…..Record highs for S&P and Nasdaq. Surviving Wannacry. Oil pops. OPEC may extend cuts. Saudis may invest in US infrastructure. Homebuilder confidence high. Thermo Fisher buys Patheon. Moody’s buys Bureau van Dijk. Amazon IPO 20th anniversary. Who will they crush next? Waymo beats Uber in court, then teams up with Lyft. Philly sues Wells Fargo.
Financial Review by Sinclair Noe for 05-15-2017
DOW + 85 = 20,981
SPX + 11 = 2402 (record)
NAS + 28 = 6149 (record)
RUT + 11 = 1393
10 Y + .01 = 2.34%
OIL + .98 = 48.82
GOLD + 2.70 = 1231.40
The S&P 500 and the Nasdaq hit record highs today. Profits from S&P 500 companies surged by 14.9% during the first quarter, the fastest rate since 2011, according to CFRA Research. That’s a far cry from the earnings decline of nearly 7% experienced at the start of 2015. Roughly three-quarters of the 450 or so S&P 500 companies that have reported results this season have beaten profit expectations, the highest rate since 2010. The S&P 500’s price-to-earnings ratio of 17.5 remains well above the 10-year average of 14, but below the 13-year highs experienced earlier in the year. The energy, tech, financials and materials sectors – enjoyed stellar growth of 20% or more during the first quarter.
On Friday, a major piece of malware hit the web, and throughout the weekend infected hundreds of thousands of computers around the globe. The software, called WannaCry 2.0, is what’s known as ransomware. A type of malware that burrows into your computer, ransomware encrypts the files on your machine, keeping you from being able to access them. The malware’s creator then asks that you to pay a fee to unlock your data. The first round of the WannaCry 2.0 attack seems to have passed. But chances are the creator, or some other hacker, will repurpose the malware and send it back into the wild again. Ransomware doesn’t just pop up on your computer by magic. You actually have to download it. And while you could swear up and down that you’d never be tricked into downloading malware, cybercriminals get plenty of people to do just that. Beyond that, make sure your system is up to date, back up your files, don’t stay connected to the cloud or unnecessarily connected to the internet. And finally, never pay the ransom.
Major oil-producing nations have struggled of late to bolster oil prices, as inventories piled up and crimped the potential for demand. Prices dipped below $44 a barrel this month, their lowest level in more than a year. For years, Saudi Arabia and other nations in OPEC were often able to easily prop up prices. But their clout has ebbed as new players like American shale producers came into the market and the growth in demand for oil slowed. Saudi Arabia and Russia said an agreement to cut oil production should be extended by 9 months. Production cuts agreed by OPEC and other major producers are set to expire at the end of June. But both Saudi Arabia and Russia said they would work to convince other countries to extend the cuts until the end of March 2018. Oil hit its highest in more than three weeks. The oil majors, Exxon and Chevron moved higher. We aren’t really seeing a significant correlation between oil prices and the broader market, but the move in oil stocks helped give a boost to an otherwise quiet market. The 13 members of the Organization of the Petroleum Exporting Countries are due to meet on May 25 to discuss the extension. That does not mean it is a done deal. There is disagreement among the ranks. Iran and Iraq do not want to reduce their production. The Saudis will not make cuts on their own. In the short term, large amounts of crude remain unsold and in storage. Saudi Arabia and Iran, in particular, have been selling some of those stores, blunting the impact of the cuts. In the longer term, the Saudis may be making the situation easier for US shale producers by agreeing to rein in output for such a long time.
Saudi Arabia is planning to cement ties with President Trump by investing $40 billion in US infrastructure development. The kingdom’s sovereign wealth fund is set to announce the plans which may be unveiled next week to coincide with Trump’s visit to the kingdom. Trump will be making his first foreign trip since taking office on 19 May, visiting Saudi Arabia and Jerusalem then heading to Europe. The program would potentially be worth $200 billion in direct and indirect investment in the next four years. Trump has said he intends to push for $1 trillion in US infrastructure investments over the next decade, with $200 billion coming from taxpayers and the rest from the private sector.
The National Association of Home Builders and Wells Fargo said on Monday their index of builder confidence in newly built, single-family homes climbed to 70 points from 68 in April. NAHB said the report shows that builders’ optimism in the housing market is solidifying, even as they deal with higher building material costs and shortages of lots and labor. Builder confidence is a reasonably good predictor of housing starts, the process of breaking ground on a home. Housing starts have run at about a 1.2 million pace for the past several months. Total starts and single-family only are about 64% of their long-run averages.
Also the New York Federal Reserve said its barometer on business activity in New York state unexpectedly fell in May, putting it into negative territory for the first time since October.
Thermo Fisher Scientific has agreed to acquire Patheon for $35 a share, or $7.2 billion including $2 billion of net debt. Thermo Fisher is involved in research and laboratory services; they make electron microscopes and DNA sequencing machines. Patheon offers development and manufacturing services to biopharmaceutical companies; they make the drugs and chemicals. Patheon shares jumped 34% on the news.
Moody’s will buy Dutch business intelligence company Bureau van Dijk for $3.2 billion. Moody’s said the deal, which is expected to close late in the third quarter, will be funded through cash held offshore and new debt financing.
Amazon.com went public exactly 20 years ago as an unprofitable online bookstore that was just three years old. If you had invested $1,000 in Amazon, and held it, you would now hold about $638,000 worth of stock. Admittedly, it did not look like a good investment 20 years ago, and price has been on a rollercoaster. And if you are wondering which sector Amazon will crush next, consider furniture and appliances. Amazon plans to build at least four massive warehouses focused on handling the bulky items that trucking companies sometimes call ugly freight and parcel carriers see gumming up their operations. Furniture is one of the fastest-growing segments of online retail, growing 18% in 2015, second only to groceries, and some 15% of the $70 billion US furniture market has moved online. Players are struggling to get the market right, however. Delivering couches and dining sets is more complicated and expensive than handling conventional parcels, and that may provide a fresh challenge to Amazon’s budding self-controlled logistics network.
Sears Holdings’ CEO Eddie Lampert vowed to fight back against suppliers trying to take advantage of his company, saying that “dire predictions” about the retailer’s future have hurt its position with vendors. Lampert says Sears has been working with suppliers to ensure that their level of credit risk is “both affordable and appropriate,” but some vendors have tried to capitalize on its situation.
Driverless car maker Waymo—owned by Google’s parent company Alphabet—has shown “compelling evidence” that its “former star engineer” stole more than 14,000 confidential files. A federal judge said in a ruling made public today, that engineer, Anthony Levandowski, joined Uber last summer to lead its self-driving car efforts and he is now barred from working on “lidar” technology for Uber. It also instructs Uber to return the “pilfered” files by May 31 at noon. Waymo sued Uber in February, alleging theft of trade secrets and, in particular, its in-house lidar, the technology that allows a self-driving vehicle to “see.” It later upped the ante and said Uber colluded with Levandowski to steal proprietary information.
Meanwhile, in a separate announcement, Waymo, the self-driving car unit that operates under Google’s parent company, has signed a deal with the ride-hailing start-up Lyft. Lyft is the arch-rival of Uber, and Alphabet-Google is a ticked off at Uber right now, so a Waymo-Lyft deal is a union formed out of shared loathing for Uber. The deal calls for the companies to work together to bring autonomous vehicle technology into the mainstream through pilot projects and product development efforts.
The deal was confirmed by Lyft and Waymo.
The City of Philadelphia has sued Wells Fargo, accusing the largest US mortgage lender of intentionally steering minority borrowers into higher-cost home loans than it offered white borrowers. In a complaint filed in Philadelphia federal court, Philadelphia faulted Wells Fargo’s “long history” of “redlining” in Philadelphia, and said the bank’s practices reflected a “total breakdown of appropriate internal controls” similar to its recent creation over unauthorized customer accounts. The city alleges that Wells Fargo pushed minorities into riskier loans with higher rates, even in cases where the borrowers had credit profiles that would have qualified them for lower-rate loans. The complaint charges that the problem has been ongoing since 2004 and is a violation of the Fair Housing Act, and comes in the wake of an important Supreme Court decision on the legislation. On May 1, the high court ruled that Miami could sue Bank of America for predatory lending practices that increased segregation. Philadelphia City Council recently voted to change handlers of its $2 billion payroll account, switching from Wells Fargo to Citizens Bank.