Financial Review

Not Yet

…Down week for stocks. Brexit is complete chaos. No deal with China. Fed’s Clarida can see neutral. Florida’s hand recount. Floridians re-enfranchised. Acosta gets a pass. Pfizer hikes drug prices.
Financial Review by Sinclair Noe for 11-16-2018

DOW + 123 = 25,413
SPX + 6 = 2736
NAS – 11 = 7247
RUT + 3 = 1527
10 Y – .04 = 3.07%
OIL + .37 = 56.83
GOLD + 8.10 = 1222.10


The S&P 500 fell 1.6 percent this week, while the Dow Jones Industrial Average and Nasdaq Composite both declined more than 2 percent. Technology, the biggest sector in the S&P 500 by market cap, was the second-worst performer this week, falling 2.5 percent. The sector dropped following a 5.4 percent decline in Apple. Wall Street analysts worry iPhone sales will slow down. Tech-related shares like Amazon and Netflix were also down 7 percent and 5.7 percent, respectively. Sharp losses in Nvidia dragged down the chips sector and the overall tech sector. Retailers were also down sharply this week. The SPDR S&P Retail ETF (XRT) pulled back 4.5 percent this week as Black Friday approaches. Shares of Nordstrom and Williams-Sonoma fell 13.7 percent and 11.2 percent on Friday, respectively, as their quarterly reports disappointed investors.


Stocks moved higher today after Trump said China wants to make a deal on trade. That announcement helped push the Dow Industrials up about 200 points. But White House officials immediately after Trump’s remarks warned that people should not read too much into those claims, because there is no sign of a deal coming soon.


This week, British Prime Minister Theresa May unveiled the draft of a deal she had struck with European Union negotiators on Brexit — the UK’s process of leaving the EU. Shortly thereafter, the British political system collapsed into complete chaos. Now, nobody really knows what Brexit will look like. It might not even happen at all. The pro-Brexit camp in May’s Conservative Party has long been split between two sides. Advocates of a “hard Brexit” want to completely sever ties with the EU, separating British law from European law on topics ranging from trade to migration to product regulation. Advocates of a “soft Brexit,” by contrast, want to maintain some of these ties — arguing that a complete separation from the EU’s common market would be disastrous for Britain’s economy and political stability.


The agreement May released on Wednesday is definitively a soft Brexit. The deal has a provision that could keep the UK in the EU customs union (the system setting common trade rules for all EU members) indefinitely. This is designed to avoid a crisis over Northern Ireland, which is part of the UK but wants to retain an open border with neighboring EU member Ireland. On Thursday, May went to Parliament to defend her deal, and was literally laughed at by the assembled MPs. So, as of this morning, everything related to Brexit is a hot mess. Nobody knows if there are enough votes in Parliament to approve May’s Brexit deal. If the vote fails, May might well fail with it. If the deal fails to pass Parliament, there are generally two options: a no-deal Brexit, which would devastate the UK economy, and a nationwide “second referendum” that would basically revisit the question of whether Britain wants to leave the EU at all. The expectation is that British voters, given another chance, would vote to end Brexit.


Federal Reserve Vice-Chairman Richard Clarida says the Federal Reserve is close to the point of being “neutral” on interest rates and should predicate further increases on economic data. Fed Chairman Jerome Powell helped stoke market volatility in mid-October when he said the central bank remains “a long way” from neutral, an indication that it would be more aggressive with policy than investors had anticipated. With his comments today, Clarida becomes the second central banker in as many days to suggest that neutral isn’t so far away. Atlanta Fed President Raphael Bostic, in a speech delivered in Barcelona, that the federal funds rate is not too far from neutral. Clarida’s remarks continued the process of softening the Fed’s message, emphasizing the need for the Fed to be data-dependent as interest rates move close to the lower end of the range of estimates for the neutral rate. While Powell’s comments helped rankle markets, Clarida said “there is no clear signal” from the markets about the direction of the economy. He also defended the Fed’s actions from criticism that it is moving too quickly with rates and could harm the momentum seen over the past two years.


Florida election officials ordered a hand recount of ballots in the tight race between Democratic U.S. Senator Bill Nelson and his Republican challenger, Governor Rick Scott. Nelson trailed Scott by about 12,600 votes, or 0.15 percent of the more than 8 million ballots cast following an electronic recount. Under state law, the Florida Department of State must trigger a manual recount if an electronic recount of ballots finds a margin of victory of less than 0.25 percent in the race. Elections officials were expected to inspect by hand any ballots that were designated undervotes or overvotes, cases where the machine that reviewed the ballot concluded that a voter had skipped a contest or marked more than one selection. If the voter’s intentions are clear on review by a person, the ballot could be counted.


The mid-term elections in Florida featured some momentous races, including razor’s-edge counts in the Senate and governor’s contests. But another important measure on the ballot on November 6th drew the support of nearly 65% of Florida voters: an amendment to the state constitution lifting a permanent ban on voting by anyone with a criminal record. Amendment 4 restores voting rights to approximately 1.4m whose crimes have kept them away from the polls after they have served their sentences. The move means that the potential electorate in Florida will grow by about 10%, including more than 400,000 re-enfranchised African Americans. Because formerly incarcerated people tend to vote for Democratic candidates, the move could prove helpful to the party in close races. Before November 6th, Florida was one of just three states to impose a lifetime ban on felons exercising the franchise. With the passage of Amendment 4, Iowa and Kentucky are now the sole remaining states to do so.


Voter disenfranchisement, and specifically voting restrictions on former felons, takes a disproportionate toll on communities of color and is an institutionalized form of discrimination. In Florida, nearly 20 percent of black voters were kept from the polls because of the state’s felony restrictions. In America, nearly 6 million former felons have been kept out of the voting booth. Black men are affected by voter disenfranchisement at a rate that is seven times higher than any other group. Despite Florida’s expansion, the right to equal suffrage is far from realized — Iowa and Kentucky still disenfranchise former felons for life, in addition to partial restrictions in several other states, leaving millions without the right to equal suffrage across the country.


The House of Representatives passed bipartisan criminal justice reform legislation this week.  Trump says he is ready to sign the legislation. But Mitch McConnell says the senate will not consider reforms this year.


The Supreme Court said this morning that it would hear a case concerning whether Commerce Secretary Wilbur Ross can be questioned about his reasons for adding a citizenship question to the 2020 Census. The case will be one of the most closely watched of the term. Eighteen states and more than a dozen cities have sued the administration over the question, alleging that it will lead immigrant populations to be systematically undercounted. The justices said earlier this month that a trial in New York testing the legality of the question could move forward, but they temporarily blocked Ross’s deposition in the matter.


Trump says he plans to nominate Andrew Wheeler, acting head of the Environmental Protection Agency, to be the EPA’s Senate-confirmed administrator. Before becoming administrator, Trump will have to submit Wheeler’s nomination to the Senate. A majority of senators would then need to confirm Wheeler. Wheeler became acting administrator in July, when then-EPA chief Scott Pruitt resigned in the wake of numerous spending and ethics scandals. Wheeler at the time was the EPA’s deputy administrator, a Senate-confirmed position he assumed in April. Wheeler has brought a quieter voice than Pruitt to the EPA and has avoided the nearly constant scandals that dogged Pruitt in his final six months in office, but he has still aggressively pursued a deregulatory agenda. Before working for the government, Wheeler was a lobbyist and lawyer for energy companies such as coal mining giant Murray Energy; similar to giving the keys to the vault to a bank robber.


A federal judge has ordered the Trump administration to reinstate press credentials for Jim Acosta, CNN’s chief White House correspondent. U.S. District Judge Timothy Kelly, who was appointed to the bench by President Trump, granted CNN’s request to restore the press pass for Acosta, giving him regular access to the White House grounds to cover events and press conferences.


Trump told reporters in the Oval Office he personally wrote his answers to written question from special prosecutor Robert Mueller, a critical step in the ongoing probe into Moscow’s interference in 2016 and possible ties to the Trump campaign. But those answers have not yet been submitted. Rudy Guilliani, Trump’s personal attorney indicated that not all questions were completed. The delay in turning them in indicates Trump is still consulting with his legal team.


Pfizer will increase the list prices of 41 medicines by 5 percent starting Jan. 15. The drugmaker agreed in July to defer price increases for the rest of 2018 after Trump publicly shamed the company on Twitter, writing that it was “taking advantage of the poor” by raising prices “for no reason.” But just two weeks into the new year, Pfizer will raise prices for 10 percent of its drug portfolio by 5 percent, except for three products that will increase in price by 3 percent and another product that will increase by 9 percent. Pfizer said it will give bigger discounts on the drugs to insurance companies to offset the increases in list prices, and it expects those savings to be passed on to patients.

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