DOW – 105 = 18,037
SPX – 14 = 2111
NAS – 35 = 5153
10 Y – .02 = 1.84%
OIL – .53 = 46.33
GOLD + 10.80 = 1288.80
Stocks started the session in positive territory but slippage was immediate; slow at first then picking up momentum. The Dow Industrial Average dropped below 18,000 for the fourth time since September 12, at one point posting a 200-point loss.
The S&P 500 took out the lows of September at the 2120 level. We had talked about 2020 being a level of support, which has now been broken. The next levels of support are 2080 (representing the 200-day moving average) and 2040 (representing lows from April and May). The point here is that today’s trading did some serious technical damage; the other point is to remind you to keep an eye on the charts; they are very effective at cutting through the chatter and the clutter.
The Fed began its 2-day FOMC meeting. Treasury yields climbed early toward the highest since May on speculation the Federal Reserve will raise interest rates this year as the global economy improves. The Atlanta Federal Reserve’s GDP Now forecast model shows the economy is on track to grow at a 2.3 percent annualized pace in the fourth quarter; that is a downward revision from just yesterday, when the GDP Now forecast was for 2.7 percent fourth quarter growth.
Investors will be scouring the accompanying statement for clues on how determined the Fed is to raise rates in December. As things stand, the markets are taking policymakers such as Bill Dudley of the New York Fed at their word when they say a move is likely before the year is out if growth stays on track. Fed funds futures data compiled by Bloomberg shows the market is pricing in a 16% chance of a November interest-rate hike and a 71% chance of a rate hike before the end of the year.
The Bank of Japan kept policy on hold. Japan’s central bank voted 7-2 to keep its key interest rate at negative -0.1%, and target for the 10-year Japanese bond yield at 0%, warning that risks to growth and inflation were “skewed to the downside.”
Australia’s central bank held rates steady at 1.50%, as expected, and said “the Bank’s forecasts for output growth and inflation are little changed from those of three months ago.”
American manufacturers grew slightly faster in October and even put more people to work for the first in four months. The Institute for Supply Management said its manufacturing index rose to 51.9%, the highest in three months, from 51.5% in September. Readings over 50% indicate more companies are expanding instead of shrinking.
A measure of factory employment jumped 3.2 percentage points to a reading of 52.9. But a gauge of new orders slipped to a reading of 52.1 from 55.1 in September, suggesting any future gains in manufacturing activity would be modest.
The Affordable Care Act Open Enrollment starts today. Arizonans will find in most counties only one insurer selling exchange plans for 2017. Premiums for some plans will be more than double this year, some of the biggest increases in the nation. Only last-minute maneuvering prevented one Arizona county from becoming the first in the nation to have no exchange insurers at all.
Outlays for U.S. construction projects fell 0.4% in September. Spending on private outlays fell 0.2%. Residential spending rose 0.5% but spending on nonresidential projects sank 1%. For overall public construction projects, spending fell 0.9%. Outlays for the first nine months of the year are 4.4% higher compared with the same period in 2015.
CoreLogic reports home prices nationwide, including distressed sales, increased year over year by 6.3 percent in September 2016 compared with September 2015 and increased month over month by 1.1 percent in September 2016 compared with August 2016. Arizona is still 22% below peak prices. Arizona home prices were up 0.6% for the month and 5.6% year-over-year.
Sales of new cars and trucks were expected to fall in October. Auto sales have been strong but there are limits and it looks like car makers hit those limits last month. General Motors’ sales fell 2 percent from last October, while Toyota’s sales fell 9 percent. Honda’s sales were down 4 percent and Nissan’s fell 2 percent. Fiat Chrysler’s sales were down 10 percent. Volkswagen’s sales fell 18 percent. Ford will report later in the week due to a fire at their headquarters.
Sales fell even though automakers increased average discounts per vehicle by 12 percent from last October to $3,726 per vehicle. But the average sales price still was expected to set an October record at $31,383. Prices are rising because more high-priced trucks and SUVs are being sold.
Gasoline is surging, despite a recent drop in crude oil prices. An explosion of a Colonial pipeline in Alabama killed one person and injured 5 other; it is also causing gasoline futures to skyrocket higher. Futures for December delivery jumped 10.8% to $1.57 a gallon. Colonial Pipeline said it hopes to restart its major gasoline pipeline between Gulf Coast refiners and customers in the East and Southeast by noon Saturday; that news pushed prices down, but futures are still up about 4% at $1.48.
Meanwhile, crude oil has not been able to mount any kind of rally despite a weaker dollar. Following last week’s inventory draws across the entire energy complex, API was expected to report a seasonally normal 1.5 million barrel build but instead printed a massive 9.3 million build.
Royal Dutch Shell and BP both reporting higher than expected earnings by making further deep cuts in spending. Shell announced higher quarterly earnings than Exxon Mobil, the world’s largest listed oil company by output and market capitalization. At $2.8 billion in the third quarter, Shell’s net income was above Exxon’s third quarter net income of $2.65 billion. Both Shell and BP maintained their dividends unchanged as expected.
Mortgage provider Freddie Mac reported a profit of $2.3 billion in the third quarter, as interest rates turned in its favor, credit quality improved, and mortgage volumes surged. Freddie has operated under federal conservatorship since the 2008 financial crisis, when it received $71 billion in bailout funds. In December, the enterprise will remit $2.3 billion to the U.S. Treasury, bringing its total paid post-crisis to $101 billion.
Pfizer lowered its earnings outlook for the year and said it was ending the development of a drug in the cholesterol-treatment sector. Pfizer reported a profit of $1.3 billion, or 21 cents a share, down from $2.1 billion, or 34 cents a share a year prior; bottom line missed estimates – revenue matched estimates.
Prosecutors are focusing on Valeant Pharmaceuticals’ former CEO and CFO as they build a fraud case against the company that could yield charges within weeks. Authorities are considering potential accounting fraud charges related to the company’s hidden ties to Philidor Rx Services LLC, a specialty pharmacy company that Valeant secretly controlled.
Federal prosecutors in Manhattan and agents at the Federal Bureau of Investigation in New York have been investigating the company for at least a year. Last October, accusations of accounting malfeasance combined with government scrutiny over the company’s drug price hikes brought the company to its knees. Valeant’s stock price is down around 90% since last year’s peak.
One of the most difficult things Valeant has had to deal with through this entire mess is its over $30 billion debt load, which could be an even bigger problem with a criminal charge. Prosecutors in Boston and Philadelphia are also said to be conducting separate inquiries of Valeant.
Boston’s investigation focuses on Valeant’s payments to charities that then helped patients make co-payments for the soaring cost of Valeant drugs, some of the most expensive on the market. The Philadelphia case is examining Valeant’s billing of government health care programs for the company’s drugs.
And while that all sounds very bad for Valeant, if you pull up a quote today, you will see the stock is up 33%. The reason – Valeant is in talks to sell its Salix unit to Japan’s Takeda for $10 billion, per the Wall Street Journal. The crown jewel of Salix’s product line is Xifaxan, a drug that cures irritable bowel system.
When the company bought Salix, it told investors that Xifaxan would be a $1 billion drug in 2016. So far though, that hasn’t been in case. Valeant acquired Salix for $11 billion in 2015 and took on around $4 billion of its debt, so the company would be taking a loss, but it would show Valeant still has some valuable assets, even in a fire sale.
Sony’s second-quarter profit missed estimates, as a one-time charge and stronger yen weighed on profit from financial services and PlayStation games.
Angie’s List said it has hired financial advisers to review its strategic options as it continues to work on a turnaround and seek new opportunities. The company said it had a net loss of $16.8 million, or 28 cents a share, in the quarter, after breaking even in the year-earlier period – a big miss on top and bottom line estimates.
Gannett (the publisher of USA Today) has dropped its bid to buy Chicago Tribune and Los Angeles Times publisher Tronc. Gannett first made a bid for Tronc in April, then Tronc rejected a sweetened offer in May.
ChemChina has extended its $43 billion cash offer for Syngenta to Jan. 5 while it works to gain regulatory approval for the transaction. On Friday, EU anti-trust regulators opened an in-depth investigation into China’s biggest-ever foreign acquisition, setting a March 15 deadline to complete its review.
In one week and a few hours, the results will pour in. Hang in there.