Financial Review

When It Rains It Pours

….Dow, S&P and Nasdaq hit records. Waiting on the Fed. Trump’s first UN speech. Obamacare on the block again. Tax reform would add $1.5 trillion to deficit. Did Wells Fargo beat the rap? Equifax sinks lower. Hurricane Maria to PR. Housing starts slip. And more

Financial Review by Sinclair Noe for 09-19-2017

 

DOW + 39 = 22,370
SPX + 2 = 2506
NAS + 6 = 6461
RUT – 0.68 = 1440
10 Y + .01 = 2.24%
OIL – .06 = 49.85
GOLD + 3.60 = 1311.70
The fun never stops. The Dow hit another record high close. The S&P 500 hit another record high close. The Nasdaq Composite hit a record high close. For the Dow Industrial average, this is the sixth record high. The S&P has a streak of 3 record highs.

 

The Fed will wrap up its two-day meeting tomorrow and release an announcement on monetary policy at 2:00 p.m. Eastern – 11:00 a.m. in Arizona. Although we don’t see any surprise rate increase this month, the betting at the Chicago Merc is for a 57% likelihood of a rate increase at the December meeting. There’s no meeting in November, and after December, the next planned Fed get-together is March. And Fed Chair Janet Yellen’s term expires in February, so December seems like the time to increase rates a quarter point. At the current meeting, traders are expecting talk of downsizing the Fed’s $4.5 trillion bond portfolio. The Fed has outlined its plan and will only be taking baby steps at first. At first, it will sell Treasuries and mortgage backed securities to reduce its holdings by only $10 billion per month and, as time and conditions warrant, it will work up to $50 billion per month. Wall Street typically likes economic stimulus and typically throws a tantrum when the punch bowl is taken away. We’ll see.

 

President Trump delivered his first speech to the United Nations General Assembly this morning. Trump escalated his standoff with North Korea over its nuclear challenge, threatening to “totally destroy” the country of 26 million people and mocking its leader, Kim Jong Un, as a “rocket man.”

 

A bipartisan group of 10 governors — including the Republican governors of Alaska and Nevada –  expressed opposition to a last-ditch Republican effort to repeal and replace most of Obamacare. The bill must pass by a Sept. 30 deadline under a process known as reconciliation, that makes it possible for Republicans to get around any filibuster attempt from Senate Democrats. Senate Majority leader Mitch McConnell says he’ll only bring the legislation to the floor if it has the needed 50 votes to pass. So far, a vote has not been scheduled. Meanwhile, negotiations to stabilize the ACA market exchanges have broken down. After Senate Republicans failed to repeal Obamacare in July, talks began on fixing the law rather than dismantling it. Trump has threatened to withhold billions in Obamacare subsidies, which would upend private insurance markets.

 

Top Republicans on a key Senate panel have reached a tentative agreement on a tax plan that would add about $1.5 trillion to the government’s $20 trillion debt over 10 years. The figure would allow deeper cuts to tax rates than would be allowed if Republicans followed through on earlier promises that their upcoming tax overhaul wouldn’t add to the deficit. The divide between the Senate GOP’s deficit hawk and “supply side” wings has to be overcome before action on this fall’s tax measure can commence in earnest. Unlike the House, Senate Republicans aren’t planning to pair the tax measure with spending cuts. The work of the budget panel is critical since Republicans need to agree on a Capitol Hill budget plan in order to pass a follow-up tax bill. Both House and Senate Republicans are divided and the budget debate is months behind schedule. Many Republicans in Washington promise that cutting corporate and individual rates and ridding the code of inefficient tax breaks, deductions, and preferences will boost the economy and cause a burst of new revenue. But the outlines of their tax plan itself remain secret, and it’s not clear how successful they will be in cleaning up the loophole-choked tax code. Congress’ impartial scorekeepers have accepted the premise of such “dynamic scoring,” but past studies by the Joint Tax Committee and Congressional Budget Office have been cautious about how much economic growth and tax revenues would follow tax cuts. If, as it appears, the tax plan would add to the deficit, the development also means, under the Senate rules governing fast-track debate on the budget and taxes, some of the provisions in the upcoming tax measure would have to be temporary.

 

The House Financial Services Committee has published a report entitled: “Did the CFPB let Wells Fargo ‘beat the rap’?” The report claims the Consumer Financial Protection Bureau could have fined Wells Fargo $10 billion instead of $100 million last year for the unauthorized customer accounts fraud. The regulator settled for so much less to resolve the matter quickly.

 

The Equifax hack just keeps getting worse. A security failure exposed the personal information of 143 million Americans. Equifax now says about 100,000 Canadian consumers may have had their personal information compromised. The SEC is investigating the sale of company stock by 3 executives, days after the breach and before it was publicly announced. There are multiple lawsuits in the pipeline. Now, Equifax says it had a security breach earlier this year that involved a different part of the company than the one accessed in the larger hack. The breach involved TALX, which is Equifax’s human resources and payroll service. The company said there’s no evidence that the TALX breach, which happened between March and April this year, and the wider breach are related.

 

Hurricane Maria is expected to hit Puerto Rico tomorrow morning with Category 5 winds of up to 160 miles per hour. There is also concern about flooding from heavy rains and storm surge. Puerto Rico is still suffering from Hurricane Irma, which grazed the island, knocking out power and communications. If Maria retains its strength, it would be the most powerful hurricane to hit Puerto Rico in 85 years.

 

A magnitude 7.1 earthquake rocked central Mexico today, centered just south of Mexico City, killing at least 44 people as buildings collapsed in plumes of dust and thousands fled into the streets in panic. The quake came less than two weeks after another quake left 90 dead in the country’s south, and it occurred as Mexicans commemorated the anniversary of a 1985 quake that killed thousands.

 

Construction on new houses slipped 0.8% in August to an annual rate of 1.18 million from an upwardly revised 1.19 million in July. Although housing starts fell 7.9% in the South, Hurricane Harvey had very little impact. The storm only made landfall at the end of the month. And Hurricane Irma did not batter Florida until September. Permits to build new homes jumped 5.7% to a 1.3 million rate, matching the level in January and marking the second highest amount since 2007.

 

Post Holdings will buy refrigerated foods producer Bob Evans Farms in a deal with an equity value of about $1.5 billion. Under terms of the deal, Post, a consumer goods holding company, will pay $77 for each Bob Evans share outstanding, which is 5.6% above Monday’s closing price.

 

Shares of Sprint gained more than 6% after a CNBC report reignited speculation that the mobile company is in talks to merge with T-Mobile.  Shares of T-Mobile were up more than 3%, and shares of other mobile carriers also saw a bump.

 

The Federal Trade Commission signed off on a deal for Walgreens Boots Alliance to buy 2,186 Rite Aid stores for $5.19 billion. That amounts to a much smaller deal than the companies originally sought when Walgreens pushed to buy Rite Aid. The companies abandoned that deal following opposition from regulators.

 

As expected, Toys R Us filed for Chapter 11 bankruptcy protection. The court allowed Toys R Us to borrow up to $2 billion to start paying suppliers so it can stock up on toys for the holiday season. As part of its restructuring, the company plans to spend around $1 billion over the next 5 years to transform its big box stores by adding event space, increasing staff and wages for in-store product demonstrations and combining its flagship stores with Babies ‘R’ Us stores.

 

FedEx reported a lower quarterly net profit due to service disruptions following June’s Petya cyber-attack on its Dutch delivery unit TNT Express and the impact of Hurricane Harvey. FedEx shares trade lower in after-hours.

 

Bed Bath & Beyond reported earnings far below expectations, citing restructuring- and hurricane-related issues. Share closed down almost 12%.

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