Big Earnings WeekPodcast: Play in new window | Download (Duration: 13:15 — 7.6MB)
DOW – 66 = 21,513
SPX – 2 = 2469
NAS + 23 = 6410
RUT + 2 = 1438
10 Y + .02 = 2.25%
OIL + .66 = 46.43
GOLD + .50 = 1256.00
BITCOIN – 0.40% = 2767.87 USD
ETHEREUM – 0.66% = 223.18
Stocks were mixed, with tech shares leading the way and the Nasdaq Composite closed at another record high.
Commodities Futures Trading Commission data show that bets against the dollar are at their highest since early 2013, while bullish wagers on the 30-year Treasury bond are about the highest since mid-2016. The dollar dropped to 15-month lows and then rebounded slightly. The yield on the 10-year Treasury note moved up to 2.25%.
You probably would not expect to see such extreme positioning if investors were confident in the outlook for the economy and the prospect for much higher interest rates. The Federal Open Market Committee is slated to begin its two-day meeting on Tuesday. Fed watchers are not expecting a change in interest rates.
The Fed will likely be as vague and flexible as possible. The Federal Reserve doesn’t want to get specific about timing but they also don’t want to leave any doubt: The central bank still plans to raise interest rates again this year and start to sell off its vast holdings of Treasuries and mortgage-related bonds.
But the Fed has a problem – inflation, or the lack thereof. The Federal Reserve thinks modest inflation has important economic benefits, and it has aimed since 2012 to keep prices rising at an annual pace of 2 percent. The problem is that the Fed is on track to fail for the sixth straight year. And it might be a sign the economy just isn’t as strong as everybody hopes.
This week the government is expected to report a nearly 3% advance in second-quarter gross domestic product, the official scorecard for the economy. While that would mark a big improvement on 1.4% growth in the first quarter, it would leave the U.S. on the same 2% trajectory it’s been on since the end of the Great Recession. That’s less than two-thirds the nation’s historic rate of growth.
The IMF just cut its 2017 economic growth forecast for the U.S. to 2.1 percent from the 2.3 percent it estimated in April.
The National Association of Realtors reports existing home sales dropped 1.8 percent to a seasonally adjusted annual rate of 5.52 million units last month. Even as sales slipped, demand was strong, inventory was tight, and prices moved higher.
There were 1.96 million houses on the market last month, down 7.1 percent from a year ago. Housing inventory has dropped for 25 straight months on a year-on-year basis. The median house price jumped 6.5 percent from a year ago to an all-time high of $263,800 in June. It was the 64th straight month of year-on-year price increases.
A reading of U.S. manufacturing output reached a four-month high in July. The IHS Markit flash U.S. manufacturing purchasing managers index rose to 53.2 from 52 in June, as there was acceleration in readings for output, new orders, employment and stocks of input.
Nearly 200 S&P 500 companies are scheduled to report quarterly results this week. The second-quarter earnings season has been generally positive, 68% of companies beat on [earnings per share], 75% beat [Wall Street average estimates] on sales and 53% beat on both—the highest proportion of top and bottom-line beats at this point during earnings season in over five years.
With more than one-fifth of the S&P 500 having reported results, earnings are now expected to have climbed 8.8 percent in the second quarter, up from a projection of an 8-percent rise at the start of the month. Those that disappoint have been swiftly punished by investors, as General Electric found out on Friday.
Big earnings news after the bell. Alphabet topped $1,000 per share intraday, but in after-hours trade the stock dropped after reporting a drop in second-quarter profit – thanks to a $2.74 billion fine by European antitrust regulators, slapped on its Google unit.
Here are the numbers: The company’s net income fell to $3.5 billion, or $5.01 per Class A and B share and Class C capital stock, in the second quarter from $4.8 billion, or $7 per share, a year earlier. That was still enough to beat estimates of $4.49 per share.
Revenue rose about 21 percent to $26 billion in second quarter, beating the analysts’ average estimate of $25.6 billion. Google sites revenue: $18.3 billion. Google network revenue: $4.0 billion. Cost per click: (+14.6%) from last year. Paid clicks: +35.2% from last year.
Revenue from its Google Other unit, which includes Pixel smartphone, Play Store and cloud business, rose 42.3 percent to $3.09 billion. Alphabet has been adding new content as it races Facebook and traditional TV networks for a share of the market for digital video ads.
YouTube said in June that it had reached 1.5 billion monthly users and would add 12 new TV shows to the 37 it already has on its YouTube Red service. The company is also updating its core search product as more consumers use its service via smartphones.
Still, its drive to innovate has run into a regulatory wall in Europe, where regulators ruled Google used its monopoly position in search advertising to hurt rivals by favoring its online shopping service over competitors, and fined the company $2.7 billion.
Facebook and Amazon reported quarterly results later this week.
In other earnings news, Halliburton shares fell 4.2 percent after the oilfield services provider warned about flattening growth in North American rig count.
Johnson & Johnson shares ended down 1.7 percent, the biggest weight on the S&P 500 and the Dow. J&J faces discounted competition to its big-selling rheumatoid arthritis drug.
Hasbro shares slumped 9.4 percent after the toy-maker’s quarterly results.
Arconic lifted its forecasts for full-year earnings and said its profit and revenue for the three months ending June 30 were higher than predicted. Arconic is the American company that gained notoriety for selling combustible material used in paneling at Grenfell Tower, the 24-story London public housing block, that caught fire and left 80 people dead. The company faces a class-action complaint that accuses it of making false and misleading statements related to its sales of the panels.
Private equity firm KKR has agreed to buy WebMD Health Corp in a deal valued at about $2.8 billion. KKR will fold WebMD’s websites, including WebMD.com and Medscape.com, into its Internet Brands unit, which houses sites such as DentalPlans.com and AllAboutCounseling.com.
Founded in 1996, WebMD has grown into one of the most popular health websites for consumers and medical professionals, attracting more than 70 million monthly unique visitors in 2016.
President Trump made a last-ditch plea to Senate Republicans on Monday to repeal and replace Obamacare, or maybe just repeal it – nobody knows the specific plan. It doesn’t look like there are enough votes for either a repeal and replacement of Obamacare or a straight repeal, so the Senate will vote on Tuesday on whether to open debate on an overhaul of the law. If that procedural vote succeeds, the House bill would then be open for amendment on the Senate floor.
Jared Kushner, Trump’s son-in-law and a senior White House adviser, told Senate investigators today he had met with Russian officials four times last year but said he did not collude with Moscow to influence the 2016 U.S. election. The Senate Intelligence Committee is one of several congressional panels investigating the Russia matter, along with a criminal probe led by special counsel Robert Mueller.
Congressional Democrats are rolling out their economic agenda, calling it the Better Deal. The first phase of the agenda includes more and better-paying jobs, lowering health care costs by cutting prescription drug prices, and cracking down on abuses by big business. Democratic bills from earlier this year, including a $15 federal minimum wage and a $1 trillion infrastructure proposal, are also being folded into their “Better Deal” agenda.
Also, Democrats say they want to double federal support for apprenticeship programs to help train young people and put out-of-work adults back in the work force. They also want tax incentives for companies to retrain workers, as well as new standards aimed at limiting corporate mergers that throw people out of work.
NASA has a way to cut your flight time in half. For almost a half-century there’s been a clear speed limit on most commercial air travel: 660 miles per hour, the rate at which a typical-size plane traveling at 30,000 feet breaks the sound barrier and creates a 30-mile-wide, continuous sonic boom.
That may be changing. In August, NASA says, it will begin taking bids for construction of a demo model of a plane able to reduce the sonic boom to something like a mild hum. The space agency’s supersonic plane could be quiet enough to lift the longstanding ban on overland travel, if it makes it to production.
Lockheed helped create NASA’s design, using fluid dynamics modeling made possible in the past decade or so by increasingly powerful computers. Together, Lockheed and NASA tested and mapped how subtle differences in aircraft shapes affect the supersonic shock waves they create. The design they’ve settled on keeps sound waves from merging into the pattern of a sonic boom.
NASA plans to share the technology resulting from the tests with U.S. plane makers, meaning a head start for the likes of Lockheed Martin, General Dynamics, Boeing, and startups such as Boom Technology.
Now if they can just figure out a way to get us through the TSA lines.