JOLT new jobs, small biz optimism, computerized trading is the winner, solar under-performs coal, earnings news, Google battles Oracle, Amazon battles YouTube, Facebook battles Fox; beam me up to the next available planet.
Financial Review by Sinclair Noe for 05-10-2016
DOW + 222 = 17,928
SPX + 25 = 2084
NAS + 59 = 4809
10 Y un = 1.76%
OIL + 1.22 = 44.66
GOLD + 1.90 = 1266.30
The price of oil matched a six-month high, and companies that drill for oil and refine it also rose. All 10 industrial sectors of the Standard & Poor’s 500-stock index finished higher.
The number of available jobs rose to an eight-month high in March. The Labor Department said 5.76 million jobs were created in March, up from 5.61 million in February. The quits rate — a measure of worker willingness to leave one job for another — stayed at 2.1% in March. The quits rate staying the same shows there’s little evidence of meaningful wage pressure. The Job Opening and Labor Turnover Summary shows the number of job openings are up 11% year-over-year compared to March 2015.
A measure of small-business sentiment rose in April, snapping a three-month losing streak that took it to a two-year low. The National Federation of Independent Business’s optimism index rose 1 point to 93.6, slightly better than the 93.1 forecast by economists. Most of the index’s sub-gauges rose or stayed neutral. Only one, the index that tracks views about the future path of the economy, slipped.
It is too early to assess precisely the economic impact of the Alberta wildfire, according to the Bank of Canada, adding that it will have more to say in its interest rate decision later this month. Markets have ratcheted up the odds of a Canadian rate cut by year-end as the blaze disturbs oil production, but economists say the temporary interruption alone is unlikely to force the central bank’s hand on May 25.
As Washington remains deadlocked over a solution to Puerto Rico’s rapidly worsening debt situation, Treasury Secretary Jacob Lew traveled to the US territory on Monday to put a face on the crisis. Policymakers in the House of Representatives will unveil a new version of emergency legislation tomorrow, which will clarify how to prioritize the different creditors in Puerto Rico’s labyrinthine web of bond issuers.
Greece’s 10-year bond yields have fallen below 8% for the first time in over six months after Eurozone finance ministers offered debt relief to the cash-strapped country. The deal appears to be a compromise between Germany, which does not believe Athens needs additional debt relief, and the IMF, which insists it is necessary, and will be fleshed out by deputy finance ministers by May 24.
Federal authorities are investigating the market-making arms of Citadel LLC and KCG Holdings, looking into the possibility that the two giants of electronic trading are giving small investors a poor deal when executing stock transactions on their behalf. The Justice Department has subpoenaed information from Citadel and KCG related to the firms’ execution of stock trades on behalf of clients.
Institutional Investor just released its annual list of the top-earning hedge fund managers, and six of the top eight are quants, or managers who rely on computer programs to guide their investing. The list includes Ken Griffin of Citadel, Jim Simons of Renaissance Technology, and John Overdeck and David Siegel of Two Sigma. The vast majority of stock trading is now completed electronically. Tech-driven high-frequency trader firms now dominate the US Treasury market. That obviously means there is less need for the traders of old. Unsurprisingly, that has a lot of people worried.
After plunking down more than $2.5 billion for drilling rights in U.S. Arctic waters, Royal Dutch Shell, ConocoPhillips and other companies have quietly relinquished claims they once hoped would net the next big oil discovery. The pullout comes as crude oil prices have plummeted to less than half their June 2014 levels, forcing oil companies to cut spending.
Gap warned. The retailer announced that same-store sales cratered 7% in April. Gap was hit especially hard by an 11% slide in Banana Republic same-store sales. The company issued downside EPS guidance of $0.31 to $0.32, far worse than the $0.44.
Lumber Liquidators’ net loss quadrupled in the first quarter, as the retailer suffered after regulators revealed that certain types of laminate flooring previously sold by the company had a greater cancer risk than once thought. The company’s net loss widened to $32.4 million from $7.8 million, in the year-ago quarter, and they missed estimates.
SolarCity was gob smacked. The Elon Musk-led solar company lost a whopping $2.56 a share, missing the $2.31 loss that was expected. Revenue surged 81.6% versus last year to $122.6 million, topping the $110 million consensus. Second-quarter guidance came in at a loss of $2.70 to $2.80 a share, worse than the $2.13 loss that Wall Street was anticipating. SolarCity shares are down about 20%.
At a time when falling prices, renewed U.S. tax breaks and the Paris climate deal are fueling solar sales worldwide, solar shares are performing even worse than coal stocks. Despite the ups and downs, the general trend is up. Developers will install 48.4 gigawatts of solar by the end of 2020, more than double the amount in the prior five years. Soaring installations and growing global demand for clean energy is being trumped by investor concerns that the debt-fueled strategies employed by SunEdison and SolarCity are endemic to the industry and dangerous for shareholders. Many solar companies have “growth-at-any-cost’’ business models that are neither profitable nor sustainable. Problems at a few major companies don’t necessarily carry over to the rest, but the problems are forcing the good companies to show proof they can deliver. There might be some bargains, if you can uncover them.
Earnings roundup: Credit Suisse swung to a 302-million-Swiss-franc net loss, as it plowed ahead with restructuring its investment bank, and cautioned that subdued market conditions could continue into the second quarter. Hit by a lower demand for mobile networks, Nokia reported a net loss of €513-million-euro, warning of further cuts and layoffs following the acquisition of Alcatel-Lucent. SoftBank’s quarterly profit plummeted more than 36%, as turnaround efforts continued at Sprint, the struggling wireless carrier it bought in 2013. ING posted a 29% fall in first quarter profit, blaming the drop on higher regulatory costs in Europe and weakness in its financial markets division.
After the closing bell, Walt Disney posted fiscal second-quarter results that missed analysts’ estimates as earnings at the company’s ABC TV network and consumer-products division declined. Sales grew 4% to $13 billion, missing estimates. Earnings rose 2% as Star Wars and Disney resorts’ performance helped offset flat revenue, but again, short of estimates.
NASA reveals the latest Kepler findings. The space telescope, launched in 2009, aims to find planets in the Milky Way. The number of known alien planets has just gone up by more than 60 percent. Astronomers announced today (May 10) that NASA’s Kepler space telescope has discovered 1,284 new exoplanets, including nine rocky worlds that might be capable of supporting life as we know it. This is by far the largest haul of alien planets ever unveiled at one time.
Two of tech’s biggest companies are slugging it out in court. On one side, Oracle co-founder Larry Ellison; on the other, Alphabet’s Google Executive Chairman Eric Schmidt. Their beef? A six-year legal skirmish over software copyrights with billions of dollars in damages at stake. Oracle is seeking $8.8 billion because, it claims, Google’s Android violated its copyright on parts of the Java programming language. Google says the fair-use provision of copyright law allows it to use Java without paying a fee. Oracle is also asking for an injunction against Google’s future use of Java in Android.
Amazon has announced Amazon Video Direct, a new self-service program that will let video creators post videos on the company’s streaming platform and either sell them, rent them, make them available to Amazon Prime members or offer them for free with advertising. It’s the ad-supported videos that pose the biggest threat to YouTube. The Google-owned video site has come to dominate the world of online video by amassing a huge repository of videos and convincing marketers to sell ads against them. YouTube went largely unchallenged in this space for years, until Facebook’s aggressive push into video in 2014. Now Amazon will be another competitor with the deep pockets and technical infrastructure to be a potential threat.
In an April 27 conference call to discuss Facebook’s first quarter results this year, Mark Zuckerberg announced a high point in his company’s history. Advertising revenue grew by more than 50 percent since 2015, the company was hard at work on a future for artificial intelligence and virtual reality, and the average Facebook user is spending 50 minutes per day on Facebook and its other products, Instagram and Messenger. That means Facebook has a lot of power. Yesterday, several former Facebook news “curators” who edited the Trending section beside the News Feed told Gizmodo that they were asked to suppress stories about Republicans and withhold news from predominantly conservative websites. It basically follows the plot from House of Cards. Facebook has denied the allegations.
The defense is that the news sorting is based on algorithms, and the algorithms are based on the credibility of the source. So, if something isn’t trending, well, consider the source. Facebook has become a powerful media gatekeeper, and allegations that it is somehow suppressing conservative voices is basically catnip for conservative media. Conservative media has always thrived on playing the underdog; Fox News still refers to the “mainstream media” even though it is the most popular cable news channel in the country. The simple reality is that there is always a middle man in the dissemination of news, so it is appropriate that it comes under scrutiny. By the way, the top trending story on Facebook over most of the past day has been the story of Facebook suppressing news.