 16 strategy meeting will discuss Volkswagen’s transformation plan to shift from being Europe’s largest maker of combustion engine vehicles into a mass producer of electric cars.

 

In a separate announcement, Ford said it’s acquiring the scooter-sharing startup Spin, becoming the latest automaker to invest in electric scooters and bikes. Ford plans an aggressive expansion into over 100 cities in the next 18 months. San Francisco-based Spin launched a dockless bikesharing service just over a year ago, and pivoted to a scooter sharing business, which proved more profitable. It now operates in 13 cities and college campuses, and launches in Detroit today. But it hasn’t kept pace with rivals Bird and Lime, which have rapidly expanded, raised hundreds of millions of dollars and sometimes rankled cities with aggressive tactics. For Ford, the acquisition may protect it from a wave of new mobility options that threaten its core business of cars and trucks. It’s not the only automaker taking notice.

 

Earlier this week, GM said it will sell electric bikes next year. Daimler will launch a scooter-sharing pilot in a Southern European city this year. And last week Tesla CEO Elon Musk said his company might make an electric bike.

 

Roku shares slipped despite beating Wall Street’s expectations on the top and bottom lines in its latest earnings report. Revenue came in better than expected, and loss per share was three cents better than expected at 9 cents. Average revenue per user, however, came in weaker than expected, at $17.34 versus $17.44. Shares of Roku fell 22% to $45.74.

 

TripAdvisor shares rallied after the travel company posted earnings that beat Wall Street expectations. Net income was $69 million, or 49 cents per share, versus $25 million, or 18 cents per share from the same period last year. Adjusted earnings came out to 72 cents per share, beating consensus estimates of 47 cents. TripAdvisor’s stock advanced 15% to $66.93.

 

Yelp stock plunged 27 percent in the extended session after the company missed revenue expectations for the third quarter and also provided weak guidance. The company reported $241 million in revenue, while analysts were expecting $245 million. The company cited a slowdown in advertising account growth as a reason for its revenue miss.

 

Hertz shares rose as much as 16 percent in the extended session after the company released its third-quarter earnings report that beat the Street’s estimates. The car rental company reported earnings of $2.14 per share compared to the $1.71 analysts expected. Revenues came in at $2.76 billion for the quarter, while analysts had estimated $2.68 billion.

 

Sears Holdings plans to close 40 more stores early next year as it continues to slim its business and seeks to stymie losses under bankruptcy protection. Sears filed for bankruptcy on Oct. 15 with roughly 700 Sears and Kmart stores in operation. It announced at the time it would be closing 142 unprofitable stores and warned more closures could follow. The additional store closures come as Sears is still looking to formally secure the money it needs to stay in operation long enough until it can find a potential buyer to avoid liquidation.

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