Financial Review

It’s Different Because…

…Nasdaq record high. OPEC please pump more. China offers to buy more US goods. Mexico imposes tariffs on US good. ISM strong. More job openings than jobs. Social Security and Medicare wobbly. Judge tells Puerto Rico to reveal death toll from hurricane.

Financial Review by Sinclair Noe for 06-05-2018

DOW – 13 = 24,799
SPX + 1 = 2748
NAS + 31 = 7637
RUT + 11 = 1664
10 Y – .02 = 2.92%
OIL + .76 = 65.46
GOLD + 4.30 = 1296.80

 

The Nasdaq closed at a record high for the second day in a row with help from the technology and consumer discretionary sectors. The Nasdaq’s biggest boost was from Amazon.com, which rose 1.9 percent, also leading gains in the S&P consumer discretionary index. Apple rose 0.8 percent, contributing the biggest point gains to the technology index and the second biggest for the Nasdaq. The S&P 500 edged higher. Twitter jumped about 5%, after the Dow Jones announced the social media company would replace Monsanto in the S&P 500. Netflix will replace Monsanto on the S&P 100. The changes will go into effect prior to market open on Thursday, June 7. The Dow Industrials lost earlier gains and finished in the red.

 

With the Nasdaq at record highs, Goldman Sachs has issued a new report on tech stocks and the message is: don’t worry, be happy, no matter how high tech stocks have soared, there is no bubble, based, believe it or not, on fundamentals. And the fun is going to continue. According to the Goldman analysts, it’s different this time because… Unlike the technology mania of the 1990s, most of this success can be explained by strong fundamentals, revenues and earnings rather than speculation about the future. So tech will continue to dominate, they argue, as everyone will have to buy it, including retailers as they try to escape the brick-and-mortar meltdown by shifting to e-commerce. And then there’s the whole huge promise of AI.

 

WTI crude oil prices finished 1.2% higher, even after a report that the U.S. government had asked Saudi Arabia and other major exporters to increase oil output by about 1 million barrels per day. The U.S. walks away from the Iran (nuclear) deal, which pushes up oil prices and less than a month later, demands producers raise production OPEC meets in Vienna on June 22 to decide whether the group and non-OPEC producers, including Russia, should raise output to make up for any supply shortfall from Iran and Venezuela. Even though many on Wall Street continue to maintain that both OPEC and Russia are ready to step in and make up for any production shortfalls from Iran due to sanctions and Venezuela due to it massive problems, the reality is both want $80 a barrel oil, especially OPEC. They have made that abundantly clear. So it is by no means a given they will cut production at the meeting at the end of June.

 

According to The Wall Street Journal this afternoon, China has offered to purchase close to $70 billion worth of US goods over the next year if the Trump administration backs off proposed tariffs. The deal would include purchases of soybeans, corn, natural gas, crude oil, coal, and more. An earlier preliminary deal between the US and Chinese delegations also featured a planned Chinese purchase of US goods, along with a US promise to delay tariffs on $50 billion worth of Chinese goods.

 

Mexico hit back at the United States today, imposing tariffs on around $3 billion worth of American pork, whiskey, cheese and other goods in response to the Trump’s steel and aluminum tariffs. The Trump administration hit Mexico and Canada with 25 percent steel tariffs and 10 percent aluminum tariffs on June 1. The United States also imposed metals tariffs on the European Union, Japan and other countries as part of an effort to stop the flow of imported metals. That approach has only inflamed allies, including Canada and Mexico, which have threatened to strike back with their own targeted tariffs. The announcement of new tariffs in Mexico on US goods came as the Trump administration threw yet another complication into the talks to renegotiate NAFTA  by saying it wants to splinter discussions with Canada and Mexico and work on separate agreements rather than continue three-country discussions to rewrite the 1994 trade deal. Mexican negotiators insist they would not be willing to consider splitting negotiations, which they view as potentially damaging to North American supply chains and an unnecessary complication.

 

Service-oriented companies in the U.S. that employ most of America — hospitals, retailers, banks, high-tech developers — grew faster in May in another sign the economy is speeding up again. The Institute for Supply Management said its survey of businesses, excluding manufacturing, rose to 58.6 last month from 56.8 in April. The index is close to a 13-year high and posted its 100th consecutive month of growth.

 

Job openings rose to a fresh record in April and further exceeded the number of unemployed workers. Labor Department data showed the number of positions waiting to be filled increased by 65,000 to 6.7 million, according to the Job Openings and Labor Turnover Survey, or JOLTS. The prior month’s reading was revised up to 6.63 million from 6.55 million. It’s estimated that there are just 6.4 million available workers to fill those job openings. So, more job openings than workers. As the demand grows, workers have gotten more confident about leaving their current positions for better ones. The total “quits” rate has been nudging higher this year and was at 2.3 percent in April, the highest since 2005 and above the 2.1 percent rate a year ago and the 1.3 percent bottom set in 2010. Meanwhile, wages remain stagnant. If employers want to fill these 6.7 million job openings, they are either going to have to raise wages or find more clever and creative ways to recruit workers off the sidelines.

 

About four in ten people who’ve gone to college have taken out loans to pay for school. Women hold nearly two-thirds of all student debt in the US, according to a report from the American Association of University Women. Part of the reason is that more women go to college. They represented 56% of students enrolled in the fall of 2016. More women take out loans, and when they do, they borrow more money. The average woman owes $2,740 more than a man upon finishing a bachelor’s degree. Women are also repaying their debt more slowly, which can mean they’re paying more in interest over time. Americans owe $1.5 trillion in student loans. Outstanding student debt currently exceeds auto loan debt ($1.1 trillion) and credit card debt ($977 billion). Among those who finished a bachelor’s degree in 2016 with debt, the average amount was $28,400.

 

For companies trying to lure and retain workers now that unemployment is near an 18-year low, student loan repayment programs offer a way to specifically target millennial workers who are saddled with student debt. Only about 4% of companies offer student loan repayment assistance. The way most programs work is that employers make a regular contribution to the loan balance, typically $100 a month, while employees continue to make their regular payments. Employees save money on both the balance and the interest they would have paid on a longer loan term.

 

Voters head to the polls in California, Montana, Alabama, Iowa, Mississippi, New Jersey, New Mexico and South Dakota.

 

Senate Majority Leader Mitch McConnell has canceled most of the Senate’s August recess to give lawmakers time to pass spending bills before a Sept. 30 deadline and to confirm more Trump appointees.

 

Wells Fargo is selling all of its branches in Indiana, Michigan and Ohio. Wells Fargo, the second-largest bank in the country, will no longer have a retail presence in those states. Flagstar Bancorp, a savings and loan, is buying the branches — 52 in all, including four of Wells Fargo’s locations in Wisconsin. All told, about $2.3 billion in deposits will leave Wells Fargo. The company said that all 490 employees will get offers to work at Flagstar. Flagstar said it agreed to pay a 7% premium for the deposits it is acquiring. That implies a purchase price of just under $2.5 billion. The deal is expected to close in the fourth quarter.

 

Both Social Security and Medicare are facing an uncertain future, unless lawmakers take action. The financial problems plaguing the two programs were revealed in an annual government assessment published today. Over 62 million people are receiving Social Security benefits, with an average monthly payment of $1,294. Nearly 60 million people are on Medicare. The two programs account for “about 40 percent of government spending.” In 16 years, (2034) Social Security funds could be depleted (which was also reported last year.) Medicare’s main fund for hospital and nursing care will run dry in 8 years (2026). It should be stressed that the reports don’t indicate that benefits disappear in those years. After 2034, Social Security’s trustees said tax income would be sufficient to pay about three-quarters of retirees’ benefits. Congress could at any time choose to pay for the benefits through the general fund.

 

A superior court judge in San Juan has ordered the government of Puerto Rico to release detailed data on every single death recorded on the island since Hurricane Maria made landfall in late September. The data could provide much-needed insight into the true death toll from Hurricane Maria. The official death toll is 64, despite growing evidence that the number of people who died in the storm’s aftermath is in the thousands. A recent Harvard study published in the New England Journal of Medicine estimated that upward of 4,645 people died as a result of Hurricane Maria, mainly from the lack of electricity and medical care after the storm. Then on Friday, Puerto Rico’s Health Department said 1,397 overall deaths were reported from September to December in 2017 that might be linked to the storm.

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