DOW – 202 = 17,245
SPX – 22 = 2023
NAS – 77 = 4927
10 YR YLD – .04 = 2.28%
OIL – .99 = 40.76
GOLD – 1.10 = 1084.90
SILV – .03 = 14.38
The S&P 500 moved into negative territory year to date, for the first time since Oct. 22. The Dow Industrial Average is also down year to date, moving below the 200-day MA, with a weekly loss of more than 650. Commodity prices are weighing heavily on the markets, following yesterday’s report showing crude oil stockpiles were 4 times higher than market expectations. Still, the IEA predicts that supplies outside OPEC will decline next year by the most since 1992 as low prices take their toll on the U.S. shale industry. Meanwhile, the dollar index is trading just above 99. That would put it within striking distance of 100.40, its highest level in 12 years.
Retail sales rose a seasonally adjusted 0.1% last month. Sales were revised lower in September to show no gain. Sales were also flat in August. In October, sales were held down by lower spending at auto dealers, gas stations and grocery stores. Although the number of autos sold last month was quite strong, sales fell a seasonally adjusted 0.5%, perhaps suggesting heavier discounting. Stripping out gas and autos, U.S. retail sales rose a somewhat better 0.3%. Shoppers have used some of their gas savings to go out to eat more. Spending at restaurants climbed 0.5% in October.
The third quarter of 2015 was rough for American department stores. Macy’s, the nation’s largest department-store chain, had such a bad quarter that it cut its year-end forecasts across the board, lowering earnings, revenue, and same-store sales projections. And upscale competitor Nordstrom followed suit after reporting a 42% drop in profits, which caused shares to drop 15%.
But it’s not all retail doom and gloom. JC Penney reported same store sales were up 6.4%, and that helped boost net sales nearly 5% to $2.9 billion. The retailer also dialed up its year-end outlook for adjusted earnings before interest, taxes, depreciation, and amortization. All that said, JC Penney still isn’t turning a profit, but its net loss shrank 23% to $137 million. Shares were still down 16% today. Seriously, we should see some major bargains this holiday season.
Consumers were in a good mood. The University of Michigan’s consumer sentiment index rose to 93.1 in early November from a reading of 90.0 in October. The survey showed an improvement in buying plans for large discretionary purchases, especially vehicles. Lower-income households also were upbeat about their prospects in November.
The producer price index fell 0.4% in October. The index, which measures prices at the wholesale level, has been flat or lower for four straight months, contributing to a record 1.6% decline over the past year. The overall cost of services dropped 0.3% last month, reflecting lower revenue generated by wholesalers and retailers. The cost of goods declined 0.4%. Lower energy costs and cheaper imports have pushed prices down. Core producer prices that exclude the volatile categories of food, energy and trade fell a smaller 0.1% in October.
So, to recap: consumers are feeling good, wholesale prices are down (not just going up slowly, but actually down), and retail sales are flat lining right before the holiday shopping season. Here’s a thought; maybe consumers who were slammed by the Great Recession and were forced into squeezing every dime out of a dollar aren’t ready to go back to just throwing their cash at high priced department stores. We learned how to sniff out deals, we learned how to use technology to beat big margins.
The downturn turned us into bargain bloodhounds. Maybe this is the beginning of the end of department stores and malls as we know them. And maybe wage growth hasn’t yet been enough to warrant abandoning our newfound thrift. Maybe there’s even a little saving going on. The savings rate has been stubbornly high (by American standards). Or maybe everybody maxed out their credit cards. Maybe the economy is headed off the recessionary cliff. Or maybe it’s just a little statistical noise in the long term uptrend. Who knows? The salient point is that it isn’t really tough to spot the winners and losers in this market.
The federal government ran a budget deficit of $136 billion in October, up 12% or $15 billion from the same month last year. Spending in the first month of the fiscal year was $348 billion, up 4% from October 2014. Total receipts were $211 billion, a 1% decrease.
Eurozone economic growth was slower than expected in the third quarter. Eurostat said the gross domestic product of the 19 countries sharing the euro expanded 0.3 percent quarter-on-quarter for a 1.6 percent year-on-year increase in the July-September period. This outcome is lower than the ECB’s staff projections, which would add to the already strong case for the ECB to step up monetary stimulus in December.
China is moving to contain leveraged wagers on its stock market, cutting in half the amount of borrowed money investors can use to buy shares. Margin requirements will be raised to 100% from 50% starting on Nov. 23. The rule change means that an investor with 1 million yuan in their account is limited to borrowing another 1 million yuan from a broker to buy more shares. Previously, they could borrow as much as 2 million yuan. That should curtail speculation.
British prosecutors charged 10 former Deutsche Bank and Barclays employees with manipulating a benchmark interest rate, with an 11th facing indictment as soon as next week. Six traders from Deutsche Bank and four from Barclays were charged with conspiracy to manipulate the Euribor benchmark. Banks and other financial institutions have paid about $9 billion in fines tied to Libor and other key rates. So far, we are expected to believe that upper management was nothing but a bunch of overpaid, out of touch, incompetent morons who had no clue about trillions of dollars of trades resulting in billions of profits. At some point, prosecutors will have to figure out that someone in the C-suite knew what was going on and put their seal of approval on all this rigging.
The Group of 20 summit gets underway this weekend in Turkey. The primary purpose of the meeting is to look for ways to stimulate the global economy. A secondary agenda has been raised by Turkish President Erdogan to use concerns in the Eurozone over the refugee crisis to bolster support for military intervention in Syria. And while there will certainly be some lively debates at the G-20 meeting, the most likely outcome is a very nice photo-op.
Mylan failed to attract a majority of Perrigo shareholders by a Friday deadline for its $26 billion unsolicited offer to acquire the over-the-counter drugmaker. About 40 percent of Perrigo holders tendered their shares, short of the 50 percent needed to move ahead. Mylan now can’t try again for a year. Mylan offered $75 in cash and 2.3 Mylan shares for each Perrigo share, a bid that Dublin-based Perrigo had rejected as inadequate.
Cisco had a mixed quarter. The network-technology giant reported better-than-expected revenue and earnings. But guidance was a little light. Management expects to deliver $0.53 to $0.54 per share in earnings, which is below the $0.56 expected.
Hulu may sell a stake of itself to Time Warner as part of a deal that would value the streaming-video service at more than $5 billion and advance its efforts to compete with Netflix and Amazon.com. The Wall Street Journal reports, “The companies have been in talks about Time Warner becoming an equal stakeholder in Hulu alongside Walt Disney, 21st Century Fox and Comcast.
Shares of BHP Billiton fell close to a decade low today as a drop in commodity prices overnight compounded investor worries about the fallout from a dam-burst at its jointly-owned Brazilian iron-ore mine operation last week which killed nine people. Brazil President Dilma Rousseff has slapped preliminary fines of $96 million against the Samarco mine where two waste dams burst, spilling sludge and mine waste over 2 states. The fines could go much higher. Prosecutors are investigating possible crimes that could have contributed to the disaster at the mine
The Supreme Court has agreed to hear a challenge to a Texas law that would leave the state with about 10 abortion clinics, down from more than 40. The court has not heard a major abortion case since 2007, and the new case has the potential to affect millions of women and to revise the constitutional principles governing abortion rights. The case concerns two parts of a state law that imposes strict requirements on abortion providers. One part of the law requires all clinics in the state to meet the standards for “ambulatory surgical centers,” including regulations concerning buildings, equipment and staffing. The other requires doctors performing abortions to have admitting privileges at a nearby hospital. Other parts of the law have already caused about half of the state’s 41 abortion clinics to close. If the contested provisions take effect, the brief said, the number of clinics would again be halved.
The challengers’ brief said that the law “would delay or prevent thousands of women from obtaining abortions and lead some to resort to unsafe or illegal methods of ending an unwanted pregnancy.” The remaining clinics would be clustered in four metropolitan areas: Austin, Dallas-Fort Worth, Houston and San Antonio. The case, Whole Woman’s Health v. Cole, could provide the Supreme Court with an opportunity to decide whether the law interferes with its 1992 decision in Planned Parenthood v. Casey, which said states may not place undue burdens on the constitutional right to abortion before fetal viability. The court said undue burdens included “unnecessary health regulations that have the purpose or effect of presenting a substantial obstacle to a woman seeking an abortion.” The justices will hear arguments in the case within the next few months and hand down a decision by June.