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Saturday, November 18, 2017

M&A Media Mayhem

Financial Review

M&A Media Mayhem

DOW – 100 = 23,358
SPX – 6 = 2578
NAS – 10 – 6782
RUT + 5 = 1492
10 Y – .01 = 2.35%
OIL + 1.54 = 56.68
GOLD + 15.10 = 1294.40


  • Number of Currencies: 907
  • Total Market Cap: $234,132,708,353
  • 24H Volume: $10,050,026,221

Top Cryptocurrencies

  Name Symbol Price USD Market Cap Vol. Total Vol. % Price BTC Chg. % 1D Chg. % 7D
  Bitcoin BTC 7,810.0 $130.16B $3.69B 36.76% 1 +1.72% +24.52%
  Ethereum ETH 347.82 $33.16B $615.23M 6.12% 0.0443825 +4.95% +10.56%
  Bitcoin Cash BCH 1,250.80 $21.26B $3.12B 31.07% 0.161821 +6.40% -11.49%
  Ripple XRP 0.22750 $8.81B $145.99M 1.45% 0.00002925 +1.34% +8.98%
  Litecoin LTC 69.090 $3.70B $164.46M 1.64% 0.00879685 +2.34% +10.55%
  Dash DASH 453.36 $3.48B $144.22M 1.43% 0.0580253 +7.17% +31.26%
  NEO NEO 41.150 $2.66B $436.25M 4.34% 0.00523784 +1.91% +44.47%
  IOTA MIOTA 0.82220 $2.28B $57.87M 0.58% 0.00010516 +3.92% +39.22%
  Monero XMR 131.00 $2.01B $63.19M 0.63% 0.0167686 +3.56% +9.07%
  NEM XEM 0.19553 $1.75B $7.02M 0.07% 0.00002498 +2.25% +3.59%

It has been a wild week on Wall Street, with the biggest gain and the largest drop in two months after touching records a week earlier. Investors are trying to gauge whether benchmarks will continue a march to all-time highs on strong earnings and faster growth spurred by corporate tax cuts or if they will be pulled down amid lofty valuations, the flattest yield curve in a decade and a selloff in junk bonds.

For the week, the Dow lost 0.3%. The S&P lost 0.1%. The Nasdaq gained 0.5% for the week.

Yesterday, the House passed its version of a tax cut plan. The Senate is still debating its own plan, trying to reduce the 10-year debt impact below $1.5 trillion. A Reuters poll showed that nearly two-thirds of more than 60 economists said they were not confident the Trump administration would get the legislation passed this year.

The biggest problem for the tax plan is that it is widely despised. The latest survey from Quinnipiac out this week found that just 25 percent of voters approve of the GOP tax-cut plan while 52 percent disapprove. Most voters, 61 percent, believe the plan will benefit the wealthy, while just 24 percent view it as good for the middle class.

With 95 percent of S&P 500 companies having reported third-quarter results, earnings are on pace to grow 6.2% from a year earlier, according to FactSet. That’s up from the 3.1% growth rate expected at the end of period.

Technology companies drove much of the growth. The sector reported a 19.7 percent increase in earnings and was the biggest contributor to earnings growth rate. If the tech sector was excluded, the overall growth rate would fall to 2.8% from 6.2%.

Profits at companies that generate more that 50% of their sales outside the United States, grew more than 13% in the third quarter. Earnings at firms that get a majority of their revenue from within the U.S., rose only 2.3%.

The energy sector reported the largest increase in earnings of the S&P 500’s 11 sectors at 135%. The increase reflects how hard the roughly two-year slide in oil prices had hit the industry; 74 percent of companies have reported profits above analysts’ expectations, above the five-year average of 69 percent; Financial firms reported the biggest decline in profits, down 8.3%. That decline can largely be blamed on Hurricanes Harvey and Irma. Insurance companies in the sector reported 63% decrease in profits.

The Commerce Department on Friday said October housing starts surged, rising 13.7% to a seasonally adjusted annual rate of 1.29 million. That’s the second-highest level of the economic recovery. Building permits, a less volatile series, rose 5.9% to 1.3 million.

Big double-digit gains came from both the South and the Midwest, with at least some of that attributed to the recovery from the hurricanes that ravaged Texas and Florida. On a percentage basis, the Northeast was the biggest mover, up a whopping 42%, but that’s the smallest region for activity. It’s possible warm weather proved to be a boost in the Northeast region. Single-family starts rose 5.3%, and starts with five or more units leaped 37.4%.

The Federal Communications Commission (FCC) on Thursday rolled back media ownership regulations under the guise of trying “to modernize its broadcast ownership rules and to help promote ownership diversity.”

The approved order: Eliminates newspaper/broadcast and radio/television cross-ownership rules, which imposed restrictions on owning multiple media outlets in the same market; Relaxes rules about local television ownership—including joint sales agreements, which allow a company to control news operations at several stations in one market, where stations would typically compete against each other; and formally requests “comment on how to design and implement” an FCC diversity incubator program. In other words, this is the beginning of the end of local media.

The new rules are expected to help Sinclair Broadcasting move forward with a proposed a $3.9 billion merger with Tribune Media, which would enable the company to reach 72 percent of the U.S. population. The merger must be approved by the FCC.

There are also longer-term forces at work: traditional media companies are struggling with more customers canceling pricy cable contracts while Netflix and are spending billions of dollars on making shows and movies. More viewers now stream programming on smartphones or other devices, diverting the flow of advertising dollars away from traditional media companies.

And so now, everybody is trying to buy or sell a media company. It started a year ago when AT&T announced it had reached an agreement to buy Time Warner. Then things really turned upside down when 21st Century Fox — just three years after trying to buy Time Warner — signaled it wanted to sell some assets to Disney.

Then on Thursday, it was reported that Comcast might buy some of Fox. Or Verizon might. It might even be sold off piecemeal. Hulu may be the single most important piece of Fox’s pie as Disney and Comcast look to compete with streaming services from Netflix and Amazon.

Comcast currently holds a 30 percent ownership stake in Hulu. Acquiring Fox’s 30 percent stake would give Comcast a majority holding. Disney, which also holds a 30 percent ownership stake in Hulu, is in the same position.

Charter Communications director John Malone says 4 firms have talked to the cable company about a potential merger or acquisition. And of course, President Trump might not allow AT&T to buy Time Warner. Meanwhile, Meredith Corp is considering a bid for Time Inc and Discovery Communications is acquiring Scripps Networks Interactive.

But wait, there’s more! The Federal Communications Commission will drive a stake through its own net neutrality rules roughly this time next month. Net neutrality is the concept that the internet should be an even playing field. Whether it’s your cousin’s blog or Google, net neutrality proponents argue all data should flow the same, meaning no persons or companies can be favored by the networks on which the data flows. That keeps big companies from paying for preferential treatment.

This is how the internet has generally operated, but as more services move online, concerns have grown that internet service providers will want to start charging for better access. Net neutrality supporters argue that this would turn the internet into a pay-to-play world, hampering innovations and leaving people to the whims of major companies. The rules could be voted on by mid-December, leaving the door open for internet providers to begin manipulating traffic.

FCC Chairman Ajit Pai has made no secret of his wish to undo the benchmark rules. Pai has been working to repeal the FCC’s net neutrality rules since the start of his time as chairman. Pai floated initial rules in May, which led into the usual comment period that FCC rule changes go through. That process was a disaster for the FCC. There appears to be almost unanimous support – exception for some telecom companies – for existing net neutrality rules.

Elon Musk built a truck, a big-rig. It is all electric. It does not drive itself, but the Tesla Semi is equipped with Enhanced Autopilot. The big reveal was last night in California. The truck has a 500-mile range, roughly twice what Reuters claimed in August. It’s also more than double what Cummins and Daimler have promised so far in their planned electric trucks.

That figure, and the promise of solar-powered “Megachargers” to give 400 miles of range in 30 minutes — supplementing the existing Supercharger network — should help put to rest concerns that an electric truck is impractical for hauling outside of cities.

For Tesla, this was a fundraising event – looking for pre-orders, and it looks like some of the big trucking firms were ready to buy. Walmart preordered 15. Here’s the sales pitch: electric trucks can go for a million miles before requiring a major overhaul. The operating cost is $1.26 per mile vs. $1.51 per mile for traditional diesel. And they can be linked in a convoy, dropping the cost down to $0.85 a mile.

The big question is whether Tesla can build the trucks before they run out of money. The actual production is proving to be quite a challenge for Tesla. After the big truck display, Tesla unveiled a new version of its Roadster, sports car, which comes with a $200,000 price tag.

Musk boasted of the Roadster’s 0–60 mph time of 1.9 seconds and top speed of at least 250 mph. And it comes with a 650-mile range – that’s Los Angeles to San Francisco and back in one charge, a significant milestone for an electric car.

And in today’s edition of “Banks Behaving Badly” – Swiss financial markets authority FINMA has found that the Swiss subsidiary of U.S. investment bank JPMorgan broke anti-money laundering rules. FINMA ruled on June 30 that JPMorgan Switzerland had “seriously infringed” regulatory oversight provisions.

The case involved a “violation of obligations of diligence on questions of money-laundering.” Both FINMA and JPMorgan declined to comment on FINMA’s ruling and it was unclear what action, if any, the regulator had taken against JPMorgan. FINMA is not authorized to levy fines, but may confiscate unlawfully realized gains.

It is important to remember that JPMorgan is a really big bank, and with hugeness come the inevitable slips and blunders. But it must take some real effort ot get busted for money laundering lapses by the Swiss. That’s just sloppy.

Stocks Trade in Red Shade as Success for Tax Proposal Weighed

Charles Schwab: On the Market
Posted: 11/17/2017 4:15 PM EST

Stocks Trade in Red Shade as Success for Tax Proposal Weighed
U.S. stocks finished the trading session lower and the week mixed as investors appeared to exercise caution amid the developing path of proposed tax policy, some disappointing Chinese economic data and a flattening yield curve. Treasury yields were mixed and the U.S. dollar was lower, while crude oil prices rebounded from a recent decline and gold was also higher. Shares of GAP, Abercrombie & Fitch, and Foot Locker traded solidly higher following the release of the companies Q3 earnings results. 

The Dow Jones Industrial Average (DJIA) declined 100 points (0.4%) to 23,358, the S&P 500 Index declined 7 points (0.3%) at 2,579, and the Nasdaq Composite slipped 11 points (0.2%) to 6,783. In moderate volume, 875 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil rallied $1.36 to $56.71 per barrel and wholesale gasoline was $0.03 higher at $1.74 per gallon. Elsewhere, the Bloomberg gold spot price gained $15.46 to $1,294.04 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—declined 0.3% to 93.63. Markets were mixed for the week, as the DJIA decreased 0.3% and S&P 500 Index ticked 0.1% lower, while the Nasdaq Composite advanced 0.5%.

Gap Inc. (GPS $29) reported Q3 earnings-per-share (EPS) of $0.58, versus the $0.54 FactSet estimate, as revenues rose 1.1% year-over-year (y/y) to $3.8 billion, roughly in line with forecasts. Q3 same-store sales grew 3.0% y/y, above the expected 1.3% gain. GPS raised its full-year guidance. Shares finished nicely higher.

Applied Materials Inc. (AMAT $56) posted fiscal Q4 EPS of $0.91, or $0.93 ex-items, compared to the forecasted $0.91, with revenues rising 20.0% y/y to $4.0 billion, above the estimated $3.9 billion. The chip equipment maker issued Q1 guidance that exceeded projections. AMAT traded lower.

Abercrombie & Fitch Co. (ANF $16) announced Q3 earnings of $0.15 per share, or $0.30 ex-items, topping the forecasted $0.22, as revenues increased 5.0% y/y to $859 million, north of the estimated $820 million. Q3 same-store sales rose 4.0% y/y, above the expected 0.4% gain. Shares rallied as ANF also issued a Q4 outlook that bested the Street's expectations.

Williams-Sonoma Inc. (WSM $46) reported Q3 EPS of $0.84, matching forecasts, as revenues rose 4.3% y/y to $1.3 billion, rough in line with expectations. Q3 same-store sales grew 3.3% y/y, just above the estimated 3.0% increase. WSM issued Q4 profit guidance that missed expectations. Separately, the company announced the acquisition of home furnishings and d├ęcor industry 3-D imaging and augmented reality platform Outward Inc. WSM traded solidly lower.

Foot Locker Inc. (FL $41) posted Q3 profits of $0.81 per share, or $0.87 ex-items, versus the expected $0.80, as revenues decreased 0.8% y/y to $1.9 billion, topping the forecasted $1.8 billion. Q3 same-store sales declined 3.7% y/y, compared to the projected 4.6% drop. FL said despite a continued highly promotional environment, it believes it can exceed its Q4 guidance issued in August. Shares surged nearly 30%.

Housing construction activity stronger than expected

Housing starts (chart) for October jumped 13.7% month-over-month (m/m) to an annual pace of 1,290,000 units, well above the Bloomberg forecast of a 1,190,000 unit rate. September starts were upwardly revised to an annual pace of 1,135,000. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, grew 5.9% m/m in October to an annual rate of 1,297,000, after September's favorably revised 1,225,000 rate, and north of the expected annual pace of 1,250,000 units.

The Kansas City Fed Manufacturing Activity Index for November showed growth decelerated more than expected, with the index dipping to 16 from 23 in October, compared to the forecasted 21, though a reading above zero denotes expansion in activity.

Treasuries finished mixed, with the yield on the 2-year note ticking 1 basis point (bp) higher to 1.72%, while the yield on the 10-year note declined 3 bps to 2.35%, and the 30-year bond dropped 5 bps to 2.78%.

The markets continued to grapple with the ongoing flattening of the yield curve and the recent soft data out of China that came amid a relatively positive global economic backdrop. Also, U.S. tax reform uncertainty remained as yesterday's bill passing in the House opened the door for scrutiny and concerns about the reconciliation process with the Senate's plan that differs significantly on some key areas and is expected to be voted on the week after the Thanksgiving holiday. As such, check out our article, Does Low Market Volatility Portend a Market Tumble?, as well as Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's latest commentary, Tax Reform: Key Differences Between the Senate and House Plans.

Europe mostly lower and Asia mixed to close out the week 

European equity markets traded mostly lower after breaking a string of losses yesterday that came amid what seemed to be a flare-up in global market risk aversion. With U.S. tax reform uncertainty lingering despite yesterday's House bill passing, coalition talks in Germany ramped up and the Brexit stalemate remained. For analysis of the uncertainty political front in the region, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives Randy Frederick's video, Political Risk: How Should Investors Respond?. The British pound and the euro ticked slightly higher versus the U.S. dollar as the markets continued to digest comments from European Central Bank President Mario Draghi, who offered an upbeat outlook for the economy, but said the central bank needs to be patient in normalizing policy as inflation remains subdued. Schwab's Jeffrey Kleintop provides analysis of the changing global monetary policy landscape in his article, How the Shift by Central Banks May Affect the Stock Market. Bond yields in the region were mostly lower, while energy issues recovered modestly as crude oil prices rebounded after a recent drop.

Stocks in Asia finished mixed to close out a week that saw some increased downside pressure as the global markets appeared to shift to a de-risking mood on the heels of a global rally. Schwab's Jeffrey Kleintop, CFA, offers a look at the global market rally seen this year that has been fostered by the broadest economic growth in a decade in his latest article, 5 Reasons Investors Should Give Thanks. Some support came from yesterday's rebounds in the U.S. and Europe, but the markets continued to be cautious as U.S. tax reform uncertainty lingered, crude oil prices sold off, and recent Chinese economic data has disappointed. Japanese equities pared solid early gains as the yen gained ground late in the day. Mainland Chinese shares declined with sentiment being exacerbated by local media reports warning of high valuations in some stocks that have rallied as of late, per Bloomberg. Equities trading in Hong Kong and India advanced, while Australian securities were also higher and South Korean shares finished flat.

Stocks bounce back to finish week mixed

U.S. stocks finished the trading week mixed as a strong rally on Thursday, led by tech issues, was able to offset losses that developed early in the week as the uncertainty surrounding the likelihood of a successful domestic tax policy overhaul intensified. The House passed its bill to reduce taxes and focus is now tuned to the Senate and its legislative process with a floor vote expected shortly after the Thanksgiving holiday break. Economic data was mostly positive as an advance read on retail sales unexpectedly increased m/m, showing widespread sales gains, but also revealing a dip in online shopping. A separate report showed small business optimism rose and consumer inflation was mostly in line with expectations. Market participants were also treated to hotter-than-expected producer price inflation figures, slowing in some regional manufacturing output and an unexpected rise in weekly jobless claims.

In earnings news, Wal-Mart Stores (WMT $97) surged to a record high after it revealed its Q3 results, while Home Depot (HD $167), Tyson Foods (TSN $78), and Dick's Sporting Goods (DKS $29) also topped analysts' quarterly projections. Target (TGT $57) disappointed with its quarterly marks and General Electric (GE $18) cut its quarterly dividend in half. As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, third quarter earnings season is largely complete and can be characterized as a positive one—with strong “beat rates” for both top- and bottom-line results; while economic data continues to indicate solid growth.

Although next week will be shortened by Thursday's Thanksgiving holiday, during which the U.S. markets will be closed, the economic calendar will still deliver a feast of key reports that could provide sustenance for market action. Housing will remain in focus, with the release of existing home sales, along with manufacturing demand in the form of the preliminary durable goods report. The Leading Index will give us a look at how many cylinders the economy is firing on, while the minutes from the Fed's Oct/Nov monetary policy meeting will provide us discussion details as the highly-expected December rate hike decision looms. We will get a look at the psyche of the consumer, courtesy of the final University of Michigan Consumer Sentiment Index for this month. The week will come to a close with Markit's November business activity reports, illustrating the pace of growth in output from the manufacturing and services sectors.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest, Schwab Sector Views: 'Tis the Season…Almost, much of the U.S. economy arguably comes down to how the consumer is faring as businesses make hiring and investing decisions based on their expectations of consumer demand. Brad adds that it would be difficult to view the status of the consumer as anything less than mostly positive with unemployment historically low, wages trending higher and still low interest rates conspiring to boost consumer confidence.

International reports due out next week that deserve a mention include: Australia—Leading Index. Japan—trade balance and the All Industry Activity Index. Eurozone—Markit Manufacturing and Service PMIs and consumer confidence, along with German Q3 GDP and PPI. U.K.—public sector net borrowing, Q3 GDP and business investment.