…..Nasdaq and Russell hit new records. Emerging markets continue a streak. ECB holds steady and slightly dovish. Leading economic index jumps. CBO scores BCRA – ugly. AZ loses jobs in June. Earnings season: Microsoft hits a record high. Visa strong. EBay stumbles. Amazon will carry Kenmore.
Financial Review by Sinclair Noe for 07-20-2017
DOW – 28 = 21,611
SPX – 0.38 = 2473
NAS + 4 = 6390 (record)
RUT + 0.58 = 1442 (record)
10 Y – .01 = 2.27%
OIL – .39 = 46.73
GOLD + 3.00 = 1245.00
Sen. John McCain tweeted a message of gratitude for the outpouring of support that greeted news Wednesday of his brain-cancer diagnosis. He tweeted: “I greatly appreciate the outpouring of support – unfortunately for my sparring partners in Congress, I’ll be back soon, so stand-by!”
The Dow and the S&P fell slightly from record highs, while the Nasdaq and Russell 2000 squeaked out new record highs. It was close, but the MSCI Emerging Markets Index of stocks managed to eke out its ninth straight increase. That’s the longest rally since April 2015. The 0.02 percent rise in the index was the smallest of the current streak. Still, that brought the index’s gain for the year to 23 percent.
Europe’s economy is experiencing a pickup in both current and forward indicators of growth. Improvements in household and corporate sentiment and activity have been reinforced by a decline in perceptions of political risk following the victory of Emmanuel Macron in the presidential and legislative elections in France. The European Central Bank may not make a decision on the future of its bond-buying program until October. Policy makers are currently committed to spending 60 billion euros ($70 billion) a month on debt until at least December, and have repeatedly said any winding down must be gradual. The ECB Governing Council met in Frankfurt today, ECB President Mario Draghi told reporters that policy makers unanimously agreed to put off a formal debate until the fall, but that they opted not to set a precise date for talks. If you missed out on the euro’s rally because you thought European Central Bank President Mario Draghi was leaning dovish at today’s news conference after policy makers decided to keep interest rates unchanged, you’re forgiven. After all, Draghi emphasized several times the need for patience and evidence that wages and inflation are on the rise before winding down stimulus measures. All that would normally weigh on a currency. But what Draghi didn’t do was dwell on the recent strength of the euro, other than to say it had received “some attention.” For traders, that was a green light to push it above $1.16 for the first time since May 2016. The euro is spiking because Draghi has not been able to put ‘FX’ and ‘policy’ into the same sentence.
The Fed is on a course of gradual rate increases. Bond guru Bill Gross is warning about looming interest rate increases and the damage they can do to a debt-laden global economy. In his monthly investor outlook, the Janus Henderson Advisors fund manager said the course of global central banks toward tightening policy could be perilous for the economic recovery. Raising interest rates will increase the cost of short-term debt that corporations and individuals hold. In the U.S. alone, households have $14.9 trillion in debt while businesses owe $13.7 trillion. Gross said, “While governments and the U.S. Treasury can afford the additional expense, levered corporations and individuals in many cases cannot. ”
A broad measure of how well the U.S. economy is performing surged in June after a strong gain in May, suggesting growth could speed up in the months ahead. The leading economic index jumped 0.6% last month after a revised 0.4% increase in May. The improvement in the index was spearheaded by strong housing permits after several months of weakness. Home builders plan to step up construction to meet rising demand as the economy enters is ninth year of expansion. The U.S. got off to a slow start in 2017, and although growth accelerated in the spring, the economy is still not expanding full bore despite the strongest labor market in more than a decade.
The Congressional Budget Office has release its analysis of the latest version of Senate Republicans’ legislation to repeal and replace the Affordable Care Act. CBO says it would leave 22 million Americans without health insurance coverage by 2026. Yesterday, the CBO said that a repeal-only version would result in 32 million uninsured by 2026.
The number of Americans who applied for unemployment benefits sank in mid-July and hovered near a 44-year low, reflecting the healthiest jobs market in more than a decade. Initial jobless claims in the period running from July 9 to July 15 fell by 15,000 to a seasonally adjusted 233,000. That matches the second-lowest level since the 2007-09 recession.
Arizona’s seasonally adjusted unemployment rate remained the same at 5.1% in June. The US unemployment rate was 4.4% in June. A year ago, the Arizona seasonally adjusted rate was 5.3% and the US rate was 4.9%. Arizona lost 42,800 Nonfarm jobs in June. The Private Sector lost 5,700 jobs. Government lost 37,100 jobs. Arizona Nonfarm employment grew by 2.4% (62,700 jobs) over the year in June.
With tech stocks at a record high — and stalwarts like Microsoft having doubled their market cap in just about three and a half years — some may worry that we’re setting up for a repeat of the tech bubble. Others may point to research that shows tech earnings are rising in-line with the index’s overall march higher.
Sometimes, things are different. And, on cue, Microsoft reported a better-than-expected quarterly profit and revenue. Microsoft said revenue from its cloud unit, which includes the flagship Azure platform and server products, rose about 11 percent to $7.4 billion in the quarter. The company’s net income more than doubled to $6.5 billion, or 83 cents per share, from $3.1 billion, or 39 cents per share, a year earlier. Excluding one-time items, Microsoft earned 98 cents per share beating estimates of 71 cents. On an adjusted basis, revenue rose 9 percent to $24.7 billion – also beating estimates. Microsoft shares hit an intraday record price of $74.30 and closed at an all-time high of $74.22. Microsoft reported after the closing bell, and share were up about 1.5% in after-hours trade.
Visa reported a better-than-expected quarterly profit and raised its full-year earnings forecast. Consumer spending has been on the rise in the United States, and shoppers pay with plastic. Visa’s payment volumes in the US rose 12.1 percent on a constant dollar basis to $840 billion in the quarter. More than half of the company’s total volume of transactions comes from the United States. Net income rose to $2.06 billion, or 86 cents per share – beating estimates of 81 cents, and up from $412 million, or 17 cents a year ago. Visa also raised its forecast for full-year profit.
EBay reported a nearly 94 percent fall in quarterly profit. Net income fell to $27 million, or 2 cents per share, in the second quarter, from $435 million, or 38 cents per share, a year earlier. They did have about $400 million in income tax provisions that dented profits… still, not good.
As part of its review of Amazon’s agreement to buy Whole Foods, the Federal Trade Commission is looking into allegations that Amazon misleads customers about its pricing discounts. The FTC is probing a complaint brought by the advocacy group Consumer Watchdog, which looked at some 1,000 products on Amazon’s website in June and found that Amazon put reference prices, or list prices, on about 46 percent of them. And for 61 percent of products with reference prices, Amazon’s reference prices were higher than it had sold the same product in the previous 90 days.
Retailers and appliance makers fell after Sears said it would sell its Kenmore home appliances on Amazon and integrate the brand’s smart gadgets with the Alexa digital assistant. Sears was up 10.6 percent at $9.60 and Amazon shares rose 0.2 percent. Once a dominant force, Sears Holdings appliance sales account for about 15 percent of its total sales of $3.3 billion in fiscal 2016. So, you no longer need to go to Sears for Kenmore appliances or Craftsman tools – so, why would you go to Sears? Home Depot fell 4.1 percent, shaving off 40 points from the Dow and weighing the most on the S&P 500. Retailers Lowes and Best Buy, as well as appliance maker Whirlpool, were down between 3.9 and 5.6 percent. The market cap loss in Home Depot, Lowe’s, Whirlpool and Best Buy was about $12.5 billion by the end of the day.