Financial Review

Stock Pop, Bonds Drop

….Dow hits another record close. ISM Services soar. ADP jobs jump. SCOTUS considers independent contractor case. Honda and GM Cruise. Florence tallies. Nobel chemistry evolves.

Financial Review by Sinclair Noe for 10-03-2018

DOW + 54 = 26,828
SPX + 2 = 2925
NAS + 25 = 8025
RUT + 15 = 1671
10 Y + .11 = 3.16%
OIL + .99 = 76.22
GOLD – 5.70 = 1198.10


The Dow Jones Industrial Average hit another record high close. The Dow logged its fifth consecutive gain and 15 record high close of the year. The S&P 500 index is just a few points shy of a record. Stocks did not close near session highs, but still – a good day. A notably bad day for bonds. The yield on the 10-year Treasury note touched 3.16%, its highest level since July 2011.


The Institute for Supply Management’s survey of non-manufacturing firms climbed to a 21-year high of 61.6 last month from 58.5. Numbers over 50% are viewed as positive for the economy, and anything over 55% is considered exceptional. The ISM services index includes an array of companies in areas such as finance, health care and retail that employ about 80% of all Americans. All 17 industries tracked by the ISM reported growth in September. The economy is going strong and appeared primed for a strong holiday season to finish out the year. The latest ISM survey shows little likelihood that growth will slow anytime soon, and the recent trade agreement with Canada is sure to further ease the worries of corporate America.


The ADP Research Institute reports non-farm private sector employment increased by 230,000 jobs for the month of September, up 62,000 from an upwardly revised August figure of 168,000. Friday brings the official government report on the labor market. The ADP report sometimes provides a hint of what to expect. The Bureau of Labor Stats non-farm payroll report for August showed the economy added 201,000 net new jobs and wages inched up to 2.9% growth rate.  Estimates for the Friday report are running around 170,000 new jobs for September – though the ADP report suggest more. The one wrinkle to the jobs report is the impact from Hurricane Florence. By keeping people out of work, the hurricane that hit North and South Carolina may increase hourly pay, since it’s often low-income workers who are unable to get to their jobs in inclement weather. Salaried workers are generally paid whether they show up or not. That’s what happened after Hurricanes Harvey and Irma made landfall in 2017.


If you wonder why the Supreme Court nomination of Brett Kavanaugh is an important business story, consider the case before the Supremes. In New Prime Inc. v. Oliveira, the eight current justices heard the case of Dominic Oliveira, a long haul truck driver who filed a suit against the transportation outfit New Prime three years ago, alleging that the company failed to pay him minimum wage and at times even charged him for working. The case pits business interests against labor groups in the first major case of the term that could have consequences for hundreds of thousands of American workers and potentially millions of consumers. It could shape an industry that generates more than half a trillion dollars in annual revenue. The case also raises questions about the use of the “independent contractor” designation to reduce pay and benefits for workers who perform essentially identical work as employees. On that front, the court’s decision could have ramifications for virtually every sector of the economy.


The case turns on whether Oliveira was properly categorized as an independent contractor, and, if so, whether he is entitled to a court hearing on his claims or if he must submit to arbitration. At issue in the case is the meaning of the nearly 100-year-old Federal Arbitration Act, which exempted certain types of transportation workers from mandatory arbitration agreements. Specifically, the law exempts “contracts of employment.” Much of the battle being waged is whether, in 1925, that phrase would have included independent contractors or only employees. In this case, Oliveira has argued that he was mis-classified, because his work was “substantially identical to the job responsibilities of employee drivers.” New Prime dictated Oliveira’s schedule, vacations, home time, and monitored his vehicle with an electronic tracking device. The court’s ruling could have a profound impact on wages, which could have a profound impact on prices. Justice Anthony Kennedy was one of the five justices commonly in the majority when arbitration cases were decided by a 5-4 vote. With Kennedy retired and his seat vacant, Oliveira’s chances of prevailing might be considerably enhanced. Specifically, because he prevailed below, he would only need four votes from a bench of eight to preserve that victory in the Supreme Court.


At 2:18 PM Eastern time or 11:18 AM out west, did you phone start blaring with an alert? Mine did, 3 times. Someone in the same room with me did not get a peep out of their phone. The Federal Emergency Management Agency, FEMA, conducted their first test of the presidential text alert system for sending nationwide wireless messages to cellphones and some smartwatches. The alert system is similar to an Amber Alert or an alert for a weather problem – I got one of those alerts yesterday. Today’s message was just a test.


Honda has agreed to purchase a $750 million stake in General Motor’s autonomous vehicles unit, GM Cruise Holdings. In addition, Honda will contribute $2 billion to the project over the next 12 years. GM is aiming to develop a vehicle with no steering wheel or pedals that can be used in driverless taxi and delivery services. Honda’s investment will give it a 5.7 percent stake in the Cruise venture. GM has not said when it expected to introduce a driverless car, but in a federal government filing in January it asked permission to do so in a commercial ride-hailing service next year. Waymo, the spinoff of Google, is working in the same direction, as are Ford Motor and Uber, the ride-hailing service. Honda had pursued other joint efforts — it said in 2016 that it was in talks with Waymo — before making a commitment to GM and Cruise. Earlier this year SoftBank, the Japanese tech and investment firm, invested $2.25 billion in Cruise.


Shares of Barnes & Noble jumped more than 20% after the board said it would permit a strategic review. The announcement follows expressions of interest from multiple parties.


The floodwaters are finally starting to recede from Hurricane Florence. The storm dumped upward of 35 inches of rain in places and more than 10 trillion gallons across North Carolina, South Carolina, and Virginia. The storm damaged thousands of structures, including toxic animal waste containment sites, which sent bacteria and hazardous chemicals into the water. At least 50 people died as a result of Florence and damages estimates run as high as $22 billion. In the aftermath of extreme weather events like Florence, there’s an increasing urgency to understand just how much climate change affected the outcome. On the one hand, climate change will never cause a single event. But there is compelling scientific evidence that global warming is providing already-strong storms like Florence with even more fuel, which in turn can lead to more damage and destruction on land. Several months after Hurricane Harvey, the massive storm that deluged Houston in 2017, researchers attributed 38 percent of the storm’s record rainfall to global warming. Researchers estimate that Hurricane Florence  poured out 50 percent more rain due to climate change. There’s still more work to do in figuring out how much of Florence’s destruction can be traced back to human activity. Researchers are still analyzing broader weather patterns and trying to understand why the storm slowed down as it came over land, allowing it to dump a massive amount of rain over a relatively small area. Look for more research to be published in a few months.


The 2018 Nobel Prize in Chemistry was awarded to 3 people: Frances Arnold (the fifth woman to win the prize for chemistry) and the other half jointly to George Smith and Sir Gregory Winter for their work harnessing the power of evolution to develop new proteins used in drugs and medical treatments. The methods developed by the laureates have been put to work to create new enzymes and antibodies used in promoting a greener chemicals industry, mitigating disease and saving lives. Humans have been tinkering with other species since at least the dawn of civilization, from domesticating dogs to breeding more productive crops. But what the 2018 Nobel chemistry laureates figured out was how to use those same principles of selectively reproducing desired traits to make specific molecules, namely enzymes and antibodies.

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