Financial Review

More Records

…Record highs for the Dow, S&P 500, and Nasdaq. Job openings drop. No patch for Meltdown & Spectre. Target on target. No Bitcoin ETF. A brief history of government shutdown. Arpaio’s back. Here comes the rain.

Financial Review by Sinclair Noe for 01-09-2018

DOW + 102 = 25,385
SPX + 3 = 2751
NAS + 6 = 7163
RUT – 1 = 1560
10 Y + .07 = 2.55%
OIL + 1.21 = 62.94
GOLD – 6.30 = 1314.40


Record highs for the Dow, S&P 500, and Nasdaq. The S&P 500 has started the new year with a string of 6 record highs – the best start to a new year since 1964. The index has gone 387 sessions without a 5% drawdown, the second-longest stretch in the history of the index; the longest streak is 394 days…, so.


Job openings fell for a second straight month in November, with declines in the manufacturing and real estate sectors. The monthly Job Openings and Labor Turnover Survey, or JOLTS, released by the Labor Department, also found that layoffs dropped to a six-month low. Job openings, a measure of labor demand, fell by 46,000 to a seasonally adjusted 5.88 million, the lowest level since May. There was a slight drop in the number of people voluntarily quitting their jobs, leaving the quits rate unchanged at 2.2 percent for a third straight month. Since most people have to quit one job to take a new, hopefully better job – the quits rate is considered a measure of worker confidence in the labor market. It is great for the labor market to be near full employment, but if workers are staying put, then there is little pressure for employers to raise wages.


Meltdown and Spectre are two memory corruption flaws that could allow hackers to bypass operating systems and other security software to steal passwords or encryption keys on most types of computers, phones and cloud-based servers. Intel said last week that fixes for security issues in its microchips would not slow down computers. Rival AMD had also played down the threat, saying its products were at “zero risk” from the Meltdown flaw, but that one variant of the Spectre bug could be resolved by software updates from vendors such as Microsoft. Today, Microsoft said that patches released to guard against Meltdown and Spectre security threats slowed down some personal computers and servers, with systems running on older Intel processors seeing a noticeable decrease in performance. The security updates also froze some computers running AMD chipsets. So, for now, no more patches until they actually come up with a patch that works. Sorry.


Target raised its quarterly profit and sales forecasts on the back of solid online sales and customer visits in November and December, putting the second largest brick and mortar retailer in the US on track for the best quarter in five years. Target invested about $1 billion, mainly in its online business and delivery operations to try to compete against Amazon.  Target also hired more staff, remodeled existing stores and focused on building small-format stores to reach more customers in suburbs. Same-store sales rose 3.4 percent in November and December and that its online sales growth was on track to report its fourth straight year of more than 25 percent gains. Target raised its same-store sales growth forecast for the quarter ending January to 3.4 percent from a prior forecast of flat to up 2 percent earlier.


Piper Jaffray out with note, arguing despite its size and continued strong growth, Amazon is arguably still in the early innings of its market share gains, and raised its price target to $1400.


The race for the first bitcoin ETF has hit a regulatory speed bump. In the span of 18 hours, three prospective issuers withdrew requests at the SEC for approval to list exchange-traded funds based on the largest cryptocurrency. Direxion Shares ETF Trust said the regulator “expressed concerns regarding the liquidity and valuation of the underlying instruments” its proposed fund would invest in. The withdrawals are the latest setback for the financial industry’s push to bring bitcoin into the investing mainstream a month after the first futures contracts began trading.


JPMorgan CEO Jamie Dimon said today that regrets having called bitcoin a “fraud”. Back in September, Dimon said, “The currency isn’t going to work. You can’t have a business where people can invent a currency out of thin air and think that people who are buying it are really smart.” And of course, after those comments, we discovered that JPMorgan’s European trading desk was indeed buying into Bitcoin. Bitcoin soared. I’m guessing now, JPMorgan is looking to go short. Just a guess. Meanwhile, JPMorgan and Wells Fargo kick off earnings reporting season for banks on Friday.


Trump met with lawmakers from both parties at the White House today and indicated he’s willing to split immigration proposals into two stages, providing protections for young immigrants known as dreamers and increasing border security first, leaving tougher negotiations on comprehensive legislation for later. Trump said he would support a “clean” bill that provides a legislation fix to replace DACA, the Deferred Action for Childhood Arrivals, along with border security as part of a broader compromise on spending. He didn’t specify whether that meant his demands to restrict legal immigration, including family preferences and a visa lottery, could be deferred. Heading into the meeting, Democrats and Republicans were standing firm on their widely divergent positions on immigration and spending, threatening the chances for a deal to raise budget limits and to pass a stopgap funding measure to keep the government operating past Jan. 19.


A little history on why a budget deal might be tough. Set the way-back to 2011. Republicans in the House, led by Speaker John Boehner, refused to increase the debt limit without Congress taking action to address the national debt. (My, how times change.) The face-off, which put the United States at risk of defaulting on its debt, led to the Budget Control Act, which instructed Congress to find more than a trillion dollars in government spending cuts by the end of the year or risk a sequester, which cuts all discretionary programs — both defense and non-defense — across the board. Congress failed (some things never change), triggering automatic budget cuts in 2013 and imposing annual, more restrictive budget caps until 2021. Democrats and Republicans have repeatedly voted to raise the budget caps and give sequester relief, but those adjustments, which went through fiscal year 2017, have now expired.


Democrats have established a guiding principle in spending negotiations: If Republicans want more funding for defense, then Democrats want a one-for-one increase in non-defense funding, plus they want permanent protection for Dreamers, plus they don’t want to pay for a border wall. Maybe Mexico will step up with some money.  Democrats also want to see permanent funding for the Children’s Health Insurance Program, which covers nearly 9 million kids. Congress let CHIP lapse in October. Congress has been kicking the can on government spending negotiations since October 1 of last year, the start of the 2018 fiscal year, passing short-term continuing resolution spending bills to keep the government open. There’s already chatter about another CR to give Congress more time to strike a permanent 2018 spending bill, but continuing the 2017 spending levels would actually break the 2018 sequester caps, meaning passing a CR without increasing the sequester caps would result in a $6 billion total cut from defense and non-defense spending. Republicans need 60 votes in the Senate to increase the budget caps and keep the government open, meaning they need to get at least nine Democrats on board. So, the big question now is, who blinks first?


Joe Arpaio plans to run for Senate in Arizona. The 85-year old former Maricopa County Sheriff – who lost his job to a Democrat in 2016, was convicted of contempt for refusing to comply with a court order instructing his department to stop racial profiling, and was pardoned last fall by President Donald Trump in part because of his advanced age – will join the Republican primary to replace retiring Sen. Jeff Flake. The Republican primary was already shaping up to be a bitter contest. The field includes former state Sen. Kelli Ward, and will likely include US Rep. Martha McSally. The winner will likely take on Democratic Rep. Kyrsten Sinema this fall.


Look for heavy rain in the Phoenix area within the next 24 hours or so. We can say this with some certainty because the rain is hitting southern California, and hitting areas that just recently were battling wildfires. The combination rain and scorched earth has resulted in deadly mudslides, leading to the deaths of at least six people and triggering multiple water rescues. The 101 freeway was shut down in Santa Barbara County. A large swath of the state from San Diego to the Central Valley and east to the Sierra Nevada could see another 1 to 3 inches of rain today. The National Weather Service says that 1-1/2 inches could fall per hour Tuesday in Ventura and Santa Barbara counties — areas already affected by the Thomas Fire last month and other recent wildfires stoked by dry Santa Ana winds. Even if the steady rain dies down, flash flooding and debris flows will remain a threat for the next several hours.


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