Financial Review

Rolling Bear

…Stocks bounce but still headed for a bad month. Facebook turns a profit but user numbers are weak. GE’s penny dividend. Apple sells non-phone stuff. FoxConn deal falters. Consumer confidence strong. Housing stalls. Zinke’s hinky. Attacking the 14th.

Financial Review by Sinclair Noe for 10-30-2018

DOW + 431 = 24,874
SPX + 41 = 2682
NAS + 111 = 7161
RUT + 29 = 1506
10 Y + .02 = 3.11%
OIL + .12 = 66.30
GOLD – 6.00 = 1223.60


US stock indexes jumped more than 1 percent, helped by strong gains for chip and transport stocks. All 11 major S&P 500 sectors ended higher. The S&P is on pace for its biggest monthly percentage drop in more than eight years – down more than 8.5% from September’s close. The Philadelphia semiconductor index jumped 4.2 percent, its biggest one-day percentage gain since March. Intel gained 5.2 percent and gave the biggest single-stock boost to the S&P 500. Chip stocks also gained following a brokerage upgrade of Nvidia shares and a better-than-expected report from chip-gear maker KLA-Tencor. Nvidia shares jumped 9.4 percent and KLA-Tencor shares rose 7.6 percent. Trump tweeted blame for the recent market downturn – the problem is the Fed. It’s always fun when a blind pig manages to find an acorn. But that doesn’t tell us the severity or the duration of such downturn; for that we turn to Morgan Stanley. The Morgan Stanley strategists are gearing up for a much longer bear market while others are betting the sell-off is short-lived. The bank’s chief equity strategist writes: “The rolling bear market continues to make progress and there is growing evidence that it is morphing into a proper cyclical bear market in the context of a secular bull.” Adding that the consensus outlook for earnings growth is too rosy next year. Morgan Stanley is also blaming the Fed and higher interest rates – calculating that the S&P 500 could lose 200 more points before reaching downside targets.


Late on Monday, Trump said he thought there could be an agreement with China on trade. But he also said he had billions of dollars’ worth of new tariffs ready to be imposed if a deal was not possible. That’s what passes for good news these days. So, how are relations? The Department of Justice has indicted 10 Chinese intelligence officers and those working at their direction for stealing sensitive information from United States aviation companies. DOJ claims the aviation companies were hacked over a period of five years in an effort to obtain intellectual property and other confidential information.


After the closing bell, Facebook posted third quarter results; revenue missed estimates and profit topped estimates. Facebook’s monthly active users were 2.27 billion, falling short of 2.29 billion estimated by analysts. Slowing growth after years of incredible results has been a top concern, and Facebook’s weak third-quarter user growth underscored those fears. The company had warned its profit and revenue growth could be the slowest in years. Facebook shares gained more than 3% in after-hours trade.


Redmond, Washington, has been the home of Microsoft for decades, but Facebook is planning a 650,000 square-foot office project in Redmond. Facebook has approached the city with plans for two buildings, which could be six stories tall and include office space, labs, kitchens and an event center. Facebook has not yet applied for building permits, but a project schedule sent to the city shows that the company hopes to demolish existing buildings on the allotted land as soon as May.


Apple held a party in New York today to unveil or re-introduce some of its lesser-known products, adding iPhone features like facial recognition to the iPad Pro and faster processors and better displays to some Mac computers that had gone years without a major update. The devices will hit stores on Nov. 7. Apple held its first fall event in September, where it unveiled a new Apple Watch and three new iPhone models. On Tuesday, Apple showed off new iPad Pros, Mac computers, and more. Counting new iPhones and Apple Watches released last month, Apple will have more than half a dozen new products on shelves for the holiday shopping season, many at higher prices than previous models. At $999, Apple’s new 12.9-inch iPad Pro, out next week, is the most expensive iPad tablet ever. That’s double the price of the first iPad, introduced in 2010.


In the summer of 2017, the state of Wisconsin signed a deal with Chinese tech firm FoxConn to build a heavily subsidized manufacturing plant in southeastern Wisconsin. The details of the deal were famously written on the back of a napkin when FoxConn CEO Terry Gou and Wisconsin Governor Scott Walker first met – a $3 billion state subsidy in return for Foxconn’s $10 billion investment in a Generation 10.5 LCD manufacturing plant that would create 13,000 jobs. Like most states, Wisconsin had given subsidies to companies in the past, but never higher than $35,000 per job. Foxconn’s subsidy was $230,000 per job. The size of the subsidy has steadily increased to a jaw-dropping $4.1 billion, Foxconn has repeatedly changed what it plans to do, raising doubts about the number of jobs it will create. Polls now show most Wisconsin voters don’t believe the subsidy will pay off for taxpayers, and Walker didn’t even mention the deal in a November 2017 speech announcing his run for re-election.


General Electric announced a $22 billion charge in its power division and swung to a third-quarter loss that was bigger than most industry analysts had expected. GE also cut its dividend to a penny, from 12 cents per share, a move that could hurt individual investors who rely on income from dividends. GE will split its power business into two separate divisions: a gas-focused division that combines its gas product and services groups and a second unit that will include steam, grid solutions, nuclear and power conversion. The planned split could indicate that GE is considering spinning off all but the gas-related parts of its power business. As far as the dividend – it is doubtful a penny dividend will attract any investors. GE down nearly 9% today.


T-Mobile beat Wall Street’s quarterly estimates for net new phone subscribers who pay a monthly bill, driven by competitive wireless plans and trade-in offers for iPhones aimed at fending off its bigger rivals. The third-largest U.S. wireless carrier by subscribers is awaiting approval for its deal to buy smaller rival Sprint. T-Mobile shares were up 4% in after-hours.


In other earnings news, Coca-Cola Co’s shares rose 2.5 percent after the beverage maker’s quarterly revenue and profit topped Wall Street expectations. Coca-Cola last month teased the possibility it could get into the cannabis business. But the beverage maker now says its not interested in pot. Under Armour Inc’s shares surged 24.7 percent after the sportswear maker’s upbeat quarterly earnings and full-year profit forecast.


The Conference Board’s consumer confidence index rose to 137.9 this month from a revised 135.3 in September. The present situation index, a measure of how Americans view the economy right now, climbed to 172.8 from 169.4. That’s also an 18-year peak. The best jobs market in decades is largely behind the optimism. Some 45.9% of Americans said jobs are “plentiful” — the highest percentage in nearly 20 years. Just 13.2% said jobs are hard to get. The future expectations index — what Americans think the economy will look like six months from now — edged up to 114.6 from 112.5. Once again, it’s at an 18-year high.


The S&P/Case-Shiller 20-city index rose a seasonally adjusted 0.1% and was 5.5% higher compared to its level a year ago, the lowest annual increase in 20 months. Annual gains dipped below 6% for the first time in 12 months. Las Vegas is the new Seattle. The beaten-down poster child of the housing bust charted its 11th-straight month of double-digit annual gains, while Seattle saw prices turn negative. The Phoenix market posted a price gain of 0.4% for the 3 months ending in August. In Phoenix, existing housing prices are up 7.0% over the past 12 months.


The Federal Communications Commission has overturned net neutrality. California Gov. Jerry Brown last month signed a bill that in effect restored net neutrality rules put in place in 2015. But California will not enforce its new net neutrality rules — the toughest state-level internet protections in the nation — while court deliberations continue over the federal government’s underlying rollback. And the DOJ won’t sue California until the issue has a chance to work through the courts.


The U.S. Interior Department’s acting inspector general has referred a probe into Interior Secretary Ryan Zinke’s conduct to the Justice Department for further investigation. Referring a probe to the Justice Department means it will explore whether evidence warrants a criminal investigation. The acting inspector general of the Interior Department, is conducting at least three probes into Zinke’s conduct, but it was not clear which one had been sent to the Justice Department.


Trump has revealed that he plans to sign an executive order that would remove the right to citizenship for babies of non-U.S. citizens and undocumented immigrants born on U.S. soil. In an excerpt of an interview with Axios, which is set to air on HBO on Sunday, Trump said that he has already run the idea of ending birthright citizenship by his counsel and plans to introduce an executive order ending the longstanding right. It is highly questionable that the 14tgh Amendment can be overturned by Executive Order. And the idea seems barely half-baked. Still no detail on key provisions – such as what should be done with all the people who were born on US soil to non-citizen parents. So, this looks like a publicity stunt ahead of the midterm elections, but it is an idea that that should win huge support among the Native American population.


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