Financial Review

Up and Down

…..Housing starts down. Manufacturing production drops. Confidence in the economy sputters. Trump goes after H-1B visas. May calls snap elections for UK. BofA best big bank earnings. Goldman flops. J&J disappoints. IBM revenue declines, again. Facebook wants to augment reality. Theranos must pay in Arizona.

Financial Review by Sinclair Noe for 04-18-2017

DOW – 113 = 20,523
SPX – 6 = 2342
NAS – 7 = 5849
RUT + 0.71 = 1361
10 Y – .07 = 2.18%
OIL – .30 = 52.35
GOLD + 5.20 = 1290.20

 

One day up, one day down.

 

Housing starts decreased 6.8 percent to a seasonally adjusted annual rate of 1.22 million units as the construction of single-family homes in the Midwest recorded its biggest decline in three years. Last month’s decline in homebuilding was likely payback after the warm weather pulled forward construction in February. Single-family homebuilding, which accounts for the largest share of the residential housing market, fell 6.2 percent to an 821,000-unit pace last month, retreating from a near 9-1/2-year high. Single-family starts in the Midwest declined 35 percent, likely the result of harsh weather. Still, housing remains on solid footing. Overall building permits increased 3.6 percent, driven by a 13.8 percent jump in the multi-family segment. Though single-family permits fell 1.1 percent last month, they were not too far from the more than nine-year high reached in February.

 

In a separate report, the Fed said manufacturing production dropped 0.4 percent in March, weighed down by a 3.0 percent decline in the output of motor vehicles and parts. That was the first and biggest decline in factory production since last August. The return of cold temperatures, however, resulted in a record 8.6 percent surge in utilities output. Manufacturing output rose at a 2.7 percent annual rate in the first quarter as the sector, which accounts for about 12 percent of the U.S. economy, continues to recover after a prolonged drag from lower oil prices, a strong dollar and an inventory overhang.

 

Confidence in the U.S. economy is at its lowest point in five months. Gallup’s US Economic Confidence Index was +4 for the week ending April 16, down two points from a week earlier. It’s also fallen 12 points from early March when Dow Jones Industrial Average broke through 21,000 for the first time. Since then, the benchmark stock index has fallen 2.7 percent. Gallup’s indicator is back to where it was shortly after President Trump was elected. Some 33 percent of respondents assessed the economy as good, while 22 percent rated it as poor. But 48 percent of respondents said the economy was getting worse, while 45 percent said it was getting better.

 

President Trump spoke about his “buy American, hire American” agenda at the Kenosha, Wisc., headquarters of Snap-On Tools.  He signed an executive order to review high-skilled H-1B visas, which also asked federal agencies to minimize the use of waivers to Buy American policies. Trump said, the visas should “never, ever be used to replace Americans.” He also said the North American Free Trade Agreement, or NAFTA, should be renegotiated or he will “get rid of it” — a threat that earned mild applause from the audience.

 

British Prime Minister Theresa May called for an early election on June 8, saying she needed to strengthen her hand in Brexit talks with the European Union. May said she decided it was necessary to try to stop the opposition “jeopardizing” her work on Brexit. May is betting her strong showing in opinion polls will translate into a snap election victory and strengthen her parliamentary majority. If the opinion polls are right, May will win a new mandate for a series of reforms she wants to make and also a vote of confidence in a vision for Brexit which sees the country outside the EU’s single market. Britain joins a list of western European countries scheduled to hold elections this year. Votes in France in April and May, and in Germany in September, have the potential to reshape the political landscape around the two years of Brexit talks with the EU expected to start in earnest in June.

 

Nicola Sturgeon, first minister of the Scottish government, described the decision as a “huge political miscalculation” that could help her efforts to hold a new independence referendum. The government of the Irish Republic also expressed concern that the early election could damage the chances of resolving a political crisis in the British province of Northern Ireland.

 

Bank of America had the best first quarter of the largest US banks that have reported to date, thanks to higher net interest income spurred by rising rates. Maybe the Federal Reserve should be credited with an assist. Bank of America reported total revenue rose about 7 percent to $22.4 billion in the three months ended March 31, handily beating the average analyst estimate of $21.6 billion. Revenue from trading activities, excluding special items, rose 21.2 percent to $4 billion, helped by a 29 percent increase in fixed-income trading revenue. Net income surged about 44 percent to $4.35 billion. Earnings per share rose to 41 cents per share, topping the average analyst estimate of 35 cents.  BofA shares traded down 10 cents.

 

Goldman Sachs’ profit rose from a difficult year-ago quarter, with earnings per share of $5.15 versus $2.68. But the results were well short of analyst forecasts of $5.31 per share. Goldman reported a 2 percent decline in trading revenue, in sharp contrast to results from JPMorgan, Citigroup. and Bank of America, which all beat estimates due to strength in trading. Overall, Goldman’s profit rose 80 percent to $2.2 billion from $1.2 billion in the first quarter of 2016. Revenue rose 27 percent to $8 billion from $6.3 billion. Goldman shares fell 4.7 percent.

 

Johnson & Johnson reported disappointing pharmaceutical and consumer product sales. Revenue of $17.7 billion in the quarter fell short of estimates of $18 billion. Net earnings in the first quarter were $4.42 billion. Excluding items, J&J earned $1.83 per share, beating Wall Street expectations by 6 cents. Shares fell 3.1 percent in the biggest one-day percentage decline in more than eight years.

 

IBM said revenue fell 2.8 percent, to $18.1 billion in the first quarter from $18.6 billion a year earlier. Revenue declined for the 20th quarter in a row. Net income dropped to $1.75 billion, or $1.85 per share, from $2 billion, or $2.09 per share.

 

Corning will sell up to 12.4 million miles of optical fiber to Verizon each year from 2018 through 2020, with a minimum purchase commitment of $1.05 billion. In a statement, Verizon said the deal would help it meet its rollout schedule for a fiber-optic network in Boston. The company also views fiber as critical for a next generation, or 5G network. Verizon is testing a 5G fixed wireless service with equipment maker Ericsson in 11 U.S. markets and expects a commercial launch as early as 2018. Both Verizon and competitor AT&T Inc have been buying assets in preparation for 5G.

 

Every year, Facebook founder and CEO Mark Zuckerberg takes to the stage and tells a packed auditorium of developers and press about new tools, products, and initiatives the company has been working on. Facebook held its annual developers’ conference today, and called for computer programmers to assist the company by building augmented reality-based apps to work with what Facebook calls its Camera Effects Platform. Facebook announced a new set of tools to help developers and will begin the initiative with a small number of partners in a closed test. Allow me to translate. Augmented reality, so far, refers to little stickers that can be added to photos; for instance, people can attach cartoon thought bubbles above the heads of people they view through their Facebook camera lens, or you can slap a beard on a selfie, put stars on a photo. Maybe the best example of augmented reality is the Pokemon Go game. But take it to the next level. What if you could leave virtual notes on the wall of a restaurant, noting which item on the menu is worth ordering, or virtual notes at work – a to-do list or other reminder. Or, as Facebook CEO Mark Zuckerberg said: “Think about how many of the things around us don’t actually need to be physical. Instead of a $500 TV sitting in front of us, what’s to keep us from one day having it be a $1 app?” Facebook does not expect to build all of these software experiences itself; that’s where the developers come in. So far, augmented reality has experienced several failed attempts to launch. Facebook’s Oculus Rift googles have been slow to find fans. Microsoft has its version of an augmented reality headset, called HoloLens, which it unveiled two years ago.  Remember Google Glasses?

 

To keep a step ahead of Facebook, today Snap is introduced a new feature for its Snapchat messaging service that will allow users to place 3-D cartoon objects into their videos and pictures. Snap’s new technology, a 3-D lens, can also change and shift in response to physical objects.

 

Elizabeth Holmes, the CEO of Theranos, personally lobbied the Arizona Legislature and Gov. Doug Ducey in 2015 to pass a bill allowing people to get a blood test without a doctor’s order. Ducey touted the law as a way to open the state up to new and innovative businesses — and he signed the legislation with Holmes standing directly behind him. Ducey has prioritized luring companies and jobs to Arizona by passing business-friendly legislation and eliminating regulations. Fast forward to October 2016, Theranos shut down its clinical labs in several states and wellness centers inside Arizona Walgreens stores in October and laid off a large part of its workforce. The move came after federal regulators barred company founder and CEO Elizabeth Holmes from owning or running a medical laboratory for two years, and followed reports the company’s blood tests were unreliable. In Arizona alone, 10 percent of 1.5 million blood tests were voided or corrected. Today, Arizona Attorney General Mark Brnovich announced Theranos has agreed to pay $4.65 million to cover full refunds for every Arizona customer who used the company’s testing services.

 

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