Financial Review

Milk and Cookies

Sinclair Noe — June 19, 2017

DOW + 144 = 21,528
SPX + 20 = 2453
NAS + 87 = 6239
RUT + 11 = 1418
10Y + .03 = 2.19%
OIL – .64 = 44.10
GOLD – 9.80 = 1244.60
BITCOIN + 1.34% = 2677.18 USD
ETHEREUM – 3.60% = 358.49

The Dow Industrial Average hit another record high today. The S&P 500 is up 9% so far, this year, hitting another record high close today.

Just 10 companies have accounted for almost half of the benchmark’s return this year. While stock bears have been stressing caution, some have gone as far as to compare the current environment to the dotcom bubble. The reality is that this concentration is not unusual; it happens in rallies.

On June 9, tech stocks in the S&P 500 dropped 2.7%. But that money mostly stayed in the stock market, flowing into energy and financial shares. Nasdaq’s biotechnology index rose 2.5 percent in its biggest one-day gain since February while the S&P’s healthcare index had a record-high close.

The S&P’s financial sector was also one of the benchmark’s strongest gainers with a 1% rise after New York Federal Reserve President William Dudley said U.S. inflation was a bit low but should rise alongside wages as the labor market continues to improve, allowing the Fed to continue gradually tightening monetary policy.

Dudley said: “I’m actually very confident that even though the expansion is relatively long in the tooth, we still have quite a long way to go. This is actually a pretty good place to be.” Apparently, the Fed sees underlying strength in the economy that the data doesn’t show right now. The Fed’s base case is that this is just kind of a soft patch and we will continue to cycle higher.

And Wall Street always seems to be optimistic when we have big merger and acquisition news – which we saw on Friday with the Amazon/Whole Foods deal. Not everybody loved the deal, Kroger lost 19% on Thursday when they announced a bad earnings report, then came news of Amazon, and Kroger dropped another 9%, losing $7 billion in market cap in just 2 days. Today, the bottom fishers came in and Kroger bounced 1.5%.

Also, Blue Apron started its IPO roadshow today, hoping that nobody paid any attention to anything last week. Blue Apron Holdings, a startup that offers cook-at-home preparation kits, expects shares to price between $15 and $17 in its initial public offering. With Amazon now casting an anticipatory shadow over the “Fresh food to urban yuppie home delivery” sector, Blue Apron is caught in a gnarly Catch 22.

Its IPO only makes sense if people believe that its business model can drive revenue and maybe create profit, but if that model can indeed drive revenue, what’s to stop Amazon from copying it, using 80 million Prime subscribers and the vast coverage of Whole Foods distribution network?

Resurgent growth is reviving one of the past decade’s hottest trades. Emerging-market investors are again piling into the so-called BRIC nations — Brazil, Russia, India and China — pushing monthly inflows and stock prices to almost two-year highs. Non-resident portfolio flows into BRIC nations rose to $166 billion last month, from $28 billion of outflows 12 months prior.

Oil fell, extending four weeks of declines, as U.S. drillers continue adding rigs and Libya boosts output. U.S. drillers added rigs for a 22nd straight week, the longest uninterrupted stretch of growth in three decades.

The Supreme Court just ruled that social media is a constitutional right. Today, the justices unanimously held that states can’t broadly limit access to social media because cyberspace “is one of the most important places to exchange views.”

In Packingham v. North Carolina, the justices were asked to review a North Carolina statute that bars sex offenders from accessing social media altogether and makes it a felony if they post on any platform. The case has implications for all members of American society, however, not just sex offenders, and the court appears to be extremely conscious of the broader effect.

Justice Anthony Kennedy wrote, “A fundamental First Amendment principle is that all persons have access to places where they can speak and listen, and then, after reflection, speak and listen once more.” Given the fact that social-media platforms allow for this kind of free communication, and that the constitution protects the right to exchange, the justices recognized this case was widely societally important.

North Carolina convicted over 1,000 sex offenders based on its statute barring access to all social platforms. That, according to the high court, simply isn’t acceptable considering the role Facebook, Twitter, Snapchat and others play in current public communication.

The Supreme Court agreed to consider whether there are constitutional limits to how far lawmakers can go in drawing electoral districts to maximize partisan political advantage, a case that could have profound implications for US elections.

The justices in a brief written order said they would review a redistricting case from Wisconsin, where a three-judge lower court last year invalidated a redistricting plan enacted by the Republican-controlled Wisconsin legislature in 2011. That court said Wisconsin lawmakers redrew the state’s legislative districts after the 2010 census to unlawfully maximize the number of Republicans elected and dilute the power of Democratic voters.

Democrats won a popular majority of assembly votes in 2012 and 2014, but Republicans managed to take 60 of the 99 assembly seats. The practice of redrawing electoral maps along partisan lines is known as “gerrymandering.” The Supreme Court has previously struck down gerrymandered maps that disadvantage minority voters, but has yet to prohibit a map because it unfairly advantages one political party over another.

Also today, the Supreme Court struck down part of a law that bans offensive trademarks, ruling in favor of an Asian-American rock band called the Slants and giving a major boost to the Washington Redskins in their separate legal fight over the team name.

The justices were unanimous in saying that the 71-year-old trademark law barring disparaging terms infringes free speech rights guaranteed in the Constitution’s First Amendment. Justice Samuel Alito said in his opinion for the court, “It offends a bedrock First Amendment principle: Speech may not be banned on the ground that it expresses ideas that offend.”

Silicon Valley went to Washington today. The White House has enlisted tech CEOs to improve government services, reform outdated information technology systems, cut fraud and government costs and improve services for taxpayers. It has cited an economic opportunity to save up to $1 trillion over 10 years through such measures.

Jared Kushner, Trump’s son-in-law, said before the sessions began that the administration wanted to “unleash the creativity of the private sector to provide citizen services in a way that has never happened before.”

French President Emmanuel Macron is poised to rearrange his Cabinet after his new centrist party won a solid majority in the country’s parliamentary election, enabling the government to quickly start passing its first big laws. President Macron flew opened the world’s biggest air show in Paris, today.

Boeing generated a burst of activity on the opening day by launching the 737 MAX 10. Boeing said it had more than 240 orders and commitments from at least 10 customers for the new 737, which can carry up to 230 people in a single-class configuration. Airbus immediately hit back with an order for 100 of its popular A320neo planes.

The Federal Trade Commission said it will seek to stop the merger of DraftKings and FanDuel, because the combined company would control more than 90 percent of the U.S. market for paid daily fantasy sports contests.

This is the latest setback for two companies, which have faced regulatory challenges in several states. They announced the deal in November 2016 as a merger of equals that would cut their legal bills. The companies said in a joint statement that they were considering their legal options.

Late Friday, we told you that CenturyLink had been sued in Arizona by a former employee for allegedly running a sales incentive scheme, by adding services to accounts without customer approval. The whistleblower was fired.

Now, the case is going to class action status in California, seeking damages up to $12 billion. CenturyLink is amid a $34 billion merger with Level 3 Communications.