Financial Review

Undo Send

Sinclair Noe — June 23, 2015

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DOW + 24 = 18,144
SPX + 1 = 2124
NAS + 6 = 5160
10 YR YLD + .05 = 2.41%
OIL + .33 = 61.01
GOLD – 7.90 = 1179.00
SILV – .33 = 15.94

This was a flat day on Wall Street. Most of the session saw the major averages hovering around breakeven. The Nasdaq Composite eked out another record high. The economic news was mixed; durable goods orders were weak but new home sales were fairly strong. While stocks have been trading in a very tight range to start the year, some might call it boring. The Standard & Poor’s 500 index hasn’t posted a gain or loss of 2 percent or more for 126 days, the longest streak since one ending in February 2007. Meanwhile, the bond market has been pretty exciting but not in a good way. Longer-dated Treasuries have been jumping all over the place, posting some of the biggest back-to-back gains and losses on record as the Federal Reserve talks about raising interest rates and European leaders act out a Greek tragedy.

The bond market is supposed to be a safe haven, and so bond investors have pulled $327 million from exchange-traded funds focused on this longer-dated debt in the past week alone, and $1.4 billion year-to-date.

The Commerce Department says non-defense capital goods orders excluding aircraft rose 0.4 percent last month. Overall orders for durable goods fell a seasonally adjusted 1.8% last month, but the decline stemmed mostly from a 35% plunge in bookings for commercial aircraft. Apart from transportation, there were increases in demand for primary metals, fabricated metal products, machinery and computers and electronic products. Orders for electrical equipment, appliances and components fell. Although the May report on durable goods was generally positive, businesses still aren’t spending and investing at a pace that would suggest they have full confidence in the economy. Business investment in the first five months of 2015, for example, was 2.6% lower compared to the same period in 2014.

New single-family homes sold at an annual rate of 546,000 in May, up 2.2% from April, and up 19.5% from a year earlier. That’s the fastest pace since February 2008. The median price of new homes, meanwhile, fell 1% to $282,800 compared with May 2014.  The S&P Homebuilders ETF (XHB) touching a new eight-year high intraday. There are several positive factors for the homebuilders, including some M&A activity; last week Ryland Group and Standard Pacific announced a merger.

But the big news in housing is first time buyers. The latest Census Bureau report in April marked the fastest back-to-back gains in household formation since the second half of 2005. Confirmed by yesterday’s report from the National Association of Realtors showing first time buyers accounted for 32 percent of purchases this month, up from 30 percent in April and 27 percent a year ago. Excluding November 2009, when demand spiked from the expiration of the first-time homebuyer tax credit, sales last month were the strongest in more than eight years for this group.  If you look at people between the ages 18 and 34, nearly a third of them are at home with their parents; if they move out, that would be 4 million households that would be created.

Atlanta Federal Reserve’s GDPNow forecast model shows the US economy is on track to grow 2.0% in the second quarter, up from earlier forecast of 1.9% growth.

Euro zone leaders welcomed new budget proposals from Athens as a basis for further negotiations to unlock billions of euros in frozen aid and avert a default. But it’s not a done deal. Greek lawmakers reacted angrily to concessions Athens offered, and parliament’s deputy speaker warned the proposals might be rejected.

While Americans are the biggest foreign owners of Greek stocks, it’s not much. Overseas investors hold 59 percent of the Greek stock market, and of that U.S. traders have about 25 percent. That comes out to $5.7 billion, about the size of doughnut maker Dunkin’ Brands Group, the 110th weighting in the S&P Midcap 400 Index. U.S. investors kept sending money to Greek stocks even as the market tanked. An exchange-traded fund tracking the shares has had inflows every week this year and received $9.5 million last week. Its market cap reached a record this month. We have clearly been programmed to anticipate bailouts. While there might not be much direct exposure to a Greek default, the spillover could still be problematic. Greece may be small but it is important geographically, geopolitically, and there is always the risk of contagion.

European shares climbed to three-week highs on today, extending the previous session’s rally on expectations that Greece was getting closer to a debt deal. Greece’s ATG share index rose 6.1 percent, adding to a 9 percent jump in the previous session. The pan-European FTSEurofirst 300 index gained 1.1 percent to touch its highest level in three weeks.

Economic activity in the Eurozone grew at the fastest pace in four years in June, providing the latest sign that a recovery in the region is gaining traction. Markit’s Composite Flash Purchasing Managers’ Index rose to 54.1 from 53.6 in May, boosted by momentum in Germany and France, the bloc’s two largest economies. The data adds to the evidence that the ECB’s massive stimulus program is taking effect.

The fast-track trade bill cleared a key procedural hurdle today in the Senate, all but ensuring it will win final passage this week and be sent to the White House for the president’s signature. Fast-track, or trade promotion authority, would allow the president to assure potential trade partners that the deals they negotiate with the U.S. will be presented to Congress for a yes-or-no vote without amendment.

Samsung Group heir apparent Lee Jae Yong apologized in a nationally televised address on Tuesday for failing to stop the spread of MERS at a Seoul hospital run by a group foundation. About half of the 175 MERS cases in South Korea have been traced to Samsung Medical Center. The outbreak has prompted travel restrictions and scared off tourists, dealing a blow to the country’s economy.

Nearly 30 percent of Americans are one emergency away from financial ruin; 29 percent of people don’t have money set aside to cover  emergencies, up from 26 percent last year, according to an annual survey from Bankrate.com. Many of the people who had savings didn’t have enough money to get them through a serious emergency or prolonged period of unemployment. About 20 percent of people said their savings would not last longer than three months. At the same time, the number of people with substantial savings is falling. About 22 percent of people had enough cash to cover six months of expenses, the lowest level in five years.

South Carolina Gov. Nikki Haley called for the removal of the Confederate flag from the grounds of the state Capitol. The flag wasn’t lowered to half-staff along with the other flags at the Statehouse after the shooting at Emanuel African Methodist Episcopal Church Wednesday because doing so is under the authority of the state’s General Assembly — and so is taking it down. The South Carolina legislature is convening to consider the proposal. Other states are also looking at taking down the flag, including Mississippi, and Virginia’s governor is calling for removing the flag from license plates. Wal-Mart, Sears, Amazon.com, and eBay all said they would stop selling products bearing the Confederate flag. Meanwhile, a chorus of corporate CEOs, from Tim Cook to Mitt Romney, are calling for the flag to be taken down.

General Mills said it would stop using artificial flavors and colors in almost all of its cereals, joining the food industry’s move towards products perceived as healthier. The packaged foods maker said it plans to have 90 percent of its cereals free of artificial flavors and colors by 2016, up from about 60 percent currently.

If you go to a restaurant there is a good chance the food comes from Sysco or US Foods; they are the two largest food distributors. Earlier this year, Sysco bid $3.5 billion to take over US Foods. The Federal Trade Commission sued to block the deal on antitrust grounds. Today, a federal judge ruled that there is a reasonable probability that “the proposed merger will substantially impair competition in the national customer and local broadline markets and that the equities weigh in favor of injunctive relief.” And that effectively kills the deal.

Netflix has approved a 7-for-1 stock split. In soaring almost 100 percent this year, Netflix shares have reached nearly $700. As of last week, Netflix was the third-most expensive stock in the S&P 500. The split will come in the form of a dividend of six additional shares for each outstanding share. It is payable on July 14 to stock owners of record at the July 2 close. Trading at the post-split price will start July 15.

Starting next month, Amazon will overhaul the way it pays royalties to self-published authors on its e-book platform, by rewarding them based on the number of pages read, rather than the number of times their book has been borrowed. The move applies to books published via the Kindle Direct Publishing service, which follows the pay-per-track model of music streaming services like Spotify.

Have you ever sent an email to the wrong person? Gmail has come up with an option to “Undo Send”. Here is how to set it up. Once in Gmail, click on the “General” tab on the top right of the screen — the one that looks like a little gear. Choose “Settings,” scroll down, click “Enable Undo Send,” and choose a cancellation period of between five to 30 seconds. That is how much time users have to hit “Cancel” above an email while it’s sending. Once pressed, users will get a chance to edit or delete their email. The only question is why did it take so long?