Financial Review

Tax Day Maintenance

…..Stocks rally, back in the green for 2018. Earnings lead the way. Netflix boffo. UnitedHealth lead insurers. Goldman beats but falls. Starbucks will undergo training. Housing starts jump. Tax cut bill widely disliked. IRS website breaks on Tax Day.

Financial Review by Sinclair Noe for 04-17-2018

DOW + 213 = 24,786
SPX + 28 = 2706
NAS + 124 = 7281
RUT + 16 = 1579
10 Y – .02 = 2.81
OIL + .44 = 66.66
GOLD + 1.70 = 1348.20

 

Stocks rallied for a second day, thanks in part to better-than-expected earnings from industry heavyweights – notably Netflix and Untied Healthcare. And it is worth noting, despite blockbuster Goldman Sachs earnings – banks underperformed today. The S&P 500 rose to the highest in four weeks, moving above its 50-day moving average. The S&P 500 Index is up 4.82 percent over the past two weeks. All major US equity indices are now back in the green for 2018. West Texas crude traded above $66 a barrel. Treasury yields edged lower. The yield on the 2-year note is at 2.39% and the 10-year note is at 2.81% – which leaves a very slim spread of just 42 basis points. It’s the narrowest spread in a decade. San Francisco Fed President, soon to become New York Fed president, John Williams said today that a truly inverted yield curve “is a powerful signal of recessions” that historically has occurred “when the Fed is in a tightening cycle, and markets lose confidence in the economic outlook.” That is not the case now. Williams said, “The flattening of the yield curve that we’ve seen is so far a normal part of the process, as the Fed is raising interest rates, long rates have gone up somewhat — but it’s totally normal that the yield curve gets flatter.” And Williams is correct…, but before a yield curve inverts, it flattens. But today, the markets were not paying much attention to the curve – earnings news was front and center.

 

Netflix shares rose 9 percent to hit an all-time high after the video-streaming pioneer smashed analysts’ quarterly subscriber estimates. Netflix added 7.4 million more streaming subscribers, more than the 6.6 million expected, with 5 million of them outside the U.S. Higher subscription prices for Netflix’s streaming service, combined with the growing customer base, gave a huge boost for revenue — Netflix said its 43% year-over-year jump in streaming revenue was its best in history. Netflix reported $290 million in net income for the first quarter, more profit in three months than the streaming giant had for the entire year of 2016. if the company meets its second-quarter forecast of $358 million in profit, it will earn more in the first half of 2018 than all of 2017, when it reported an annual profit of $558 million.

 

Shares of Roku gained about 9% after the company announced late yesterday that it was making Walt Disney’s new ESPN+ streaming service available on its devices. Roku also said in a Monday filing that Stephen Cohen’s Point72 Asset Management had taken a 5.1% stake in the company.

 

Amazon.com was the S&P’s biggest boost with a 4 percent jump, helped by Netflix results but also by signs the U.S. Supreme Court is hesitant to let states force out-of-state online retailers to collect sales taxes on purchases.

 

UnitedHealth jumped 3 percent after the largest U.S. health insurer raised its earnings forecast and posted results that beat Wall Street estimates. One of UnitedHealth’s first-quarter strengths was its ability to control medical costs. The medical care ratio, or the percentage of premiums paid out for medical services, improved to 81.4 percent from 82.4 percent a year earlier. Anthem rose 2.3 percent, Humana was up 2.4 percent, and Cigna  added 1 percent.

 

Goldman reported gains in all four of its major business units, especially trading, as a surge in volatility led customers to transact more in capital markets. Net income rose 27 percent to $2.7 billion, or $6.95 per share, easily topping the average analyst estimate of $5.58 per share. Its return-on-equity, a closely watched measure of how much profit a bank can generate from shareholder money, was 15.4 percent, the highest in more than five years. Investors generally like to see the figure above 10 percent. Even so, Goldman shares fell 1.9 percent. Overall revenue rose 25 percent to $10 billion, with investment banking, investment management and investing and lending each reporting better results. Financial advisory, which handles M&A transactions, was the only sub-segment to report a year-on-year decline. Goldman’s finance chief said the bank is likely to expand its consumer bank through small acquisitions. Goldman Sachs is so confident in its recent business boom that it will pause share buybacks in the second quarter and instead use capital to facilitate trades, loans and deals for customers. So, does that mean that when they re-start the buyback program, the good times are over?

 

IBM reported first-quarter adjusted earnings were $2.45 a share, beating estimates. Revenue rose to $19.07 billion from $18.16 billion in the year-ago period – so, for the first time in a long time, revenue was not falling.  IBM down about 5% in after hours trade. Full-year guidance was on the weak side.

 

United Airlines said quarterly profit rose, as higher fares helped offset the costs of fuel and a rash of winter storms. The third-largest U.S. airline by passenger traffic reported first-quarter net income of $147 million, or 52 cents per share, compared with $99 million, or 32 cents per share, in the year-ago quarter.

 

One person was killed after a Southwest flight en route from New York to Dallas made an emergency landing in Philadelphia, marking the first fatal U.S. commercial plane accident since 2009. The plane’s engine failed shortly after takeoff, and it looks like part of the engine blew out a window on the plane. Several passengers were injured. The plane made an emergency landing. Southwest is known for its strong safety record. In fact, today’s fatality is the first person to have died on one of the airline’s planes as a result of an accident.

 

Starbucks will temporarily close more than half of its domestic stores next month so employees can undergo racial-bias training, a response to the arrest of two black men at one of its cafes in Philadelphia. The coffee chain plans to shut its more than 8,000 company-owned stores during the afternoon of May 29. In the U.S., about 59 percent of its locations are Starbucks-owned. The rest are licensed locations. Chief Executive Officer Kevin Johnson apologized for the arrests, calling them a “reprehensible outcome,” and vowed to better train employees. The company will train nearly 175,000 employees across the country. The instructions also become part of the program for new hires. This isn’t the first time Starbuck’s has closed their stores to address a problem – it happened in 2008 – they closed stores nationwide for about 3 hours to reorient employees toward perfecting “the art of espresso”.

 

Bankrupt retailer Toys “R” Us has rejected an $890 million bid for some of its U.S. stores and locations in Canada from the CEO of Bratz doll maker MGA Entertainment.

 

Housing starts ran at a seasonally adjusted annual pace of 1.32 million in March, up 2% compared to February. Builders broke ground on more homes in March, and earlier estimates were revised up handily, suggesting more momentum in the home construction industry than had been seen. Starts were 10.9% higher than in the same period a year ago. And permits, which foreshadow starts activity in the future, were also strong: 2.5% higher than in February, and 7.5% higher compared to a year ago. Demand is hot after years of underbuilding. Earlier today, Zillow said it took an average of 81 days to sell a home in 2017, the fastest on record. Builders aren’t just keeping buyers hungry with low supply. They’re constrained by higher-priced materials, and less-available labor and land.

 

Today is Tax Day, as you are well aware. Trump marked Tax Day 2018 by trumpeting the law he signed last year, tweeting: “So many people are seeing the benefits of the Tax Cut Bill.” Trump’s rosy assessment of the law is contradicted, however, by the latest Wall Street Journal/NBC News poll. The survey found that 27% of respondents thought the law was a good idea, while 36% thought it was a bad one.

 

How companies spend the tax cut windfall has formed the cornerstone of the debate over how much benefit the reduction in corporate and personal rates will have for the economy. The dispute is over whether companies will invest the windfall back into the broader economy or just make well-to-do shareholders better off. Employers appear to be using proceeds from corporate tax cuts to continue the practice of rewarding shareholders and executives over workers. In the first quarter of 2018, corporate America dedicated $305 billion to stock buybacks and cash takeovers compared with $131 billion in pretax wage growth, according to TrimTabs. The early tally continues a trend that has seen companies commit $4.9 trillion over the past five years to buybacks and deals — “financial engineering,” as TrimTabs puts it — and $2.3 trillion to wage increases.

 

With less than 12 hours to go until the Tax Day deadline, The IRS’s “Direct Pay” page – which allows filers to draft funds from their checking or savings account to pay the taxman what they owe – was unavailable. A message on the site says it was undergoing a “planned outage” beginning on Tax Day that would last until Dec. 31, 9999. Oops. Treasury Secretary Steven Mnuchin says Americans who have been unable to pay their taxes today because the IRS web site is down will get an extension. Mnuchin described the problem as a “high-volume technical issue” that the agency is trying to resolve.

 

 

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