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Friday, March 20, 2015

No Matter How Long the Winter

Financial Review

No Matter How Long the Winter

DOW + 168 = 18,127
SPX + 18 = 2108
NAS + 34 = 5026
10 YR YLD – .04 = 1.93%
OIL + 1.76 = 45.72
GOLD + 11.40 = 1183.40
SILV + .62 = 16.83

The Nasdaq Composite is back above 5,000. It couldn’t close above the old record high of 5048 from March 10, 2000, but it is close. Even with today’s advance it remains a long way from its intraday high of 5,132, reached the same day. For the week, the Dow gained 2.1 percent while the S&P 500 rose 2.7 percent, both snapping a three-week run of losses. The Nasdaq ended up 3.2 percent.

In London, the FTSE 100 Index hit a fresh record and climbed above 7,000 for the first time. The benchmark gauge of U.K. stocks climbed 0.9 percent to close at 7,022.51 in London, doubling since a low in 2009.  The index first surpassed its dotcom era record last month, having taken more than 15 years for it to regain all the losses from the burst of the tech bubble.

Today is a quadruple witch, and then some.  Index futures, stock index options, stock options, and single stock futures all expire Friday as the first quarter nears its end. Today also marks a rebalancing of the S&P 500 index, to reflect things like mergers, acquisitions, or other changes. About $15.9 billion of shares were specifically traded as investors bought and sold stocks to mimic the changes.

If you were in Norway this morning, you might have seen a solar eclipse. For 2.5 minutes, the moon blocked out the sun. And you don’t have to be in Norway to enjoy the first day of spring. The March equinox happens at the same moment across the world but when we convert to local time, it happened at 3:45 PM PDT (Arizona time).  In the northern hemisphere it is the vernal equinox and in the southern hemisphere it is the autumnal equinox. The combination of a total solar eclipse on the day of the vernal equinox is quite rare; the next time this happens is 2034. But wait, there’s more. Today also features a Supermoon, with the moon at its closest point to Earth.

I don’t know that meteorological events have much to do with the stock market, but the transition to spring seems to have some significance; it marks the transition from the best six months to the worst six months. Normally with think of this with the mnemonic “Sell in May and stay away.” According to the Stock Traders’ Almanac, since 1950, DJIA’s average annual gain has been 8.4%. Over the same time period, DJIA has lost an average 1.1% during the “Worst Six Months,” May through October, and gained an average 9.3% during the “Best Six Months,” November through April. And although the worst six months start in May, sometimes the markets get a little jumpstart on a selloff.

The Sell in May strategy is not a guarantee of a downturn, just a look at probabilities. And if you’re wondering about the thinking behind it, you would need to consider our agrarian roots, when farmers would plant in the spring, which required an investment of capital and labor, but the payoff doesn’t come until the harvest, six months later, around October.

Another consideration is that 2015 is a pre-election year. The idea is that political parties try to juice the economy ahead of elections. Midterm election years produce dismal results with big declines, and that pattern goes back to the 1920s; except it didn’t hold last year. We could toss in the decennial cycle, which holds that almost every fifth year of each decade going back to 1895 has been positive in the Dow, but given that last year did not follow historic norms, this year about all we can say is expect the unexpected.

The Department of the Interior has unveiled new regulations on hydraulic fracturing operations that take place on federal lands, requiring companies using the drilling technique to ensure wells are safe and to disclose chemicals used in the process. Key provisions of the new rules include: Requiring strong cement barriers between the well and any water zones it passes through. Requiring companies to publicly disclose chemicals used in fracking. Stricter storage protocols for recovered waste water used in fracking.  Measures to lower the risk of cross-contamination from fracking chemicals by requiring companies to submit detailed information on the geology, depth and locations of wells that already exist. The new rules are set to go into effect in 90 days. The new federal rules will cover about 100,000 oil and gas wells drilled on public lands, but the majority of fracking is done on private land or state owned land.

The new benchmark process for pricing gold in London began today. The new London Gold fix, or LBMA Gold Price, as it is now being called is supposed to replace the nearly 100 year old process of a few banks reporting a morning and afternoon price – the AM and PM Fix; which had some well-earned notoriety for manipulation. The London Bullion Market Association says the new electronic auction process for setting the gold price is designed to be transparent and to allow as many participants as possible. In the past, the price was set by 4 big banks: Barclays, HSBC, SocGen, and Bank of Nova Scotia; now they have added UBS and Goldman Sachs. So, the gold fix is dead, long live the gold fix.

January was a slow month for home sales and prices in Phoenix. According to a report from the W. P. Carey School of Business at Arizona State University. Home sales dropped 26 percent. The Valley’s median home sales price fell to $208,000 in January from $215,000 in December. Michael Orr, director of the Center for Real Estate at ASU, in a recent report, calls for sales to pick up, with a possible 30% jump in March.

A few earnings reports today. Nike revenues were hurt by the strong dollar. The athletic footwear giant reported revenues jumped 7% year-over-year to $7.5 billion, slightly missing the $7.6 billion that was expected. However, revenues would have been up 13% if not for the headwinds produced by the strong US dollar. As for earnings, Nike reported a gain of $0.89 per share, topping the $0.84 that analysts were expecting.

Tiffany missed analyst expectationsThe luxury retailer posted earnings of $1.47 per share, missing the $1.51 that analysts were expecting. Revenues came in at $1.29 billion, just short of the $1.30 billion that analysts were hoping for. The company sees worldwide net sales increasing by a mid-single-digit percentage versus the prior guidance of low-to-mid single-digits.

Darden Restaurants topped estimates. The restaurant giant announced earnings of $0.99 per share ex-items, far above the $0.84 that analysts were expecting. Revenues rose 6.9% year-over-year to $1.73 billion, outpacing the $1.72 billion estimate. The company guided fourth-quarter earnings per share between $0.91 and $0.94, topping the $0.89 the Street was looking for.

Maybe that says something; the luxury jeweler missed on earnings, while the everyday restaurant brand beat earnings.

Big news today from Biogen. Back in December, Biogen announced they were working on an experimental drug for Alzheimer’s disease; since then the stock price has climbed by about 40%, and today the price jumped nearly 10%. Today, Biogen announced results of early phase, or Phase 1 trials, at a neurology meeting in France. And the results are good. The drug appears to have met or exceeded Wall Street expectations in terms of how much the highest dose slowed cognitive decline. That would be very good news indeed, but for now, expectations should be tempered. Phase 1 trials are designed to measure safety, not the effect on cognition. Also, other Alzheimer’s drugs that had looked promising in early studies ended up not working in larger trials. The drug is designed to get rid of amyloid plaque in the brain, which is believed to be the cause of dementia in Alzheimer’s disease.

Tapping into a gray area of the net neutrality debate, HBO, Showtime and Sony are in talks with broadband providers about having their Web TV services treated as “managed services,” giving them a separate lane that would ensure their content gets special treatment. While net neutrality states that all traffic on the Internet should be treated equal, the FCC maintains that cable and phone companies can offer “managed services” – digital phone and video-on-demand, for example – that run on a dedicated slice of bandwidth in the cable pipe which is separate from the portion reserved for public Internet access. The video industry is looking hard for new options. Between Sling TV, Playstation Vue, and Apple TV, the number of alternatives to cable and satellite TV is rapidly expanding. At this point, the government can either allow a handful of these services to prosper through special treatment—with cable companies serving as gatekeepers—or it can keep the lanes open to even more services, all competing for the same bandwidth, data, and dollars. The good news for net neutrality advocates: These negotiations aren’t getting anywhere.

The FAA has granted Amazon approval to test a delivery drone outdoors, allowing test flights over private, rural land in Washington State. The company also received an exemption from certain flight restrictions, but must keep flights below 400 feet and the drone in sight. Amazon would like to use the drones to deliver products to customers. It’s an interesting idea, but for now, that’s as far as it goes.

Greece managed to scrape together $2.1 billion dollars to pay debts today; they are still expected to run out of money by the end of the month, unless they can get the Euro Union to approve a financial aid payment. Despite a Feb. 20 deal to extend Greece’s €240 billion bailout by four months, its international creditors are withholding a €7 billion aid tranche until Athens provides a list of economic reforms that will satisfy its European Union partners. So far, the Greeks have not come up with a list. The talks seem to be dragging out a long time. Cash continues to flow out of Greece, and the most notable thing about the whole mess is that the European financial structure seems unfazed by it all – no collapse, no panic.

Also at the summit: EU leaders decided to keep sanctions on Russia in place until the end of this year at the earliest, linking them to the “complete implementation” of a Ukraine ceasefire deal.

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