….Dow slips slightly – elsewhere, more record highs. Netflix boffo. J&J and P&G slip. Disney bonus. Kimberley Clark layoffs. Oxfam: inequality grows. Trump to Davos. Tariffs on solar and dishwashers. TPP a go. 3X FANG ETNs. Apple HomePod late to the show.
Financial Review by Sinclair Noe for 01-23-2018
DOW – 3 = 26,210
SPX + 6 = 2839
NAS + 52 = 7460
RUT + 5 = 1610
10 Y – .04 = 2.62%
OIL + .97 = 64.54
GOLD + 7.80 = 1341.90
The Nasdaq composite led the major indices, and Netflix was a leader on the Nasdaq. After the close yesterday, Netflix reported earnings and strong subscriber growth. Netflix is one of the 20 largest components of the Nasdaq, with a 0.7% weighting. Netflix shares shot up to all-time highs after last evening’s fourth-quarter results. The video streaming company added 8.33 million new subscribers worldwide in Q4, despite a hike in subscriber fees. The stock earned a slew of price-target increases from Wall Street analysts.
A federal court ruled against Johnson & Johnson in the company’s patent for the blockbuster arthritis drug Remicade. Johnson & Johnson took a $13.6-billion charge related to the new U.S. tax law and plans to bring back billions of dollars from overseas immediately. The news overshadowed J&J’s fourth-quarter results, which beat views. Procter & Gamble topped sales and profit expectations, but there were concerns about the company’s margins. Johnson and Johnson dropped 4%. P&G slid 3%.
United Continental, the parent of United Airlines, posted earnings after the closing bell that outpaced analyst estimates, but were more than 20 percent lower than last year’s. For the fourth quarter, the company said it earned $1.40 per share, on an adjusted basis. Wall Street analysts were expecting earnings of $1.34 per share.
Kimberly-Clark plans to cut up to 5,500 jobs — about 13 percent of its workforce — and get rid of 10 manufacturing plants, releasing a restructuring plan along with its year-end results that showed net sales rose to $18.3 billion, up slightly from 2016.
Walt Disney Co. said it will give employees a one-time cash bonus of $1,000, joining a growing list of companies handing out awards in the wake of federal tax reform.
Late yesterday, the House signed off on a continuing resolution to fund the federal government for another 2 -1/2 weeks. Then we get to go through this whole mess again. An NBC News/Survey Monkey poll shows 39 percent of respondents blame Democrats most, while 38 percent think Trump bears the most responsibility. Only 18 percent of those surveyed blame Republican lawmakers most.
Treasury debt yields slid, in line with declines in Japanese government bond yields, after the Bank of Japan kept interest rate targets unchanged and its top official quashed speculation of a move away from an easy monetary policy.
Data showed euro zone consumer confidence jumped much more than expected in January, underlining the strong momentum in the euro zone economy. That pushed the dollar index to a three-year low.
Some 82% of money generated last year went to the richest 1% of the global population while the poorest half saw no increase at all, according to the most recent Oxfam annual survey. Oxfam says the 42 richest people in the world now hold as much wealth as the poorest half of the global population. It blamed tax evasion, corporations’ influence on policy, erosion of workers’ rights, and cost cutting for the widening gap. Over 12 months, the 2,043 billionaires across the globe increased their wealth by $762 billion, which Oxfam calculates is “enough to end extreme poverty seven times over.” Oh, and nine out of 10 billionaires are men
Oxfam’s report coincides with the start of the World Economic Forum in Davos, a Swiss ski resort. The annual conference attracts many of the world’s top political and business leaders. Inequality typically features high on the agenda, but the tough talk tends to fade away faster than a corporate jet. Trump is due to speak on Friday at the WEF in Davos.
The Trump administration said it would impose new trade barriers aimed at protecting domestic makers of solar panels and washing machines from a recent surge of cheap imports. Specifically, the administration said it would impose tariffs on washing machines at a rate of up to 50%, with the rates phasing out over the next few years. The tariffs would be combined with quotas. Tariffs on solar modules would be as high as 30% and be phased out over time. The 30 percent tariff on solar panels is among the first unilateral trade restrictions imposed by the administration as part of a broader protectionist agenda intended to help U.S. businesses struggling to compete with companies producing lower-priced goods overseas. Trump’s move helps US solar-panel manufacturers, such as FirstSolar, Tesla, Suniva, and SolarWorld. But manufacturing only makes up about 14% of jobs in the US solar industry, and it is increasingly becoming more automated. The solar industry countered that the move will raise the cost of installing panels, quash billions of dollars of investment, and kill tens of thousands of jobs, raising questions about whether Trump’s move will backfire by triggering mass layoffs. Senator John McCain of Arizona said in a Twitter post that the tariffs amount to “nothing more than a tax on consumers.”
The tariffs are primarily aimed at China and South Korea – and the two countries could take their complaints to the World Trade Organization, which arbitrates international trade disputes. If the W.T.O. sided with those countries, the United States would be under considerable pressure to back down. If it did not, there would be two major sets of consequences. For one, the World Trade Organization could greenlight other countries’ setting similar trade limits. More broadly, it would raise the question of whether the United States accepts the organization’s decisions. China and South Korea have leverage of their own. They are big importers of American-made machinery and agricultural products, and China, in particular, has long been a big buyer of soybeans and other crops – potentially bad news for American farmers. A trade fight would, however, be painful. Both China and South Korea export a lot more to the United States than they import, meaning higher tariffs could hit their economies harder. Trump is set to speak to world leaders gathered this week at the World Economic Forum in Davos, Switzerland, where he could drop hints of whether the United States has more trade barriers to announce. Specifically, we’ll look for word on steel and aluminum imports, and also possible action against China for intellectual property.
The TPP, or Trans-Pacific Partnership trade deal, has been finalized. Negotiators from 11 Pacific Rim nations came to agreement on the final sticking points, and the details are being finalized with a formal signing agreement scheduled for March 8, in Chile. The United States pulled out of the deal last year.
A pair of exchange-traded notes debuted today, offering triple-leveraged exposure to large-capitalization technology and internet names, a group that drove a hefty percentage of the overall market’s gain in 2017, albeit with heavy volatility. The BMO REX MicroSectors FANG+ Index 3X Leveraged ETN tracks an index of 10 stocks, returning 300% of the index’s daily move. What this means is that on a day when the index rises 1%, the ETN is designed to rise 3%. Another fund, the BMO REX MicroSectors FANG+ Index -3X Inverse Leveraged ETN is an inverse leveraged note on the same theme. Triple leveraged ETNs are folks who think roller coasters are boring.
Apple has jumped into the voice speaker wars with the HomePod smart speaker, a device that will use its Siri voice assistant and compete against offerings from Amazon and Google. Apple’s HomePod just missed the holiday shopping season – oops. Amazon and Google cut prices on their entry-level speakers over the holiday season in an aggressive push for market share. If you are still in the market for a hoe speaker, Apple will still take your $349, please and thank you.
For the last several years, there has been speculation about Elon Musk’s future at Tesla, and whether he would step down as chief executive in the next year or two. Musk stoked that speculation as far back as five years ago when he said he wanted to stay through the introduction of the Model 3. Well, it is now four years later, the Model 3 had its debut last July (though production delays have slowed the rollout), and Mr. Musk’s to-be-determined declaration has been determined: He will stay on as chief executive at Tesla for the next decade. But it took a rather bold compensation plan. Musk will be paid only if he reaches a series of milestones based on the company’s market value and operations. Otherwise, he will be paid nothing. Current market cap is $59 billion. If Musk were somehow to increase the value of Tesla to $650 billion his stock award could be worth as much as $55 billion. Even reaching several of the milestones would bring him billions.