Breathing down on 20k. Holiday sales up; online leads the way. Why would you go to a mall? Consumer confidence climbs – maybe I should take the credit. Home prices up but the trend is unsustainable. World’s oldest bank on the brink. Toshiba flubs again. Panasonic and Tesla bring manufacturing jobs to Buffalo.
Financial Review by Sinclair Noe for 12-27-2016
DOW + 11 = 19,945
SPX + 5 = 2268
NAS + 24 = 5487
RUT + 6 = 1377
10 Y + .02 = 2.56%
OIL + .63 = 53.65
GOLD + 10.00 = 1139.30
The Dow Jones industrial average marked its seventh straight week of gains on Friday. Today, the Dow Jones Industrial Average once again flirted with the widely-watched 20,000 level… and once again failed to make it through. The index hit an opening peak of 19,980, just a few points shy of last week’s record highs, but went sideways thereafter, with volume about 50 percent below the 30-day average (typical of the final trading week of the year.) Treasury yields rose the most in almost two weeks. U.S. crude prices were up over 1% and briefly moved above the $54 a barrel level. Gasoline prices are at $2.28 a gallon, national average. That’s four cents a gallon more than a week ago today. Oil markets adopting a wait-and-see approach before the first “OPEC and non-OPEC” output cut deal in 15 years goes into effect. The accord, which kicks in on Jan. 1, is designed to bolster oil prices by lowering production of all the parties involved by almost 1.8M barrels per day.
The focus of today’s trading was the retail sector, as investors tried to figure the strength of the holiday shopping season. Amazon.com said this was the best holiday season ever as they shipped more than 1 billion items. More than 72 percent of Amazon’s customers worldwide shopped through mobile devices and Dec. 19 was the busiest shopping day this holiday season. Prime customers spent twice as much as other consumers using Amazon. Sales of voice-controlled Echo devices were nine times more than they were during last year’s holiday season. Other best sellers on Amazon included 72-pack Keurig K-Cups, the movie “Finding Dory,” Samsung’s Gear VR virtual reality headset and Nintendo’s Pokémon Sun and Pokémon Moon role-playing video games.
The day after Christmas is always a little hectic at shopping malls but yesterday was wild. Fights, disturbances and false reports of gunfire caused chaotic scenes and shut down several malls across the country. Eight to 10 people suffered minor injuries during a melee in the food court at The Mills at Jersey Gardens in Elizabeth, New Jersey. And then similar disturbances unfolded in other cities. Many involved calls of shots being fired and youths fighting. Police put the Arizona Mills mall in Tempe, Arizona, on lockdown after reports of shots fired inside the shopping center. It was unclear if the incidents were connected.
Consumer confidence surged in December to the highest level since 2001. The Conference Board’s consumer confidence index jumped to 113.7 from a revised 109.4 in November. A measure of how confident Americans feel right now, known as the present situation index, dipped to 126.1 from 132. That’s still near the highest level in nine years, however. An index that tracks expectations over the next six months rose to 105.5 from 94.4, marking the highest level since 2003. Donald Trump took credit for the surge in consumer confidence, tweeting: “The world was gloomy before I won – there was no hope. Now the market is up nearly 10% and Christmas spending is over a trillion dollars!”
Actual holiday spending is instead on track to reach a combined $656 billion in November and December, according to National Retail Federation. Meanwhile, research firm Customer Growth Partners raised its holiday sales estimate to a 4.9 percent gain over last year to $637 billion. That would be the biggest increase since 2005. Customer Growth had previously predicted a 4.1 percent advance. Online sales grew an estimated 15 percent, up more than a percentage point from the firm’s previous forecast. The Trump campaign didn’t provide a source for the $1 trillion figure, but it appears to come from a Deloitte study that was released in September, more than six weeks before Trump won the election. The study forecast that holiday spending would exceed $1 trillion in the three months from November to the end of January, representing a 3.6% to 4% increase over last year’s. There’s no evidence that spending has already hit that level.
The consumer confidence index also showed that the share of households anticipating higher equity prices a year from now surged to 44.7 percent in December from 30.9 percent a month earlier. The last time Americans’ optimism about the stock market registered such a dramatic one-month surge was during the dot-com boom; so, consider the idea that the confidence index might be a contrarian play.
Also, consumer confidence does not necessarily carry over to business. John Williams, president of the Federal Reserve Bank of San Francisco said his meetings with business leaders in recent weeks have been dominated by uncertainty about the economic plans of President-elect Trump. Excitement about tax cuts and regulatory relief has been tempered by worries about the impact of less trade and less immigration.
The S&P CoreLogic Case-Shiller 20-City Composite Home Price Index rose by 5.1 percent in October from the same time last year. Home prices in many markets have reached the highest levels since the financial crisis. Seattle, Portland, and Denver reported the highest year-over-year gains among the 20 cities over each of the last nine months. Seattle and Portland home prices were up over 10% in the past 12 months. The Phoenix market was up 0.4% in October and up 5.2% over the last 12 months through October. Home prices have been rising as a healthy jobs market and historically low mortgage rates have increased demand for homeownership since the financial crisis. Also, constrained supply helped to bid up the prices of existing homes, especially in desirable East Coast and West Coast cities. David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices noted that “mortgage interest rates rose in November and are expected to rise further as home prices continue to out-pace gains in wages and personal income.” Adding, “With the current high consumer confidence numbers and low unemployment rate, affordability trends do not suggest an immediate reversal in home price trends. Nevertheless, home prices cannot rise faster than incomes and inflation indefinitely.”
The world’s oldest operating bank — Monte dei Paschi — continues to work on securing a bailout from the Italian government. But it will need more cash than previously thought. The bank disclosed late Monday that the European Central Bank has said €8.8 billion-euro ($9.2 billion) will be required to fill the hole in its finances; that’s about twice as much as previously anticipated. At the same time, subordinated bonds held by the bank’s institutional investors are expected to be converted to shares to raise an additional €2 billion-euro to €2.3 billion-euro. The central bank also warned that Monte dei Paschi’s financial position has deteriorated rapidly in recent weeks. Trading in Monte dei Paschi shares has been suspended since Friday. Meanwhile, the Italian government has approved a €20 billion-euro rescue fund to help prop up Monte dei Paschi and the country’s other struggling banks.
Toshiba said it may have to book several billion dollars in charges related to a U.S. nuclear power acquisition, a shock warning that sent its stock tumbling 12 percent and rekindled concerns about its accounting acumen. Toshiba said cost overruns at U.S. power projects handled by a nuclear construction business newly acquired from Chicago Bridge & Iron would be much greater than initially expected, potentially requiring a huge writedown.
Panasonic will invest more than 30 billion-yen (or about $256 million) in the Buffalo, New York production facility of Elon Musk’s Tesla Motors to make photovoltaic (PV) solar cells and modules. The plan is part of the solar partnership that the two companies first announced in October, but which did not disclose investment details. The two companies said they plan to start production of PV modules in the summer of 2017 and increase to one gigawatt of module production by 2019. The announcement underscores deepening ties between Tesla and Panasonic. The two are building a $5 billion lithium-ion gigafactory east of Reno, Nevada, to produce batteries for both electric cars and energy storage products. In October, Tesla revealed plans to work with Panasonic to make solar cells and modules. Tesla acquired solar installer SolarCity for $2 billion. Musk revealed plans for a new solar-roof made of glass tiles in late October.
The U.S. Food and Drug Administration on Friday approved a new drug developed by Biogen to treat spinal muscular atrophy, the leading genetic cause of death in infants.
Seattle Genetics reports four people died in test trials for its experimental cancer drug, prompting the FDA to impose a clinical hold on the company’s early-stage trials.
Healthcare company Abbott Laboratories has won U.S. antitrust approval for its proposed purchase of medical device maker St. Jude Medical. Abbott has agreed to divest two medical device businesses to settle FTC charges that the $25 billion acquisition of St. Jude would likely be anticompetitive. Abbott has said the deal would help it compete against larger rivals Medtronic and Boston Scientific as hospitals look to cut the number of their suppliers.