Financial Review

Off Track

…Waiting on tariffed announcement. Suadis pick Lucid over Tesla. Benioof buys Time. Cigna-Express Scripts OK’ed. Coke is dope. More NAFTA talk. Brexit May’s way or no way. Kavanaugh off track. Flo still dangerous.

Financial Review by Sinclair Noe for 09-17-2018

DOW – 92 = 26,062
SPX – 16 = 2888
NAS – 114 = 7895
RUT – 18 = 1703
10 Y + .01 = 3.00%
OIL – .08 = 68.83
GOLD + 8.00 = 1202.10

Wall Street had a case of tariff jitters today. The Dow Industrials dropped for the first time in 5 sessions. The Nasdaq had its worst day since July 27.

Stocks closed lower on word that the White House would announce additional tariffs on $200 billion worth of Chinese imports after the closing bell. China is the source of more than half of U.S. imports of the products on the $200 billion list, so alternative suppliers will be hard to find. If the tariff rate is set at only 10%, the impact will also be largely offset by the renminbi’s 6% fall against the dollar since the middle of June. Still, that could be enough to ding GDP by one-half to one percentage point. And the trade war could escalate. The Global Times, which is published by the ruling Communist Party’s People’s Daily, wrote in an editorial: “It is nothing new for the U.S. to try to escalate tensions so as to exploit more gains at the negotiating table.” Adding, “We are looking forward to a more beautiful counter-attack and will keep increasing the pain felt by the US.” Besides retaliating with tariffs, China could also restrict export of goods, raw materials and components core to U.S. manufacturing supply chains.

 

Not only have tech stocks have a really nice run in 2018—meaning the prices are a bit rich and it’s natural to see a giveback—but they’re international stocks with a lot of international exposure. A good chunk of their profits come from overseas markets, and that’s being impacted with the tariff talk. All five of the FAANG stocks were lower today. Apple shares briefly trimmed some losses Monday after a report from Bloomberg that the Apple Watch and AirPods will be spared from the latest round of proposed tariffs on China.

 

Oracle shares fell almost 5 percent in extended trading after the company reported fiscal first-quarter sales that missed analysts’ estimates.

 

Also, FedEx reported quarterly profit that missed Wall Street estimates. Revenue rose almost 12 percent and beat estimates, but net profit jumped 40 percent, missing estimates. FedEx shares dropped over 2% in after-hours trade.

 

Time Magazine is being sold by Meredith Corp. to Marc Benioff, a co-founder of Salesforce, and his wife for $190 million in cash. The Benioffs are purchasing Time personally, and the transaction is unrelated to Salesforce.com, where Benioff is chairman and co-CEO and co-founder.

 

Rememberr how Elon Musk said he had talked to Saudi Arabian investors about taking Tesla private? Well, the Saudis may have found a different electric car company to invest in. Lucid Motors, the electric car startup that aims to compete with Tesla, will receive $1 billion in funding from Saudi Arabia’s sovereign wealth fund. The investment will finance Lucid Motor’s 2020 commercial launch of its first electric vehicle, the Lucid Air. Meanwhile, Tesla’s stock dipped by as much as 2 percent in early trading on news of the investment.

The Department of Justice has cleared Cigna’s $52 billion acquisition of Express Scripts. Shareholders voted to approve the merger last month. The companies expect to close the deal by the end of 2018. The Justice Department’s review of another major healthcare merger, CVS’s proposed acquisition of Aetna, has taken longer because of potential divestitures but could conclude this month.

 

The rise in teenagers using e-cigarettes has alarmed health officials who worry kids will get addicted to nicotine and be more likely to try cigarettes. Last week, the Food and Drug Administration gave the five largest e-cigarette makers 60 days to produce plans to stop underage use of their products. But nicotine isn’t the only thing getting vaped. According to a new report in the journal JAMA Pediatrics, nearly 9 percent of students surveyed in 2016 said they used an e-cigarette device with marijuana. That includes about one in every 3 e-cigarette users.

 

Bloomberg reports that Coca Cola was in talks with Canada’s Aurora Cannabis to develop drinks infused with CBD, the non-psychoactive chemical found in marijuana. The CBD products likely would be different from those produced by alcohol makers, which would likely give drinkers a buzz from THC, the main psychoactive chemical in marijuana. The CBD drinks would likely aim to ease inflammation, pain and cramping. Aurora’s stock soared 17 percent, while Coke’s edged up slightly. Coke would join a rush by major alcohol makers and a cigarette company to test the cannabis market and find partners ahead of the Oct. 17 launch of legal recreational marijuana in Canada.

 

Canadian Foreign Minister Chrystia Freeland said she would return to Washington, D.C. this week for fresh talks on NAFTA. Trump last month announced a side deal with Mexico and has warned Ottawa that he is prepared to leave Canada out if it fails to accept terms more favorable to the United States. Washington wants the text of a deal by Oct. 1 so the pact can be signed by the outgoing Mexican administration. However, Canadian officials say that they will not be rushed, given the size of the obstacles.

 

The United Kingdom is due to leave the EU on March 29 and yet little is clear. So far, no full exit agreement has been reached and some right-wing rebels in Prime Minister Theresa May’s Conservative Party have threatened to vote down a deal if she clinches one. The fate of May’s government and her Brexit plan is in doubt because it is unclear whether she can command the 320 votes she needs in the House of Commons, the lower house of the British parliament, to approve a deal. So, May has issued an ultimatum: it’s her way or no way. May told opponents in her divided party that if they torpedoed her Brexit deal then the United Kingdom would leave the EU without any agreement, which could prove costly.

It was just a matter of time. Today, White House Economic Advisor Larry Kudlow said he expects U.S. budget deficits of about 4 percent to 5 percent of the country’s economic output for the next one to two years, adding that there would likely be an effort in 2019 to cut spending on entitlement programs. Kudlow said that government spending was the reason for the wider budget deficits, not the Republican-led tax cuts activated this year. He stated that the biggest factor for revenue was economic growth rate. A quicker pace of growth will bring in more revenue. Now, you might recall that the tax cuts were pitched with the idea that growth would be strong enough to overcome deficits – a scheme that many economists said would not work – and well, it was just a matter of time.

 

Goldman Sachs reports S&P 500 companies rewarded shareholders with $384 billion worth of buybacks during the first half of 2018. That big bonanza for Wall Street is up 48% from last year and reflects spiking profitability thanks to corporate tax cuts and the strong US economy. Meanwhile, business spending is up 19% – which is good – just not as strong as buybacks. In fact, Goldman Sachs said that buybacks are garnering the largest share of cash spending by S&P 500 firms. It’s a milestone because capital spending had represented the single largest use of cash by corporations in 19 of the past 20 years. And goldman predicts buybacks for the full year will top $1 trillion.

 

Trump said he wanted to go through a “full process” for Kavanaugh’s nomination, as both his Supreme Court nominee and the woman who has accused him of sexual assault during the 1980s both said they would testify to the Senate Judiciary Committee. Kavanaugh’s nomination to the Supreme Court hit a serious roadblock Sunday night, as GOP Senate Judiciary Committee member Jeff Flake said he is uncomfortable voting to advance Kavanaugh’s nomination later this week after the nominee’s sexual assault accuser went public. Sen. Bob Corker, who is not a member of the committee but whose vote is critical to Kavanaugh’s confirmation, similarly said late Sunday that the committee should pause. The nomination may not be officially derailed but it is no longer on track.

 

Hurricane Florence has been downgraded to a storm.  Florence moved across western North Carolina early today and continued to dump rain that has nowhere to go except to swell rivers, flood highways and homes, and threaten more lives as it heads towards Virginia and New England. The death toll related to Florence has climbed to 23 and could go higher. The soil is soaked and can’t absorb any more rain, so that water has to go somewhere. The National Weather Service says flash floods, landslide warnings and “prolonged significant river flooding” throughout the region will continue for the next few days. Florence has dumped up to 40 inches (100 cm) of rain on North Carolina since Thursday and an additional 2 to 5 inches of rain is expected with isolated areas of 8 inches possible through Tuesday in the Carolinas and Virginia. In North Carolina, more than 900 people were rescued from rising floodwaters and 15,000 remained in shelters. More than 641,000 homes and businesses were without electricity in North and South Carolina and surrounding states, down from a peak of nearly 1 million. Florence set a state record for rain from a hurricane, surpassing the previous high of 24 inches from Hurricane Floyd which killed 56 people in 1999. Moody’s Analytics estimates the damage from Florence total at least $17 to $22 billion, but the estimate could end up much higher as flooding continues through the week.

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