…All 3 indexes drop big. Barcelona attack. Trump fallout continues. The Cohn effect. Generals and senators. Walmart earnings. Alibaba better earnings. Mylan must pay.
Financial Review by Sinclair Noe for 08-17-2017
DOW – 274 = 21,750
SPX – 38 = 2430
NAS – 123 = 6221
RUT – 24 = 1358
10 Y – .03 = 2.20%
OIL + .23 = 47.01
GOLD + 4.70 = 1288.50
All 30 companies in the Dow Industrials finished in negative territory. Cisco Systems fell 4% after the networking-equipment company late Wednesday reported earnings that missed forecasts and lowered its guidance for next quarter, and Walmart fell 1.6% after its results, which included lower-than-expected sales from its Sam’s Club division. All 11 of the S&P 500’s sectors closed lower on the session, which has only happened two other times this year. And the Nasdaq was the biggest percentage loser – down 1.9%. The last time all three major benchmarks finished down 1% or more was May 17. The Dow is now 1.7% off its closing record, with the S&P 500 and Nasdaq off 2.1% and 3.1% their respective closing highs. Meanwhile, the small-cap oriented Russell 2000 index fell 1.8% to finish at just below 1,359, its first close below its 200-day moving average in 14 months.
The latest deadly use of a vehicle to carry out mass violence occurred Thursday in the Spanish city of Barcelona, where a van mowed down pedestrians on a busy avenue popular with tourists. Many things about the event remain unclear, but it appears that a dozen people have died and about 100 are injured. ISIS has claimed responsibility and 2 suspects are in custody. Increasingly, cars, trucks, and vans have become weapons of terrorists, from a white supremacist’s deadly attack on protesters in Charlottesville, Va. last weekend to a number of other vehicle attacks in European cities in recent months.
Airline stocks were among the bigger losers Thursday, with American, Alaska Air and Delta among the 10 worst performers in the S&P 500. The big carriers tend to get hit when people worry about terrorism and the possible impact on global travel. An exchange traded fund that owns leading companies in Spain also fell after the attack. The iShares MSCI Spain ETF (EWP) was down more than 2%, led by drops in Banco Santander and Telefonica.
Stocks were already having a bad day because of lingering concerns over President Trump’s rift with business leaders. Yesterday, Trump’s Manufacturing Council and the Strategy & Policy Council quit. Today comes word the President’s Advisory Council on Infrastructure, which was still being formed, will not move forward.” The moves marked a most unusual repudiation by American business leaders. The bar for a chief executive of a public corporation to repudiate a United States president is extraordinarily high. Corporate leaders aren’t given their power, prestige, responsibility and nine-figure pay packages to use the corner office as their personal soapbox. Such a public breakup between a president and business leaders left corporate historians at a loss for precedent; apparently this kind of thing has never happened.
So far, there have been no resignations among White House staff or the administration’s cabinet. However, a rumor this morning that Gary Cohn would resign seemed to spook Wall Street. Gary Cohn is Trump’s chief economic adviser. Cohn is the former president of Goldman Sachs. Cohn is seen as a calming influence in the administration. He is also a point man on Trump’s push for tax reform, where his deal making skills will come in handy with Congress. Cohn is now under pressure to quit after the president on Tuesday doubled down on blaming both sides in a white-supremacist rally in Virginia that turned violent and trying to claim that there were many fine people on both sides. Just a reminder, there are videos of the rally in Charlottesville of protesters carrying torches and Nazi flags and chanting “Jews will not replace us” and “blood and soil”. Temple Beth Israel in Charlottesville was patrolled by armed militia with semi-automatic rifles, and worshippers said it was like they were under siege. There are several reports today that Cohn was deeply offended by Trump’s remarks. Several former colleagues have urged him to resign before his reputation takes an unrecoverable hit. Many of his former clients abandoned the president’s CEO advisory councils earlier this week because of Trump’s remarks. Cohn is also considered the frontrunner to replace Janet Yellen a chair of the Federal Reserve, when her term expires in February. So, Cohn has a decision to make. Does he try to stick it out or does he cut bait now. If Cohn leaves, there would be a definite lack of economic talent left in the administration. But it’s not just Cohn, the big issue spooking Wall Street is that if Cohn leaves, it could spark a mass exodus.
Nearly all of the nation’s top military leaders unequivocally condemned racism in public messages Wednesday. Five of the country’s top uniformed leaders — of the Army, Navy, Air Force, Marine Corps and National Guard — have all sent tweets critical of “racism,” “hatred” and “extremism.” The chairman of the Joint Chiefs of Staff, Gen. Joe Dunford was traveling and told reporters in Beijing, “I can absolutely and unambiguously tell you there is no place — no place — for racism and bigotry in the U.S. military or in the United States as a whole.”
Trump unloaded on two Republican senators, Lindsey Graham of South Carolina and Jeff Flake of Arizona. Graham had criticized Trump’s Charlottesville response, prompting Trump to accuse him of telling a “disgusting lie.” Graham said Trump suggested there was a “moral equivalency” between white supremacists and those who protested the rally. Trump has blamed “both sides” for the violence.
Trump called Flake “toxic” and all but endorsed Kelli Ward, who is challenging Flake in a primary. “Great to see that Dr. Kelli Ward is running against Flake,” Trump tweeted. Flake said Wednesday on Twitter, “We can’t claim to be the party of Lincoln if we equivocate in condemning white supremacy.” It’s possible Trump will further comment when he visits Phoenix on Tuesday for a rally for his 2020 re-election campaign. Although Phoenix Mayor Greg Stanton issued a statement that he was disappointed to learn of Trump’s visit so close to the violent events in Charlottesville. The mayor called on Trump to delay the visit. The statement said: “If President Trump is coming to Phoenix to announce a pardon for former Sheriff Joe Arpaio, then it will be clear that his true intent is to enflame emotions and further divide our nation.”
The Labor Department reports initial jobless claims in the period running from Aug. 6 to Aug. 12 declined by 12,000 to 232,000.
Philly Fed’s manufacturing index for August came in at 18.9, compared with a reading of 19.5 in the prior period.
The leading economic index rose 0.3% last month after a 0.6% increase in June, suggesting potentially faster growth in the final six months of 2017.
Industrial production rose in July for the second month in a row. Output climbed 0.2% last month, a touch below expectations. Production at utilities surged 1.6% as Americans cranked up the AC to deal with another sweltering summer. Mining output also rose 0.5% — the fourth straight increase — reflecting in part frackers pulling more oil and natural gas out of the ground. Yet output among manufacturers slipped 0.1%, the third decline in five months. The drop-off largely stemmed from lower production among auto makers whose sales have cooled off. Auto production sank 3.5%. Production of business equipment and construction output also declined.
Arizona’s unemployment rate remained unchanged at 5.1% in July. The national unemployment rate declined from 4.4% in June to 4.3% in July. A year ago, the Arizona seasonally adjusted rate was 5.2% and the U.S. rate was 4.9%. Arizona lost 20,900 Nonfarm jobs in July. The Private Sector lost 9,400 jobs and government lost 11,500. Arizona Nonfarm employment grew by 1.7% (45,000 jobs) over the year in July.
Walmart reported second-quarter earnings and revenue that topped Wall Street estimates, boosted by an increase in foot traffic and by strong online sales. Shares, however, are trading down by about 2%. America’s largest brick-and-mortar retailer said US comparable-store sales rose 1.8% versus a year ago, making for the 12th straight quarter with positive results. Walmart said food categories delivered their strongest comparable-store sales performance in five years. Walmart raised its guidance slightly.
Alibaba reported yet another winning set of quarterly financials. Revenue was up 56% on-year hitting $7.4 billion, and operating profit more than doubled over the same period to hit $2.88 billion. While investors will likely be pleased, the Chinese government is not. The Cyberspace Administration of China sent a warning to Alibaba, its music-streaming subsidiary Xiami, and three other companies. The letter accused Taobao, Alibaba’s e-commerce marketplace, of allowing some of its vendors to sell “tools that break computers’ IT systems,” “illegal controlled substances,” “illegal VPN tools,” and “internet accounts.” It demanded that Alibaba immediately remove such vendors from its site, and also called on it to launch a “self-investigation.” Alibaba is almost as valuable as Amazon and closing the gap fast.
Mylan has finalized a $465 million settlement resolving Justice Department claims it overcharged the government for its EpiPen emergency allergy treatment, which became the center of a firestorm over price increases. The settlement resolved claims that Mylan avoided higher rebates to state Medicaid programs by misclassifying EpiPen as a generic product, even though it was marketed and priced as a brand-name product. Under the deal, Mylan did not admit wrongdoing. It will reclassify EpiPen and pay the rebate applicable to its new classification as of April 1, 2017.