Financial Review

State of Emergency

…..Another Dow record high. Apple sweet. ISM manufacturing slips. Car sales slumber. Consumer spending and inflation flat. Sully opposes air traffic control privatization. The Opioid Crisis – a national emergency.

Financial Review by Sinclair Noe for 08-01-2017

 

DOW + 72 = 21,963
SPX + 6 = 2476
NAS + 14 = 6362
RUT + 2 = 1427
10 Y – .04 = 2.25%
OIL – .94 = 49.23
GOLD – .60 = 1269.20

 

Another record session for the Dow; that’s 5 in a row. It’s the 31st record high for the Dow in 2017. Between the scandals, the international gaffes, the disturbing handshakes, and a White House that has more turnover than a red-light district Airbnb, keeping up with the news is a full-time job. And through it all, Wall Street has shown an amazing ability to focus on other stuff.

 

With two thirds of S&P 500 companies having reported their second-quarter earnings, 72 percent have beaten Wall Street’s expectations. In a typical quarter about 64% of companies beat expectations. The S&P 500 is trading at about 18 times earnings estimates for the next 12 months, above its 10-year average of 14 times.

 

After the closing bell, Apple reported earnings and revenue topped Wall Street estimates.  Apple jumped about 5% in after-hours trade. Apple also issued strong revenue guidance for its fourth fiscal quarter, suggesting strong sales growth year-over-year. The strong guidance also hinted at the launch of a redesigned iPhone in September, which is expected to sell briskly. Although CEO Tim Cook had warned that iPhone sales might see a “pause” ahead of the expected September launch of the new iPhone, iPhone unit sales were in line with Wall Street expectations and in line with last year’s performance. Apple posted earnings of $1.67 per share, up 17% year-over-year, vs expectations of $1.57. Third quarter revenue came in at $45.4 billion, up 7% year-over-year, vs expectations of $44.9 billion. Gross margin: 38.5%, up 1% year-over-year, vs expectations of 38.2%. Apple sold 14% more iPads than it did a year ago.

 

The Institute for Supply Management (ISM) said its index of national factory activity fell to 56.3 last month from 57.8 in June, which was the highest level since August 2014. A reading above 50 in the ISM index indicates an expansion in manufacturing, which accounts for about 12 percent of the U.S. economy.

 

The annualized pace of U.S. car and light truck sales in July fell to 16.7 million vehicles, down from 17.8 million vehicles a year earlier, according to Autodata Corp. Carmakers continued to trim low-margin sales to daily rental fleets in July as the overall pace of U.S. car and light truck sales fell for the fifth straight month. Automakers have used low-margin sales to rental fleets to avoid factory shutdowns. With more flexible labor agreements, the Detroit automakers have shifted course. They are quicker to idle factories to reduce supply, and they are demanding higher prices. In a more troubling sign for Detroit, combined sales of large pickups fell 4 percent, and sales of large sport utility vehicles declined by 20 percent. Only the Ford F-series, up 6 percent, improved on year-ago results among major truck models. Ford fell 2.4% and General Motors lost 3.3% after they reported lower monthly sales.

 

The Commerce Department said consumer spending edged up 0.1 percent in June after a 0.2 percent gain in May. There was also little sign of inflation. The personal consumption expenditures (PCE) price index, excluding food and energy, increased at a 1.5 percent pace in the 12 months through June, after advancing by the same margin in May. In June, personal income was unchanged. That was the weakest reading since a 0.1 percent dip in November 2016 and followed a 0.3 percent increase in May. Wages and salaries rose 0.4 percent in June. There are plenty of jobs in the economy but wage growth is sub-par and with it both consumer spending and inflation are flat.

 

The long length of the economic recovery has created a problem for business. The U.S. has generated 16.6 million new jobs since 2010, squeezing the pool of available workers so much that many companies now complain of a labor shortage. With job openings near record highs, companies either have to pay more in wages, increase spending on training or buy more machines to take the place of workers to keep up with rising demand. For people looking for work, it’s the best time to find a job in more than a decade. The ultra-tight labor market, however, begs the question: Just how long can companies continue to hire at the current rate of about 180,000 a month? The pace of hiring in the U.S. has already slowed sharply since hitting a post-recession peak of 250,000 a month in 2015. And economists expect hiring to slow even further because there’s fewer people looking for jobs. The July jobs report will be published Friday morning – looking for about 180,000 new jobs.

 

Sprint jumped 11% after swinging to a quarterly profit for the first time in three years, while Xerox rose almost 6% after its profit beat expectations. Under Armour enjoyed stunning growth as it built up its footwear sales, but now sneaker sales have dropped and they say it will get worse. Under Armour fell 10.3% to a record low after the sportswear maker cut its full-year sales forecast.

 

Remember the big infrastructure proposals? Well, we still haven’t heard much about infrastructure – other than a proposal to privatize air traffic control. Privatization plus another proposal that would make it easier for co-pilots to get academic credit for certification have drawn congressional opposition and stalled efforts to reauthorize the Federal Aviation Administration, a must-do for Congress by Sept. 30. Opponents of privatization now have the hero of the Miracle on the Hudson, retired Capt. Chesley “Sully” Sullenberger speaking out against privatization. Sully argues that privatization would allow a corporate monopoly heavily influenced by the major airlines to manage the nation’s skies. It would make key investment decisions that could put profits over safety and reduce access for the general aviation community, which includes company jets, recreational pilots and agriculture sprayers. And he says the big airlines don’t always have the interests of the traveling public in mind. Exhibit A, he said, is the shrinking seat sizes that airlines are incorporating in their planes.

 

The White House Commission on Combating Drug Addiction and the Opioid Crisis issued a preliminary report stating that its “first and most urgent recommendation” is for the president to “declare a national emergency”. The Chris Christie-led White House Opioid Commission says, “With approximately 142 Americans dying every day, America is enduring a death toll equal to September 11th every three weeks.” In 2015, according to CDC figures, heroin deaths alone surpassed gun homicides for the first time. More than 33,000 people died of opioid overdose, with another 20,000 dying from other drugs. A recent federal study found that prescription painkillers are now more widely used than tobacco. In addition to declaring a national emergency, the commission’s first report includes a number of recommendations that public health experts and drug policy reformers have been advocating for years. They include: Expanding capacity for drug treatment under Medicaid; Increasing the use of medication-assisted treatments, like suboxone, for opioid disorders; encouraging the development of new non-opioid pain relievers; Mandating that every local law enforcement officer in the nation carry naloxone, the drug that rapidly reverses opiate overdose; Broadening “good samaritan” laws that shield individuals from prosecution when they report a drug overdose to first responders or law enforcement officials. Notably absent from the report are a number of tough-on-crime measures that the President and his Attorney General, Jeff Sessions, have repeatedly help up as solutions to the opioid crisis, including building a wall on the Mexican border, expanding the use of mandatory minimum sentencing for drug crimes, and seizing more cash and property from individuals suspected of drug crimes.

 

Two of Venezuela’s leading opposition figures were taken from their homes in the middle of the night by state security agents, in President Nicolas Maduro’s first moves against his enemies since a widely denounced vote giving his government nearly unlimited powers. A few hours earlier, Washington added Maduro to a steadily growing list of high-ranking Venezuelan officials targeted by financial sanctions, escalating a tactic that has so far failed to alter his socialist government’s behavior. For now, the Trump administration has not delivered on threats to sanction Venezuela’s oil industry, which could undermine Maduro’s government but raise U.S. gas prices. Maduro called the constitutional assembly in May after a month of protests against his government, which has overseen Venezuela’s descent into a devastating crisis during its four years in power. Due to plunging oil prices and widespread corruption and mismanagement, Venezuela’s inflation and homicide rates are among the world’s highest

 

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