Financial Review

May Day

…Stocks still in correction territory. Apple beats. Facebook matches and will clear history. Tariff exemptions extended, maybe sorta. ISM manufacturing dips. Home price jump. Gibson BK. #redforEd Day 4.

Financial Review by Sinclair Noe for 05-01-2018

DOW – 64 = 24,099
SPX + 6 = 2654
NAS + 64 = 7130
RUT + 8 = 1550
10 Y + .04 = 2.98
OIL – 1.12 = 67.45
GOLD – 11.30 = 1304.60

 

Stocks cratered in early trading then moved higher into the close; enough for the Nasdaq to post a solid gain, although the Dow Industrials still closed in the red.  The S&P 500 and the Dow slipped into correction territory back on February 8 ( a correction being a decline of 10% or more from recent highs). As of Tuesday, the S&P 500 index is off about 8.5% from its recent peak, while the Dow is 10.4% shy of its late-January record, and the Nasdaq Composite is off 7.7% from its recent record, put in on March 12. The Nasdaq is not in correction territory. While it fell more than 10% from its peak on an intraday basis, it hasn’t closed below that level. So, technically, the S&P and Dow are still in correction territory, and they have been in correction territory for 57 trading sessions – the longest streak since May 1, 2008. After a regular string of record high closes in 2017, the Dow Industrials have now gone 65 sessions without hitting a record. That’s a long time without milk and cookies.

 

There were more solid earnings reports today. Of the S&P 500 companies that have reported thus far, 80 percent have posted better-than-expected earnings, according to Thomson Reuters. Merck, Pfizer, Aetna, and Archer Daniels Midland all reported stronger-than-forecast results during today’s trading session. The rally into the close probably gained steam from Apple, which reported after the closing bell.

 

Apple reported quarterly earnings and revenue on Tuesday that beat expectations but sold fewer iPhones than expected. Shares rose as much 5 percent after hours. Adjusted earnings per share came in at $2.73, beating estimates of $2.67. Revenue of $61.1 billion beat estimates of $60.8 billion.  And Apple raised its fiscal third quarter guidance. While Apple’s iPhone sales were slightly softer than expected, the company managed to make more money than forecast with its services business. Services revenue hit $9.1 billion during the quarter. Apple announced a plan to return $100 billion to shareholders in a massive stock buyback. Apple said it would be increasing dividends 16 percent to 73 cents per share. Apple has steadily increased its dividends since its 2014 stock split.

 

Facebook is holding its annual F8 developers conference and CEO Mark Zuckerberg announced Facebook is launching a dating feature. The opt-in feature will match users specifically with people they aren’t already friends with. Facebook users can build a dating profile — which friends won’t be able to see. The dating feature is likely to be a free service, at least for now. Shares of online dating company Match plunged 22 percent on the news. Its parent company IAC dropped almost 18 percent. The F8 conference, often an opportunity to announce new developer tools or hardware, comes amid a broader discussion of policy and privacy for the company. Facebook for months has been dealing with the fallout of the Cambridge Analytica data leak and questions of user privacy — a firestorm set off by reports that an app developer mishandled sensitive user information. Facebook users will soon be able to clear their browsing history on the social network. That won’t happen for at least a few months. Once the update is rolled out to users, they will also be able to see information about the apps and websites they’ve interacted with that use Facebook’s ads and analytics tools. Users will be able to remove this information from their account, too. Facebook also suddenly began offering users an option to flag every post in News Feeds and elsewhere as hate speech. The feature appeared on desktop, but not on mobile. The question “Does this post contain hate speech?” started appearing under all posts. If users clicked yes, they could give feedback on the post. That was an inadvertent rollout, and the feature has been disabled until it goes through further testing.

 

Tariffs on steel and aluminum were scheduled to take effect today on imports from Canada, the largest U.S. supplier of steel and aluminum, as well as Mexico, Argentina, Australia, Brazil and the EU. At the last minute, the administration announced exemptions until June 1. That has given the whole bunch something to cheer about, with the notable exception of the European Union.  The White House said it has reached agreements to permanently carve out three of the countries that got exemptions — including Argentina, Australia, and Brazil — and will finalize details soon. South Korea likewise has nailed down terms waving off the steel tariffs as part of a retooled bilateral trade pact. But leaders of Canada, Mexico, and the European Union need to sweat through another month of heat from Washington, as the Trump administration presses them for more concessions.

 

Factory activity slowed for a second straight month in April, with manufacturers complaining about rising commodity prices in the wake of the Trump administration’s tariffs on steel and aluminum imports. The Institute for Supply Management (ISM) survey also showed shortages of skilled workers, which together with the proposed import tariffs were causing bottlenecks in the supply chain. Rising raw material costs are the latest indication that inflation pressures are building and could attract the attention of Federal Reserve officials who began a two-day policy meeting on Tuesday. Data on Monday showed a jump in annual inflation rates in March. In addition, wages grew at their quickest pace in 11 years in the first quarter. The ISM said its index of national factory activity dropped to a reading of 57.3 last month from 59.3 in March. A reading above 50 in the ISM index indicates growth in manufacturing, which accounts for about 12 percent of the U.S. economy.

 

Home prices surged 7 percent higher in March compared with a year ago, according to CoreLogic. That is the biggest gain since May 2014. All 50 states saw home values increase, and prices are now higher than they were at the peak of the last housing boom, although that does not account for inflation. Prices are seeing the biggest gains at the lower end of the market, where supply is leanest. Sales of homes priced under $100,000 fell more than 20 percent in March, according to the National Association of Realtors, not because there wasn’t demand, but because there was not enough supply. Corelogic says that more than half the markets are overvalued, meaning affordability is a growing problem. Las Vegas and San Francisco posted double digit price increases over the past 12 months. In Arizona, home prices were 6.9% higher in March compared to a year ago.

 

Gibson Guitars has filed for Chapter 11 bankruptcy. The company has at least $100 million of debt, and perhaps as much as $500 million. It will liquidate its consumer electronics business, which sells headphones, speakers and accessories, while reorganizing its musical instruments and professional audio business, which has been more stable. In addition to its guitar business, Gibson owns famous brands such as Baldwin pianos and Wurlitzer, which is known for its pianos, organs and jukeboxes.

 

A red sea of Arizona’s public school teachers and their supporters marched again today on the state Capitol in Phoenix, voicing their dissatisfaction over pay and educational funding. The first teacher walkout in the state’s history began last Thursday and is now in its fourth day. The Arizona Education Association tweeted that 50,000 people participated in the rally on Monday. Arizona Educators United wants a 20% raise for teachers by next school year and yearly raises after that until teacher salaries reach the national average. The group also wants Arizona to restore education funding to 2008 levels. Gov. Doug Ducey released a letter to teachers and parents, saying the state was “very close” to passing a budget deal raising teacher pay. But still no actual legislation under the copper dome.

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