…Stocks bounce back (somewhat). Thus spake Clarida. Amazon looks at a weak holiday season. Alphabet stumbles. Intel beats. Twitter loses users that did not exist. AK Steel hurt by tariffs. Saudis get away with murder. Simultaneous former presidential assassination attempts.
Financial Review by Sinclair Noe for 10-25-2018
DOW + 401 = 24,984
SPX + 49 = 2705
NAS + 209 = 7318
RUT + 31 = 1500
10 Y + .01 = 3.14%
OIL + .16 = 66.98
GOLD – 1.60 = 1232.80
New Federal Reserve vice chair Richard Clarida on Thursday said he’d support “some further” increase in interest rates as the best way to nurse the current U.S. recovery along while guarding against any jump in inflation. In his debut speech as the Fed’s second in command and the most recent appointee by President Donald Trump, Clarida said the economy showed signs of continuing to motor along, making it appropriate to continue to gradually raise interest rates that remain “accommodative,” or encouraging of spending and investment.
Clarida’s speech puts him squarely in the mainstream of Fed thinking, though he did hint that he may favor an earlier stopping point to the current cycle of rate hikes than some of his colleagues who see rates rising to a “restrictive” level of around 3.4 percent sometime in 2020. While growth is strong and may well have shifted into a higher permanent gear, particularly after data showing higher than previously estimated household savings available to support future spending, Clarida said it also may be the case that productivity is rising and that unemployment can fall lower than expected without producing inflation.
Amazon’s third quarter revenue and fourth-quarter guidance missed expectations. Amazon reported earnings per share of $5.75 on revenue of $56.6 billion. Analysts expected the company to report earnings of $3.14 per share on revenue of $57 billion. Revenue from Amazon Web Services, its cloud business, grew 46% to $6.7 billion. Amazon’s higher-margin cloud service business had $1.6 billion in operating income last quarter, making up 55% of the total. Shares of Amazon fell about 6% in after-hours trade, after getting hammered during the broader market sell-off this week. Amazon forecast disappointing holiday season sales, projecting its fourth-quarter revenue growth would be the slowest in years. Amazon forecast that fourth-quarter sales will rise between 10 percent and 20 percent, or up to $72.5 billion. Analysts were expecting $73.9 billion. That would be Amazon’s lowest quarterly sales growth since at least the start of 2016.
Alphabet missed analysts’ estimates for third-quarter revenue, while rising expenses trimmed its operating margin for the third straight quarter, fanning concerns about regulatory scrutiny. Its stock fell 4.7 percent. Separately, the New York Times has just published the results of a year-long investigation into Alphabet, making the case that Google and Alphabet have a track record of quietly handling credible sexual-misconduct allegations, while paying out and even celebrating the men responsible. The article includes several instances of misconduct by several high-profile executives. The man directly responsible for the payouts is, the Times shows, Larry Page, the co-founder and CEO of the company.
This is not just about rewarding the bad behavior of powerful men, but the ways in which this culture pushes women out and sidelines their careers. For years technology companies have argued that the reason for Silicon Valley’s dismal rates of women in technical and leadership positions is a training and competence problem, basically. There are simply not enough qualified women to occupy the leadership or board roles at tech companies. But who can read a story like the Times’ and maintain “the pipeline” is the problem with Google and other tech companies?
Google CEO Sundar Pichai sent an email to all Google employees Thursday saying the company has fired 48 people over the last two years for sexual harassment. Of those 48 people, 13 were “senior managers and above” and none of them got an exit package when they were let go.
Reacting after hours, Netflix dipped 1.9 percent and Facebook, which reports results on Oct. 30, lost 1.5 percent. The latest round of upbeat results came from a wide range of companies, including Ford Motor, Visa, Whirlpool and Twitter, and offered relief after the earnings season began on a tepid note and then geared lower on sluggish outlooks from manufacturers and chipmakers.
Twitter shares jumped as much as 22 percent, putting them on track for their biggest one-day gain, as the social media company easily beat Wall Street’s revenue and profit estimates by selling more ads even though it lost users after purging millions of fake accounts.
Snap stock shed more than 12 percent to an all-time low in extended trading Thursday after warning investors it will continue to lose daily active users. The company posted a narrower-than-expected loss for the third quarter, as the company offsets declining user counts with higher revenue per user.
AK Steel shares dropped as much as 15 percent in after-hours trade following third-quarter earnings that missed expectations. The company reported earnings of 21 cents per share on $1.74 billion in revenue. Those results fell short of analyst expectations for earnings of 23 cents per share on revenue of $1.81 billion. The steelmaker posted disappointing results despite Trump administration tariffs that were supposed to help companies like AK Steel.
Results from S&P 500 companies have pushed up third-quarter profit growth estimates to 23.6 percent from 21.8 percent in the last 10 days. But dour forecasts have pulled down fourth-quarter growth estimates to 19.4 percent from 19.9 percent.
Intel beat analysts’ estimates for quarterly profit and revenue, driven by its high-margin data center business and strong demand for its PC chips, sending its shares up as much as 6 percent in extended trading. The company’s performance and better-than-expected fourth-quarter forecast should come as a relief for investors after three days of grim news from other major chipmakers that have shaken stock markets globally. Texas Instruments, STMicroelectronics and SK Hynix have all warned of slowing demand for the remainder of the year. But Intel bucked the trend with strong sales of chips for PCs, the second quarter in the row the company benefited from the sector after years of stagnation because of the rise of smart phones. Intel does not see any near-term impacts from the trade tensions or Chinese economy, despite the fact that several large data center customers are based in China. Intel’s results also allayed concerns that a trade conflict between the U.S. and China or a slowdown in the Chinese economy could drag down the global chip business.
The Saudi government’s handling of the assassination of journalist Jamal Khashoggi has been incredible and unbelievable – as in, they are not believable or credible. About a week ago, the Saudi’s denied any involvement in the death of Khashoggi. Then they claimed the journalist left the consulate o his own accord; then they claimed he fell down, then they claimed he was involved in an accident; then he was part of a rogue incident; then he got into a fight which got out of hand. Saudi Arabia’s attorney general said today that evidence shared by Turkish officials suggests that the killing of writer Jamal Khashoggi was “premeditated.” Despite the shifting narrative, the Saudis have maintained that Crown Prince Mohammed bin Salman had no prior knowledge of the operation. So, you might reasonably expect that justice will now be served. Not exactly. More like business as usual. Saudi Arabia said it signed $56 billion of deals at an investment conference this week and expected the United States to remain a key business partner despite a partial boycott of the event over the killing of Saudi journalist Jamal Khashoggi.
There was concern that, temporarily at least, commercial ties with the West could be damaged as the blow to Riyadh’s reputation and the risk of economic sanctions over the Khashoggi murder made it harder to enter new deals. Still, the three-day Future Investment Initiative conference drew hundreds of businessmen and government officials from around the world to a palatial venue in Riyadh, aiming to attract foreign capital to support Saudi economic reforms. Germany is so far alone in halting arms sales to the world’s largest oil exporter. Other European countries have largely limited their reaction to calling for those responsible to be held accountable. Britain said on Wednesday it was joining the United States in revoking visas of people said to be involved. But so far, business execs seemed more concerned about losing potential revenue than they feared embracing a murderer. Henry Biner, an executive at the Boston-based P/E Investments, said that Khashoggi’s killing was “horrendous” but that there were wars and atrocities occurring across the Middle East and that the situation should not necessarily deter business ties. “One year from now, somebody is going to ask where the revenue is,” he said. “We’re not going to put our relationships on the line for this.” So, this week we had a chance to witness economics without a soul.
Following diplomatic talks with Russia, National Security Adviser John Bolton confirmed Trump’s plan to withdraw from the 1987 Intermediate-Range Nuclear Forces Treaty, which Trump alleges the Russians have violated. No word yet on what we got in return.
The hunt continues for whomever has been sending pipe bombs through the mail to prominent opponents of Trump. Ten explosive devices have been found so far but none of the packages has exploded. The latest bombs were addressed to former vice president Joe Biden and actor Robert De Niro. So, it is all very strange, nobody seems to know why the bombs are being made or who is behind this, but it appears to be the first time that we have ever seen simultaneous assassination attempts on two form president and one former VP.