Financial Review

Six Straight

…Stocks higher again. North Korea releases prisoners; summit planned. Israel and Iran. CPI inches higher – inflation is mild except for stuff you actually need. Earnings looking good. Google infuses AI into old apps.

Financial Review by Sinclair Noe for 05-10-2018

DOW + 196 = 24,739
SPX + 25 = 2723
NAS + 65 = 7404
RUT + 7 = 1603
10 Y – .03 = 2.97%
OIL + .26 = 71.40
GOLD + 9.00 = 1322.20

The Dow Industrials posted their sixth straight gain, with the S&P and Nasdaq along for the ride with nearly a 1% gain. The tech sector led the advance, up 1.3%. Apple hit a new record high. The small-cap focused Russell 2000 has been outperforming the large cap S&P and the blue chip Dow; the Russell is within a hair’s breadth of setting its first record since Jan. 23, when it closed at 1,610.

 

The Labor Department said before the open its consumer price index, or CPI, rose 0.2 percent in April. The lighter-than-forecast number eased inflation concerns; prices are increasing gradually. The consumer price index has risen 2.5% in the past 12 months — the highest rate in 14 months. A more closely followed measure that strips out food and energy, known as the core CPI, rose a smaller 0.1% last month. That was half as much as Wall Street expected. The yearly increase in the core rate was unchanged at 2.1%. The cost of groceries posted the biggest increase in more than a year. Gas prices also rose 3% to reflect a recent upturn in the price of oil. Americans also paid more for rent, clothes, home furnishings and medical care. The cost of new and used vehicles and airline fares all declined. A recent trend of rising prices, however, is starting to pinch American households. The things that are going up in price are the essentials: food, gas, groceries, car insurance, prescription drugs, tuition and child care, water, sewer, and electricity…, and rent. Meanwhile, real or inflation-adjusted hourly wages were flat in April, and they are only up 0.2% in the past year. Inflation is now at its highest level in 2-1/2 years. For the Federal Reserve, this must be considered a sweet spot; inflation is right at their target of 2% but we are only seeing gradual inflation – which should allow the Fed to continue with small, incremental rate hikes. Treasuries gained on the news, pushing yields back down below 3% on the 10-year note.

 

North Korea released the three American prisoners and handed them over to U.S. Secretary of State Mike Pompeo in Pyongyang. Trump met the plane carrying the released prisoners after it landed at Andrews military base outside Washington D.C. The trio of released prisoners thanked Trump and other officials for bringing them home.

 

Trump just announced the location and date of his upcoming meeting with Kim Jong Un: They will meet in Singapore on June 12. Singapore, a wealthy authoritarian city-state in Southeast Asia, makes a lot of sense as a location for the historic summit. Unlike South Korea or China, Singapore doesn’t have a vested stake in the Korean Peninsula conflict.

 

On Wednesday night, Iranian forces in Syria launched around 20 rockets into the Golan Heights, according to Israel’s military. Jerusalem blamed Iran’s Quds Force, an elite military unit responsible for external operations, for the attack. The Israel Defense Forces said it intercepted four of the rockets and that “no hits were located in Israel”. No injuries were reported. Israel hit back hard. Israeli forces attacked dozens of Quds Force positions in Syria in what was Jerusalem’s most extensive attacks in the country since at least 1973. Israel said it hit Iranian weapons storage facilities, logistics areas, and intelligence-gathering locations in Syria. If true, the strikes could significantly degrade Iran’s ability to operate in Syria, where it helps Bashar al-Assad stay in power. Bottom line: Israel and Iran have sharply escalated their attacks on each other.

 

So far, 90% of the S&P 500 companies have reported, with 78.7% delivering earnings-per-share results that have come in better-than-expected, according to Thomson Reuters I/B/E/S data. On average, 64% of companies outperform relative to estimates, based on data going back to 1994. What’s more, only 14% of companies reported results in first quarter of this year have underperformed thus far, versus a historic norm of about 21%. Those results come even as Wall Street analysts raised estimates to account for an expected bump for companies following the late-2017 passage of corporate tax cuts.

 

Nvidia shares fell 2% after hours, following a 1.7% gain to close at a record high of $260 in the regular session. The company reported first-quarter net income of $1.2 billion, or $1.98 a share, compared with $507 million, or 79 cents a share, in the year-ago period. Revenue jumped more than 65%. Earnings and revenue topped estimates and the company raised its second quarter guidance.

Shares of Yelp rose more than 6% after the company reported a narrower-than-expected loss in the first quarter and its sales beat Wall Street expectations. Yelp shares are down about 4% in after-hours trade.

Dropbox beat Wall Street earnings and revenue expectations, in its first earnings report as a publicly traded company. Dropbox topped analysts’ estimates for paying subscribers.  Shares were fluctuating between positive and negative in after-hours trading.

Symantec shares fell more than 12% in after-hours trading after the security-software company wrapped up its fiscal year with an earnings beat but guided for lower profit and sales in the current year.

Shares of Roku fell 1.7% a day after beating earnings estimates and raising second quarter guidance.

Shares of L Brands slumped 7.2% after the parents of Victoria’s Secret issued a profit warning.

 

U.S.-listed shares of Royal Bank of Scotland Group jumped 3.9% after it agreed to pay $4.9 billion in a settlement with the U.S. Department of Justice over its role in selling toxic mortgage-backed securities between 2005 and 2007. The settlement was smaller than anticipated and is seen as clearing the way for the U.K. government to sell its 71% stake it still holds in the lender.

 

Earlier this week, Equifax admitted that last September’s breach compromised more people’s data than previously reported. In February, the company insisted that all that stolen data didn’t include passport numbers. Except it did. In a regulatory filing with the Securities and Exchange Commission, Equifax admitted that there were, in fact,  up to 56,000 passports involved. Equifax has taken a drip-drip-drip approach to the data breach since it came clean about it, at least partially, in September of last year. Equifax initially said 143 million customers’ data had been compromised but has since revised that number up twice to about 148 million. After it announced the data breach, Equifax offered affected customers free credit monitoring and identity protection services — as long as they agreed to a forced arbitration clause that barred them from joining forces with other wronged customers to sue the company. After a backlash, the company dropped the clause. More than 240 class-action suits have already been filed against the company, and it is cooperating with multiple investigations and probes, including by all 50 state attorneys general, the Federal Trade Commission, the SEC, the Financial Industry Regulatory Authority, the Consumer Financial Protection Bureau, and various congressional committees, among others. Thus far, the outcomes remain unclear.

 

Google held its developers conference this week. One of the highlights was a discussion about AI ethics with Duplex, a human-like voice system for its Assistant product that makes phone calls on behalf of users. The gave a demo of the Duplex assistant making a phone call and setting an appointment, and the AI voice carried on a regular conversation with a human on the other end of the phone. It was all a little creepy and cool at the same time. But while Duplex remains a more experimental and far-off effort — one we’ll likely be debating in the weeks and months to come — Google’s more measured approach to artificial intelligence as it pertains to legacy product development didn’t garner as many headlines. However, it’s those subtle AI-powered changes to existing products that will have a far more visible impact on how we use software to interact with the world in the near future.

 

For instance, the ways Google is using AI to improve both its Maps and News products, platforms that have been around for 13 and 15 years, respectively. Google execs introduced a suite of changes that will make each more useful, personalized, and social, all thanks to self-learning algorithms that are now better at digesting and surfacing information than humans are. Google Maps will soon create Street View-style visual guides for step-by-step directions overlaid onto the real world, as viewed through the smartphone camera. Going one step further, the company plans to integrate its Assistant, equipped with the computer vision platform Google Lens, into Maps. That way, you’ll be able to pan over a city street and see pop-ups highlighting restaurants and other locations in real time. It’s effectively the dream of Google Glass, but understandably more realized, thanks to the smartphone camera more than a piece of controversial wearable technology. Google says it’s even developing a new system for geolocating objects in an environment, called the Visual Positioning System, or VPS, that will take into account everything from business storefront displays to street signs to help map out a route with more precision. Google News is getting its own AI-focused overhaul. The changes there could have a measurable effect on Google users’ ability to make sense of conflicting information, discern real from fake news, and stay informed. The company is also debuting a new media format it calls Newscasts that will “bring together a collection of articles, videos and quotes on a single topic,” using natural language processing techniques that help software understand human speech and text. The goal is to give readers more perspectives on a story, going off the idea that most news consumers are fed a diet of self-affirming news or information.

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