Morning in Arizona

Morning in Arizona

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Friday, January 13, 2017

Worse for Our Kids

Financial Review

Worse for Our Kids


DOW – 5 = 19,887
SPX + 4 = 2274
NAS + 26 = 5574
RUT + 10 = 1372
10Y + .02 = 2.38%
OIL – .54 = 53.30
GOLD + 1.80 = 1197.80

For the week, the Dow and S&P posted slight declines, but the Nasdaq rose nearly 1 percent; posting its sixth record high close of 2017.

The Commerce Department says retail sales increased 0.6 percent last month. November’s retail sales were revised up to show a 0.2 percent rise instead of the previously reported 0.1 percent gain. Sales were up 4.1 percent from December 2015. They rose 3.3 percent for all of 2016, up from 2.3 percent in 2015.

Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.2 percent after being flat in November. For the 11th straight year, sales at department stores fell. They dropped 5.6% in 2016 to mark the second-largest decline since the government began keeping track in the early 1990s. They’ve dropped in 15 out of the last 17 years.

At the same time, sales at so-called non-store retailers soared 11.4% in 2016 — the largest gain in 10 years. That category also includes some fuel dealers that benefited from higher gasoline prices, but online sales have been growing rapidly since the late 1990s.

Wholesale inflation rose in December, and the yearly increase surged. The producer price index rose 0.3% in December. Compared to a year ago, the index rose 1.6%, the strongest gain since September 2014. Excluding food, energy, and trade, prices were up 1.7%.

China has stepped up efforts to restrict yuan outflows by asking some banks to stop processing cross-border payments until they’re balanced on both sides. Data released overnight showed that the country’s exports remain tepid, with overseas shipments dropping 6.1 percent while imports rose 3.1 percent, leaving a $40.8 billion trade surplus.

Federal Reserve Chair Janet Yellen said that she sees no serious short-term obstacles to the U.S. economy and that inflation is “pretty close” to policy makers’ 2 percent target. She also defended the 2010 Dodd-Frank act, which the incoming administration have said they will seek to dismantle.

The House voted 227-198 to instruct committees to draft legislation by a target date of Jan. 27 that would repeal Obamacare. The Senate approved the same measure early Thursday.

This earnings season marks a break with a long-held tradition: Aluminum giant Alcoa, (ticker AA) will no longer be the first company to post earnings, following its split into two companies. This is a big day for the big banks to report fourth quarter earnings. Thomson-Reuters tracked consensus estimates for the fourth quarter of 2016 are calling for a 6.1% year-over-year increase in S&P 500 earnings.

And while we still watch individual earnings reports, stock exchanges are increasingly getting out of the stock trading business. Individual shares no longer are the most actively traded securities in the market. That distinction goes to exchange-traded funds, which took in a record $400 billion in the past year to become a $3.8 trillion industry.

There are nearly 2,000 ETF listings, an all-time high. The SPDR S&P Bank ETF (KBE) rose 1.1 percent, helping lift the broader financial sector. That said, the most-traded security is a stock: 108 million shares of Bank of America change hands on average per day, more today.

Bank of America this morning reported adjusted quarterly earnings that beat estimates, but revenue that missed. BofA posted a near-50-percent jump in fourth-quarter profit due to cost cuts and higher trading revenue.

Dow component JPMorgan beat on earnings and revenue. Earnings per share rose to $1.71 from $1.32, on revenue of $23.95 billion. Revenue from fixed-income trading – JPMorgan’s most volatile business – rose 31 percent to $3.4 billion, while stock trading revenue increased 8 percent to $1.2 billion.

Wells Fargo posted fourth-quarter results that missed on the top and bottom lines. The bank is coming off one of the most difficult years in its 165-year history, posting its fifth consecutive decline in quarterly earnings. The bank has been dealing with multiple lawsuits and a sharp drop in account openings after it settled with regulators in September over charges that its employees created 2 million accounts without customers’ consent.

One troubling line from the earnings report showed December credit card openings fell by a whopping 43% from a year earlier, and a 7% drop from the previous month. This echoes the similarly bad third-quarter performance. On the deposit account side, checking account openings were similarly down 40% from December 2015.

Morgan Stanley lays off bankers and cuts bonuses. The investment bank laid off an undisclosed number of senior bankers and slashed bonuses by 15% because of a decline in revenue generated by deal making.

BlackRock, the world’s biggest asset manager, reported adjusted quarterly earnings the beat expectations, while revenue missed. Investors poured $88 billion into the company’s market-tracking index investments and its iShares exchange-traded funds during the quarter, while pulling $546 million from funds managed actively by portfolio managers.

What emissions cheating? Fiat’s shares rebounded. After dipping 16% on Thursday in the wake of a US regulator’s accusation that it had violated emissions laws. The EPA accused Fiat Chrysler of using software to allow excess diesel emissions. The notice affects over 100,000 cars, including trucks and SUVs, and the maximum fine that could be imposed would total $4.6 billion. Fiat Chrysler shares bounced back up by more than 6% this morning on the Stoxx 600.

Six current and former Volkswagen managers were indicted and arrested in the United States this week for their role in the German carmaker’s diesel test-cheating scheme. VW has a solution to the problem – they’re telling senior managers to stop traveling to the US.

Tesla announced in November it was doing away with unlimited free charging at its Supercharger stations, but it just revealed the new pricing guidelines for those who purchase vehicles after January 15, 2017. Tesla owners will get 400 kWh of Supercharging credits (about 1,000 miles) for free each year; however, pricing for anything more than that will be dependent on the state or country. A trip from San Francisco to LA would cost about $15, while LA to NY will cost about $120.

Tomorrow, SpaceX is hoping to get back to launching — and landing — its rockets again, a little over four months after one of its Falcon 9 vehicles exploded on a Florida launchpad. Last week’s planned launch was postponed due to inclement weather.

The Environmental Protection Agency is finalizing ahead of schedule Greenhouse Gas (GHG) emissions standards that call for automakers to achieve a fleetwide average of 54.5 mpg, which is only about 40 mpg in combined city or highway driving, by 2025. The mileage rules, which were issued initially by the EPA in 2012 in conjunction with the U.S. Department of Transportation’s Corporate Average Fuel Economy (CAFE) standards, were set to be subject to review by April 2018.

The new emission standards began to take effect with the 2017 model year. The final years of the mandate will see a required average of more than 55 mpg for cars and about 40 mpg for trucks in 2025.

Shares in the Japanese airbag maker Takata surged by 16.5% today as investors expect that the company is close to settling a case with the U.S. Department of Justice over its deadly airbags for $1 billion. The announcement could come later today. The company’s faulty airbags have led to at least 11 deaths.

CVS is now selling a rival, generic version of Mylan’s EpiPen at about a sixth of its price. You may recall, a few months ago, Mylan execs were called before Congress and ripped for price gouging on the life-saving allergy treatment. Mylan had raised the price more than 500% since 2007.

After the bad press, Mylan cut the price to $300 for a two-pack for its own generic version, but still charges $600 for the EpiPen version. CVS says it will charge $109.99 for a two-pack of the authorized generic version of Adrenaclick, and for some customers who still need financial assistance, they are offering a coupon for a $100 discount.

Baby Boomers: your millennial children are worse off than you. With a median household income of $40,581, millennials earn 20 percent less than boomers did at the same stage of life, despite being better educated. According to new research from the Federal Reserve: Millennials have half the net worth of boomers. Their home ownership rate is lower, while their student debt is drastically higher.

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