Financial Review

Big Tech Rolls

Sinclair Noe — October 27, 2017

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DOW + 33 = 23,434
SPX + 20 = 2581
NAS + 144 = 6701 (record)
RUT + 10 = 1508
10 Y – .02 = 2.43%
OIL + 1.39 = 54.03
GOLD + 7.00 = 1274.20

Cryptocurrency

• Number of Currencies: 881
• Total Market Cap: $169,584,853,512
• 24H Volume: $3,030,726,031

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	5,763.0	$96.48B	$1.38B	45.66%	1	+0.06%	-4.89%
	Ethereum	ETH	294.13	$28.39B	$260.01M	8.58%	0.0515573	-0.63%	-0.26%
	Ripple	XRP	0.19869	$7.78B	$26.00M	0.86%	0.00003499	-0.41%	-1.55%
	Bitcoin Cash	BCH	389.71	$6.62B	$642.56M	21.20%	0.0684542	+6.64%	+22.31%
	Litecoin	LTC	54.550	$2.94B	$69.39M	2.29%	0.00950861	-1.27%	-5.37%
	Dash	DASH	270.00	$2.09B	$44.65M	1.47%	0.0474148	-3.66%	-2.04%
	NEM	XEM	0.19693	$1.79B	$4.75M	0.16%	0.0000344	+0.48%	-4.75%
	BitConnect	BCC	213.397	$1.56B	$11.33M	0.37%	0.0369607	+0.59%	+0.95%
	NEO	NEO	27.740	$1.38B	$22.50M	0.74%	0.00477785	-3.95%	+1.75%
	Monero	XMR	85.71	$1.32B	$24.67M	0.81%	0.014969	-0.45%	-1.82%

For the week, the Dow rose 0.5%, the S&P 500 gained 0.2% and the Nasdaq advanced 1.1%. The S&P has notched gains for seven straight weeks, its longest weekly winning streak in three years. The Russell 2000 index was down 0.1% for the week. Who needs small caps, when the big tech stocks are going crazy?

For the year to date: The S&P 500 is up 342.24 points, or 15.3%. The Dow is up 3,671.59 points, or 18.6%. The Nasdaq is up 1,318.15 points, or 24.5%. The Russell 2000 is up 151.19 points, or 11.1%.

We knew this was going to be a big day for the tech sector after several companies reported strong earnings after the closing bell yesterday. The S&P technology index led the way higher, up 2.9%. The index notched its best day since March 1, 2016 and is up nearly 35% on the year versus the 15-percent gain in the S&P 500.

Google-parent Alphabet gained 4.2% as its revenue got a boost from advertising sales. Microsoft jumped 6.4% after the world’s largest software company reported further gains from its cloud computing services.

Apple rose 3.5% after the company allayed concerns of muted demand for its 10th anniversary phone. The iPhone X, unsurprisingly, sold out of its pre-orders within ten minutes. Or, at least, the pre-orders it allocated to its website. Likely pre-orders are also sold out at its retail operations at this point, too.

Intel soared 7.3% after its quarterly results topped estimates and the chipmaker raised its full-year forecasts. And Amazon, gained 13.2% after reporting a quarterly sales surge and better than expected earnings. Amazon of course is already ubiquitous—an estimated two-third of US households subscribe to its Prime membership program.

But aside from the packages that come to your door and a few forays into hardware, the company can still grow sales by 35% in North America and their cloud business saw sales jump 42%. For Jeff Bezos, this was about a $7 billion day, meaning he may now be the world’s richest man.

Both Amazon and Google now trade above $1,000. Apple, Amazon, Alphabet, Microsoft; these are the new blue chips. Maybe toss in Facebook, Netflix, and Nvidia.

Today, the FAANG stocks added $181 billion in market capitalization in just a few hours of trading. For the sake of comparison, Goldman Sachs has a market cap of $93 billion. This year so far has been a big one for these companies, which have added nearly $1 trillion in value. They might top that mark next week, when Facebook and Apple report earnings.

If you own at least a few of these stocks, and you have just been holding, you have been rewarded. Even as these stocks have grown massively they can still deliver growth that seems more like a small cap stock sprinting out the gate. That does not mean they will continue to go up in a nearly straight line – they all face certain challenges but they all remain innovative and profitable until further notice.

Trump likes to claim credit for the record highs on Wall Street, even though we have been in a bull market for more than 8 years. And what he doesn’t mention is that the rest of the world has gotten richer, faster at the same time. American equities are now worth $28.4 trillion, having swelled by almost $3 trillion since he took office in January. But they’ve lost ground against the rest of the world.

All stocks across the globe are valued at $89.9 trillion. US shares make up only 31.6 percent of that total. That’s the lowest proportion since November 2011, or a few months after the U.S. flirted with default. And it’s sunk from the 11-year high of 38.3 percent set in December under then-President Obama.

Earnings growth for the third quarter is now 6.7 percent, according to Thomson Reuters data. Of the 273 companies that have posted earnings, 74 percent have topped expectations, compared with the 72 percent beat rate over the past four quarters. Not all earnings were positive, however. Chevron’s 4.14 percent fall weighed on the S&P and the Dow after the oil company’s profit missed estimates.

The nation’s gross domestic product expanded at an annual rate of 3 percent in the third quarter, according to the Commerce Department’s first estimates. Economists initially expected that Hurricanes Harvey and Irma would deal a blow to the country’s steady growth, but destruction wrought by the storms was outweighed by the continued spending of consumers and businesses.

The economy is experiencing its fastest growth spurt in two consecutive quarters since 2014, but it is highly unlikely that growth for the year will reach 3 percent. The first quarter was tepid, and projections for the current quarter hover around 2.8 percent.

Personal consumption, although down from the previous quarter, grew at a 2.4 percent rate, and nonresidential fixed investment, a measure of business spending, expanded at a robust rate of 3.9 percent.

Spending on equipment increased at a rate of 8.6 percent, as companies poured money into capital improvements. Businesses may be investing in computers and industrial equipment in response to a tight labor market.

It can be hard to accurately measure the full effect of a natural disaster immediately after it occurs. Hurricanes Harvey and Irma left 600,000 to one million vehicles needing replacement. Car sales spiked in September, reaching their highest level since 2005.

Those car purchases are counted toward GDP growth, but the destruction of all those cars is not subtracted. The 3% GDP growth figure released was the government’s first estimate of economic output for the quarter, and it will be revised twice.

The government in Madrid, Spain sacked Catalonia’s president and dismissed its parliament, hours after the region declared itself an independent nation. A new regional election will be held in Catalonia on Dec. 21.

As well as removing Carles Puigdemont as head of the autonomous region, Prime Minister Mariano Rajoy also fired its police chief and said central government ministries would take over the Catalan administration. Several European countries, including France and Germany, and the United States also rejected the independence declaration and said they supported efforts to preserve Spain’s unity.

The crisis has now reached a new and possibly dangerous level as independence supporters have called for a campaign of disobedience. The main secessionist group, the Catalan National Assembly, called on civil servants not to follow orders from the Spanish government and urged them to follow “peaceful resistance”.

CVS Health has made an offer to acquire Aetna for more than $200 per share, or over $66 billion, making it the biggest deal of the year. Yesterday Amazon.com has received wholesale pharmacy licenses in several states and is planning to move into online prescription drug sales, potentially posing an existential threat to brick-and-mortar pharmacies.

That possibility has hit shares of most drugstore operators on fears that the online retailer would leverage its vast ecommerce platform in prescription drug sales. A CVS-Aetna deal could create a one-stop shop for customers’ health care needs – ranging from employer healthcare and government plans to managing benefits and running drug stores.

This has not been an easy year for brick and mortar retailers and today, JC Penney took a hard hit, down 15% after warning of a deeper-than-expected loss in the third quarter. The retailer is trying to revamp its apparel inventory by liquidating less popular items. While the effort will lead to a comparable-store sales gain, it was a costly endeavor, resulting in a loss last quarter.

The move spotlighted key problems for the department-store field: hard-to-sell inventory and a reliance on deep discounts to move stock. J.C. Penney also has been shuttering poor-performing stores in a bid to better match supply with demand.

It has been a very bad week for General Electric. GE cut cash and profit forecasts while reporting earnings that fell well short of Wall Street estimates. Investors are also bracing for a possible dividend cut. Shares dropped every day this week pushing the stock down 13% on the week. That was GE’s worst weekly drop since March 2009. With about $26 billion of market value wiped out over the past five days, the loss for GE shareholders this year has now reached $100 billion

Volkswagen reported net profit in the third quarter fell about 50 percent, to 1.1 billion euros, or $1.3 billion, after the company set aside €2.6 billion to cover the unexpectedly high cost of repairing diesel cars in the United States that contained illegal, emissions-cheating software. VW had warned last month that the emissions scandal would cut into earnings.

After VW admitted to the scandal, the company vowed it will make electric cars affordable for the masses. One way that Volkswagen was able to still report a profit in the quarter, though, was by cutting spending on research and development. So, in a twisted sort of way, the cost of the scandal is hurting the transition to clean electric cars.

National monuments in Utah are shrinking. The Trump administration has decided to reduce the size of the Bears Ears National Monument and Grand Staircase-Escalante National to make way for more industrial activity on the land they occupy. A coal deposit lies beneath Grand Staircase, but an archeological site where two dozen new species of dinosaurs have been discovered is located there, too, and paleontologists are now worried it could be destroyed if the monument’s size is reduced.

Navajo Nation Attorney General Ethel Branch, said: “The Navajo Nation stands ready to defend the Bears Ears National Monument. We have a complaint ready to file upon official action by the President.”

Tech Earnings Power Market Gains

Charles Schwab: On the Market

Posted: 10/27/2017 4:15 PM EDT

Tech Earnings Power Market Gains

 

U.S. equities finished out the week higher, as technology issues jumped on a number of favorable earnings reports, including Google's parent Alphabet and Dow members Microsoft and Intel. Meanwhile, the consumer discretionary sector got a boost from Amazon's strong report. Treasury yields were lower, with Fed leadership uncertainty overshadowing favorable reads on Q3 GDP and consumer sentiment. Crude oil and gold prices were higher, and the U.S. dollar added to its recent run. 

The Dow Jones Industrial Average (DJIA) rose 33 points (0.1%) to 23,434, the S&P 500 Index increased 21 points (0.8%) to 2,581, while the Nasdaq Composite soared 145 points (2.2%) to 6,701. In moderate-to-heavy volume, 892 million shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil jumped $1.26 to $53.90 per barrel and wholesale gasoline gained $0.02 to $1.72 per gallon. Elsewhere, the Bloomberg gold spot price rose $5.98 to $1,272.97 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 94.87. Markets were nicely higher for the week, as the DJIA increased 0.5%, the S&P 500 Index gained 0.2% and the Nasdaq Composite advanced 1.1%.

Amazon.com Inc. (AMZN $1,101) reported Q3 earnings-per-share (EPS) of $0.52, well above the $0.07 FactSet estimate, as revenues rose 34.0% year-over-year (y/y) to $43.7 billion, topping the expected $41.6 billion. The results included the contribution from its recent acquisition of Whole Foods. AMZN issued Q4 revenue guidance with a midpoint below expectations. Shares rallied.

Google parent Alphabet Inc. (GOOGL $1,034) posted Q3 EPS of $9.57, exceeding the projected $8.35, with revenues excluding traffic acquisition costs (TAC) growing 21.9% y/y to $22.3 billion, north of the forecasted $21.9 billion. Shares were decisively higher.

Dow member Microsoft Corp. (MSFT $84) announced fiscal Q1 earnings of $0.84 per share, versus the expected $0.71, as revenues rose 12.0% y/y to $24.5 billion, above the projected $23.5 billion. Shares were solidly higher.

Dow component Intel Corp. (INTC $44) reported Q3 EPS of $0.94, or $1.01 ex-items, compared to the forecasted $0.80, with revenues rising 2.0% y/y to $16.1 billion, topping the expected $15.7 billion. INTC issued Q4 guidance that bested estimates, while it raised its full-year outlook. INTC moved solidly higher.

With the flurry of key earnings reports from the tech sector, Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers timely analysis of our outperform rating we have held for some time on the group in his latest, Schwab Sector Views: Technology Trick or Treat?. Brad notes that the technology sector’s strong run could continue, with improving global growth prospects and continued high consumer confidence providing support. But risks for the sector have risen and investors should be careful not to get overly concentrated in the tech sector.

Dow member Merck & Co. Inc. (MRK $58) posted a Q3 loss of $0.02 per share, or a profit of $1.11 per share ex-items, compared to the estimated $1.03, as revenues declined 2.0% y/y to $10.3 billion, below the forecasted $10.5 billion. MRK increased its full-year guidance. Shares of MRK came under heavy pressure.

Dow component Exxon Mobil Corp. (XOM $84) announced Q3 EPS of $0.93, north of the expected $0.86, on revenues of $66.2 billion, versus the projected $62.8 billion. Shares are ticked higher.

Dow member Chevron Corp. (CVX $114) achieved Q3 earnings of $1.03 per share, while excluding one-time items reflecting asset sales and write offs, EPS was $0.85, but it is unclear if it is comparable to the anticipated $0.98. Revenues were $36.2 billion, versus the forecasted $34.5 billion. Shares were lower.

First read on Q3 GDP tops forecasts, consumer sentiment remains at 13-year high

The first look (of three) at Q3 Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of expansion of 3.0%, after the unrevised 3.1% expansion in Q2, and above the 2.6% growth forecasted by Bloomberg. Personal consumption gained 2.4%, topping forecasts of a 2.1% rise and following the unadjusted 3.3% increase recorded in Q2.

Private inventory investment, nonresidential fixed investment, exports and federal government spending joined personal consumption to contribute to the stronger-than-expected growth, and more than offset negative contributions from residential fixed investment, as well as state and local government spending.

On inflation, the GDP Price Index came in at a 2.2% rise, well above expectations of a 1.7% gain and the unrevised 1.0% increase seen in Q2, while the core PCE Index, which excludes food and energy, moved 1.3% higher, matching expectations, and following the unadjusted 0.9% advance in Q2.

The GDP report suggests that business capital spending (capex) continues to gain steam and Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle, that an even sharper recovery could be in the cards for 2018, while tax reform—if we get it—would be an additional kicker. She adds that the pick-up in capex is a relatively new bright spot for the U.S. economy; and in 2018 it will likely be a shining characteristic of the latter innings of an economic expansion.

The final October University of Michigan Consumer Sentiment Index (chart) was revised lower to 100.7, matching forecasts, from the preliminary level of 101.1. The index was up solidly versus September's level of 95.1 and sits at a level not seen since January 2004. Compared to last month, the expectations and current conditions components of the survey both improved decisively. The 1-year inflation outlook fell to 2.4% from September's 2.7% rate, and the 5-10 year forecast remained at 2.5%.

Treasuries were higher as the data was met with Fed leadership speculation, as the yield on the 2-year note dropped 3 basis points (bps) to 1.60%, while the yields on the 10-year note and the 30-year bond fell 4 bps to 2.42% and 2.93%, respectively.

The U.S dollar continues to climb, bolstered by global economic and earnings optimism, along with the euro's extended drop following yesterday monetary policy decision by the European Central Bank and relative optimism of U.S. tax reform as it appears to be nudging down the long road to fruition.
Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend and Vice President of Trading and Derivatives, Randy Frederick, discuss tax reform in the video, Where Does Tax Reform Stand?, while Chief Fixed Income Strategist, Kathy Jones delivers the video with Randy about Should a Change in Fed Leadership Matter to Investors?.

Europe mixed on data and Spanish political turmoil, Asia higher

European equity markets finished mixed, with global earnings optimism rising in the wake of the host of upbeat results from U.S. tech sector heavyweights. Also, a positive global economic backdrop was bolstered by the stronger-than-expected U.S. Q3 GDP growth. The euro added to yesterday's drop that came courtesy of the European Central Bank's monetary policy decision to cut and extend its stimulus measures, which appeared to foster a dovish takeaway. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers analysis of the global monetary policy front in his article, How the Shift by Central Banks May Affect the Stock Market, and talks with Randy Frederick in the video about Is An Optimistic Outlook for Global Equities Warranted?. The British pound also saw some pressure as Brexit uncertainty lingered, while bond yields in the region traded mixed. Spanish stocks fell amid ramped up political uncertainty as tensions with Catalonia remain elevated, with the Catalan parliament declaring independence from Spain.

Stocks in Asia finished mostly higher following the flood of upbeat earnings reports out of the U.S. tech sector after yesterday's close, while the markets continued to digest the dovish takeaway from the European Central Bank's monetary policy decision to trim and extend its stimulus measures. Japanese equities rallied to extend their recent run to highs not seen since 1996, with the yen losing ground and a report showing the nation's consumer price inflation rose in September. Improved global earnings sentiment helped lift mainland stocks in China and Hong Kong, while those traded in South Korea also gained solid ground. However, markets in Australia declined amid flared-up political uncertainty after Prime Minister Turnbull lost his parliamentary majority, and securities in India finished flat. Schwab's Liz Ann Sonders discusses with Randy Frederick in the video, Tracking Sentiment: Are Investors Too Optimistic About Stocks?.

Stocks grind out another positive week

Stocks managed to squeak out a seventh-straight weekly gain, with upbeat Q3 GDP, durable goods, new home sales, and business activity reports preserving global economic optimism, though action was choppy as a ramped-up earnings season fostered mixed responses. The technology sector was a standout winner, buoying the markets amid a glut of positive earnings reports from heavyweights in the group, while telecommunications and healthcare issues fell solidly, bogged down by AT&T Inc's (T $34) results and guidance from Celgene Corp. (CELG $97). Energy stocks dipped as Dow member Chevron's results appeared to fail to live up to lofty expectations for the sector and offset the continued climb in crude oil prices. With earnings season more than half way done, of the 273 S&P 500 companies that have reported, 68% have topped revenue forecasts and 79% have bested profit projections, per data compiled by Bloomberg. Treasury yields climbed to support financials amid the improved economic sentiment, which also helped the U.S. dollar extend a rally, along with the euro tumbling in the wake of a seemingly dovish takeaway from the European Central Bank's monetary policy decision.

Next week, earnings season will remain robust, but a fully-loaded economic calendar will likely go a long way in shaping market direction, headlined by the midweek Federal Open Market Committee (FOMC) monetary policy decision, the ISM Manufacturing and non-Manufacturing Indexes, monthly auto sales, and the nonfarm payroll report. Other releases that deserve a mention include: personal income and spending, Consumer Confidence, Q3 nonfarm productivity and labor costs, the trade balance, and factory orders.

As noted in the latest Schwab Market Perspective: Stocks Aren't so Spooky, along with new records being set by stocks, investor sentiment measures are showing widespread optimism; yet households’ exposure to equities is not at an extreme. We believe the bull market will continue, and suggest investors remain at their target allocations, but worry a bit about complacency. Third quarter earnings season has been solid so far and economic growth has picked up. But the pick of the next Fed chair could cause an uptick in volatility. Globally earnings have been strong as well and are helping to support stocks, but geopolitical and trade issues could cause some consternation.

International reports due out next week to keep an eye on include: Australia—trade balance, building approvals and retail sales. China—Manufacturing and non-Manufacturing PMIs. India—Manufacturing and Services PMIs. Japan—retail sales, household spending, industrial production, and the Bank of Japan monetary policy decision. Eurozone—Q3 GDP and consumer price inflation, along with German unemployment change. U.K.—Bank of England monetary policy decision.

Financial Review

The Parade Passing By

Sinclair Noe — October 26, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

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DOW + 71 = 23,400
SPX + 3 = 2560
NAS – 7 = 6556
RUT + 3 = 1497
10 Y + .01 = 2.45%
OIL + .63 = 52.81
GOLD – 11.00 = 1267.20

Cryptocurrency 

• Number of Currencies: 879
• Total Market Cap: $172,874,344,662
• 24H Volume: $3,346,529,813

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	5,991.9	$99.63B	$1.94B	57.98%	1	+1.73%	+5.04%
	Ethereum	ETH	298.18	$28.44B	$265.63M	7.94%	0.0500608	+1.04%	-3.22%
	Ripple	XRP	0.20235	$7.88B	$37.75M	1.13%	0.0000341	+0.17%	-5.97%
	Bitcoin Cash	BCH	339.20	$5.69B	$238.21M	7.12%	0.0571329	+0.96%	+2.97%
	Litecoin	LTC	55.840	$3.00B	$79.47M	2.37%	0.00935417	+0.59%	-6.11%
	Dash	DASH	285.57	$2.20B	$49.83M	1.49%	0.0483665	+0.47%	-2.46%
	NEM	XEM	0.20044	$1.80B	$4.71M	0.14%	0.00003352	+0.74%	-10.18%
	BitConnect	BCC	219.37	$1.60B	$15.80M	0.47%	0.0368101	+5.91%	+9.88%
	NEO	NEO	28.500	$1.42B	$35.29M	1.05%	0.00475357	+0.28%	-1.88%
	Monero	XMR	88.80	$1.36B	$22.90M	0.68%	0.0148741	0.00%	-0.39%

Up 100, down 100, up 100 then drifting lower. The Dow and the S&P moved higher today. The Nasdaq closed in the red as biotech took a beating. Welcome to earnings reporting season. After the closing bell, we watched a parade of the biggest tech companies report better than expected earnings. Tomorrow, Apple launches iPhone X.

Also, tomorrow the Commerce Department releases its first look at gross domestic product for the third quarter. The consensus is that the economy likely expanded at a 2.6 percent annualized rate in the three months ended Sept. 30, which is in-line with recent history.

Republicans pushed a $4 trillion budget through the House today by a thin margin. For now, Republicans sidestepped divisions within the party by voting 216-212 to permit them to begin work on a $1.5 trillion tax cut without fear of a filibuster by Democrats.

This is just a first step, GOP tax-writers pick winners and losers among interest groups, business sectors and rank-and-file voters. The goal is a full rewrite of the inefficient, loophole-laden tax code in hopes of lower rates for corporations and other businesses and a burst of economic growth.

But evidence is growing that some of their steps — such as eliminating the deduction for state and local taxes or eliminating 401K retirement plans – will face opposition from both sides of the aisle. For the most part, plans for ending various tax breaks — which are key to helping to offset the deep tax-rate cuts that Trump and congressional leaders want to achieve — have been kept under wraps.

Now that the budget blueprint has been adopted, a hard reality will set in as the business community and others realize how much of the tax bill will involve closing loopholes and changing their credits and deductions. In the absence of details on how to pay for those rate reductions, the fight over the SALT deduction is instructive. Repealing the tax break would generate an estimated $1.3 trillion over 10 years. If it’s not fully repealed, lawmakers will have another revenue hole to fill.

Republican Sen. Bob Corker said today that some of the items in the GOP tax reform discussion are just “buying off” special interests and serve no other purpose. Corker said: “Some of the things we’re doing, I’m sorry, are ridiculous,” though he did not mention any specifics.

Corker, a member on the Senate Budget and Banking committees said those things are “not going to drive 1 ounce of economic growth. But it’s what you have to do to pass a tax bill. It’s buying off of people to pass tax reform. … We could take a lot of this off in the trash can and make it easier and actually do something that grows our economy and increases our wages.”

Meanwhile, Democrats united against the plan, arguing its tax cuts will pad the bank accounts of the wealthy and the balance sheets of corporations, while delivering modest relief — or none — to middle-income taxpayers.

Ways and Means Committee Chairman Kevin Brady, R-Texas, said immediately after the vote that he’ll release the tax measure on Nov. 1 and that a panel vote is expected the week of Nov. 6. House and Senate leaders want to pass companion measures before Thanksgiving with a final compromise coming before year’s end. But there are lots of details between now and then.

This afternoon, Trump declared the opioid crisis a public health emergency, stopping short of a national emergency declaration he promised months ago that would have freed up more federal money. The declaration will redirect federal resources and loosen regulations to combat opioid abuse, but it does not mean there will be more money to combat the crisis.

Apparently, it is tough to find money for the opioid crisis and cut corporate taxes at the same time. The Centers for Disease Control and Prevention report more than 54,000 deaths last year attributed to opioid abuse.

European Central Bank President Mario Draghi managed to avoid roiling markets when he detailed the central bank’s plan to cut its monthly bond purchases in half. In fact, bonds and stocks soared while the euro weakened – a perfect outcome for the ECB. Draghi added a bit of a surprise to the plan to pull back from the markets.

Yes, the ECB will cut in half its monthly bond purchases to 30 billion euros from 60 billion euros starting in January, but the bank’s president also indicated that zero percent interest rates could remain at current levels until “well past” whenever it finally decides to end its quantitative easing measures. Maybe 2019, maybe 2020.

Markets seemed to focus on the idea of “lower for longer”. Bonds across Europe rallied hard, with yields on 10-year German bunds tumbling almost 7 basis points to 0.42 percent. The STOXX Europe 600 Index promptly rose the most since August.

Pending home sales showed a decline to a 2½ year low in September, missing consensus estimates for a rise of 0.4%, as the housing market is buffeted by lean supply and strong demand. Meanwhile, the advanced U.S. trade deficit widened by 1.3% in September.

Amazon reported net income of $256 million, or 52 cents per share, for the three months ending Sept. 30. That easily beat the 2 cents per share analysts had expected. Amazon has long been known for investing the money it makes back into its businesses, such as opening new warehouses to fulfill orders.

Many seemed to expect that again. And Amazon did reinvest in the business. It paid nearly $14 billion this summer for organic grocer Whole Foods; announced a series of new voice-activated Echo devices; and kicked off a public hunt for a place to build its second headquarters.

Revenue rose 34 percent to $43.4 billion, beating the $41.5 billion analysts expected. Amazon reported after the bell and shares were up about 8% in after-hours trade. Rite Aid, Express Scripts Holding and Walgreens Boots Alliance all fell sharply after Amazon secured a wholesale pharmacy license.

UPS reported earnings per share of $1.45 for the third quarter. Revenue increased 7%. International profit was up 8.9%; currency neutral profit was up 20%. And they raised guidance for full year 2017. The upcoming holiday period is shaping up to be another record-breaking shipping season. Earlier in the week we told you that online purchases are expected to pass brick and mortar retail purchases this season.

In fact, United Parcel Service (UPS) forecasts 750 million packages will be delivered between Black Friday and New Year’s Eve, a 5% increase from last year. Despite the expected increase in volume, UPS expects to hire the same number of temporary seasonal workers as last year (95,000). The difference is UPS will be using more technology to streamline operations.

Alphabet beat projections for third-quarter sales and earnings after a surge in Google ad volume helped the web-search giant shrug off concerns about regulatory scrutiny and an expensive foray into hardware. Sales for the quarter rose 24% to $22.2 billion and profit was $9.57 a share, beating estimates of $8.34.

In September, the deadline arrived for Google to meet demands for the European Union antitrust case on shopping ads. Google agreed to tweak its paid search results for products in the continent, although it’s still appealing the charges. These product ads have helped drive sales and profit growth, but Google investors are more concerned about a probe into Google’s Android software on mobile devices, where Google’s ads are growing.

Also in September, Google agreed to pay $1.1 billion for about 2,000 engineers from HTC Corp, in effect an acquisition of skilled hands to expand Google’s line of Pixel smartphones. The new hardware business is a pillar of Google’s fight against Apple. Revenue from a segment labeled Other Revenue, which includes hardware, was up 39%. Alphabet share gained about 3% in after-hours trade.

Intel beat Wall Street estimates for the quarter and raised its outlook for the year. Intel reported third-quarter net income of $4.5 billion, or 94 cents a share, beating estimates of 80 cents per share. Revenue rose to $16.1 billion from $15.7 billion. Intel was up about 1.6% in after-hours.

Microsoft posted better-than-expected quarterly results. The company reported its fiscal first-quarter earnings rose to $6.5 billion, or 84 cents a share – topping estimates of 71 cents per share. Revenue grew 12% to $24.5 billion, beating estimates. Microsoft up about 4.5% in after-hours, trading at all-time highs.

Ford Motor rose 1.9% after the auto maker beat profit and revenue estimates.

Bristol-Myers Squibb shares fell 4.8% after the company missed on profit and revenue and changed its 2017 guidance.

Nutrisystem  continued to slide, falling 10.5%, despite turning in better-than-expected quarterly earnings.

Celgene plummeted 16.4% after the company reported a third-quarter profit beat and revenue miss and lowered its 2017 profit and revenue outlook. The stock pressured the overall biotech and health-care sectors.

The $9.5 billion iShares Nasdaq Biotechnology ETF tumbled as much as 2.9 percent. The biggest exchange-traded fund tracking the biotech industry is headed toward its longest losing streak since September 2015, falling for seven days in a row. Just a reminder, biotechs led a market selloff about 2 years ago.

Tenet Healthcare shares tanked 9.2% following a Reuters report that the hospital operator has ended its plan to sell itself after its chief executive abruptly left ahead of schedule.

The Wall Street Journal reports CVS Health has made a proposal to buy Aetna for more than $200 per share, a deal that could value the health insurer at upward of $66 billion.

Financial Review

Big Earnings Week

Sinclair Noe — July 24, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

Subscribe: iTunes | Android | RSS

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.

Financial Review

Delayed Not Dead

Sinclair Noe — June 27, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

Subscribe: iTunes | Android | RSS

DOW – 98 = 21,310
SPX – 19 = 2419
NAS – 100 = 6146
RUT – 13 = 1403
10 Y + .06 = 2.20%
OIL + .34 = 43.72
GOLD + 2.20 = 1247.70
BITCOIN – 1.73% = 2548.23 USD
ETHEREUM – 1.73% = 287.89

Last week, Senate Majority Leader Mitch McConnell unveiled Trumpcare, the Better Care Reconciliation Act of 2017, the Senate version of the American Health Care Act, which was the House version of a plan to repeal and replace Obamacare. Yesterday, the Congressional Budget Office published its analysis, or score for Trumpcare and it was ugly.

The Senate legislation would repeal Obamacare’s taxes and insurance mandates and phase out its Medicaid expansion, but it drew criticism from Republican senators on both ends of the ideological spectrum. Conservatives were miffed that it did not fully repeal the 2010 health law, while moderates opposed its deep cuts to Medicaid and blanched at a projection from the Congressional Budget Office that it would result in 22 million fewer people having insurance over a decade.

McConnell said he wanted a vote by Thursday or Friday, before senators recessed for the July 4^th holiday. But that won’t happen. Today, McConnell says the vote will be delayed; they will try to make adjustments to the bill to make it acceptable. GOP leaders had argued that more time would not help the public perception of the bill, which is broadly like legislation the House passed last month that polls show is deeply unpopular.

Now, lawmakers will go home for the holiday, and they are going to hear from constituents. And it will get loud. The president invited all 52 Republican senators to the White House for a meeting this afternoon after initially having little involvement in the Senate’s deliberations. Under the reconciliation process, the bill only needs 51 votes to pass; 50 senators plus the vice president.

That means if 3 Republicans vote against the bill, it does not pass. But at least 6 GOP senators—Susan Collins of Maine, Dean Heller of Nevada, Ron Johnson of Wisconsin, Mike Lee of Utah, Rand Paul of Kentucky, and Ted Cruz of Texas – said they would vote against even bringing the bill up for debate this week unless changes were made.

And there are others stepping up: Senator Jerry Moran of Kansas tweeted that he, too, was against the bill. Senators Rob Portman of Ohio and Shelley Moore Capito of West Virginia followed suit soon afterward.  Senators Cory Gardner of Colorado and Lisa Murkowski of Alaska are likely to jump ship, or at least press for a better deal. That’s at least 11 republican senators who are not on board.

Conservatives like Johnson, Paul, and Cruz were pushing for amendments that would lower premiums and eliminate—or allow states to opt out of—Obamacare insurance regulations, including the provision prohibiting companies from charging higher rates to people with preexisting conditions.

Portman and Capito, meanwhile, wanted tens of billions of dollars more to help states fight the opioid epidemic and changes that would soften the billions in cuts to Medicaid. So far, McConnell has not open the bill to negotiation.

For now, the plan is to squeeze holdouts, but it doesn’t seem to be working. Yet it would be premature to consider the bill dead. House Republican leaders were also forced to put off a vote on their bill earlier this year only to work out a compromise that allowed it to pass weeks later.

While the delivery of health care is of vital social importance, Wall Street is focused on the next thing – tax reform. But to get there, the administration must work through health care first so that its impact on the budget can be determined. Without a deal on health care, representing one-fifth to one-sixth of GDP, it is difficult to figure out taxes.

Wall Street has generally risen since President Donald Trump’s election in November, in large part due to hopes that his economic agenda—including massive tax cuts and deregulation—would accelerate economic growth. However, his administration has seen few legislative successes, raising questions about whether the broader market’s valuations are justified if the thesis that drove them higher fails to come to fruition.

This does not mean that tax reform is dead, just slightly delayed. This means that GOP donors are going to turn up the heat on senators over the coming days pushing for health care and/or tax reform, and the donors will be pushing hard.

Fed Chairwoman Janet Yellen told an audience in London that asset valuations are “somewhat rich.” She repeated plans to hike interest rates gradually. Fed Vice Chairman Stanley Fischer told an International Monetary Fund event that price-to-earnings ratios now stand in the top quintiles of their historical distributions.

Fischer also said rising valuations in equities and in other parts of the global market are partly explained by a brighter economic outlook but also by elevated risk appetite. San Francisco Fed President John Williams gave the bluntest assessment, telling an Australian television station that the stock market is running on “fumes.”

Both Yellen and Fischer touted the capital built up at the nation’s biggest banks. Ahead of the release of the second stage of the stress tests due Wednesday, Fischer pointed out that regulatory capital at large banks is now at multidecade highs.

Yellen went further and said another crisis like the one that caused the Great Recession isn’t likely in our lifetimes. And of course, Chair Yellen will be absolutely and totally correct, if we all die by Friday.

The Fed famously was not particularly contrarian in identifying risks before the Great Recession.

The IMF, coincidentally, blessed the Fed’s rate hike cycle in their annual review of the US. The IMF isn’t terribly optimistic on the US economy, projecting 2.1% growth this year and seeing growth slow from there. The IMF also said there were “larger than usual” risks to the US economy, given policy uncertainties.

They threw some shade on Trump’s pro-growth agenda, say that even with an “ideal constellation of pro-growth policies,” the Trump administration’s forecast that it would boost GDP by 1 percentage point is “unlikely.” The IMF said the US dollar is moderately overvalued, by 10% to 20%.

Home prices pulled back slightly in the latest Case Shiller report. The S&P/Case-Shiller 20-city index rose 5.7% in the three-month period ending in April compared to a year ago, down two ticks from the 5.9% annual gain notched in March.

Despite those decelerations, prices continued to reflect sturdy demand. Only one metro in the 20-city index, Cleveland, saw a monthly decline, while in Seattle, prices surged 2.6% for the month. Phoenix posted a 0.8% increase for the month and a 5.7% gain over the past 12 months.

European Union antitrust regulators have leveled a $2.7 billion fine against Google. EU antitrust regulators said Google abused its dominance in search to promote its own comparison shopping service while demoting those of competitors. Alphabet said it disagreed with the decision and would consider an appeal.

Alphabet had $92 billion in cash or equivalents at the end of the first quarter. That means the fine represents less than 3% of Alphabet’s cash position. Considering the company generated an average of about $68 million a day in cash during the first quarter, it could raise the cash to pay for the fine in just 40 days, or by Aug. 8.

The market hit was bigger, Alphabet lost about $16 billion in market capitalization today. Regulators promised Google was in for years of monitoring to guard against further abuses. And Google will have to prove that rivals have made substantial inroads into its businesses before there is much chance of it being let off the regulatory hook.

Google does not want to change its search business model but the economics of continuing the fight aren’t really in Google’s favor. Google has 90 days to comply or face an additional daily fines.

A ransomware cyberattack has hit Europe and spread to the US. The “Petya” ransomware attack was first reported in Ukraine, where the government, banks, state power utility and Kiev’s airport and metro system were all affected. The radiation monitoring system at Chernobyl was taken offline, forcing employees to use hand-held counters to measure levels at the former nuclear plant’s exclusion zone.

The food giant Mondelez, legal firm DLA Piper, Danish shipping and transport giant AP Moller-Maersk and Heritage Valley Health System, which runs hospitals and care facilities in Pittsburgh, also said their systems had been hit by the malware.

Brazil is bracing for a fresh bout of political turmoil after the president, Michel Temer, became the country’s first sitting head of state to be formally charged with a crime. Less than a year after taking power following impeachment of Dilma Rousseff, the deeply unpopular leader was formally accused of corruption by the attorney general Rodrigo Janot and could now face a lower house vote on whether he should be tried by the supreme court for taking bribes.

In a damning indictment to the supreme court, Janot alleged Temer took millions of dollars in bribes from meat-packing giant JBS. The attorney general said the president had “fooled Brazilian citizens” and compromised the image of the country.

These allegations followed the release of a secret recording of a conversation earlier this year between Temer and the JBS executive Joesley Batista, in which the president appeared to endorse hush money payoffs to former house speaker Eduardo Cunha, a member of Temer’s party who is serving a 15-year sentence for corruption.

Temer’s predecessor Dilma Rousseff – who was ousted in an impeachment plot in May 2016 – was quick to note that her former running mate was now accused of greater crimes than those for which she was removed from office last year. She tweeted: “The result of the 2016 coup: leaving the country in the hands of the only president indicted for corruption.”

Stocks Down for Day, but Gain Ground for Week

Charles Schwab: On the Market

Posted: 4/28/2017 4:15 PM ET

Stocks Down for Day, but Gain Ground for Week

Despite being solidly higher for the week, U.S. stocks closed Friday's trading session lower amid a plethora of earnings and economic data. Investors processed quarterly results from some tech titans, headlined by releases from Amazon and Alphabet. The first look at Q1 GDP came in below analysts' expectations, a read on consumer sentiment dipped and regional manufacturing activity unexpectedly accelerated. Treasuries were mostly higher, the U.S. dollar was little changed and gold and crude oil prices were higher.

The Dow Jones Industrial Average (DJIA) decreased 41 points (0.2%) to 20,941, the S&P 500 Index declined 5 points (0.2%) to 2,384, and the Nasdaq Composite was 1 point lower at 6,048. In heavy volume, 1.0 billion shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.36 to $49.33 per barrel and wholesale gasoline was unchanged at $1.55 per gallon. Elsewhere, the Bloomberg gold spot price ticked $4.12 higher to $1,268.42 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 99.05. Markets were solidly higher for the week, as the DJIA advanced 1.9%, the S&P 500 Index gained 1.5%, and the Nasdaq Composite rallied 2.3%.

Amazon.com Inc. (AMZN $925) reported Q1 earnings-per-share (EPS) of $1.48, above the FactSet estimate of $1.08, as revenues rose 23.0% year-over-year (y/y) to $35.7 billion, topping the projected $35.3 billion. AMZN issued Q2 revenue guidance that had a midpoint that was below the Street's expectations, while its margin outlook for the quarter was a bit shy of forecasts. Shares traded nicely higher.

General Motors Co. (GM $35) posted Q1 EPS of $1.70, exceeding the estimated $1.47, with revenues growing 10.6% y/y to $41.2 billion, versus the expected $40.6 billion. Shares closed little changed.

Alphabet Inc. (GOOGL $925) announced Q1 earnings of $7.73 per share, north of the estimated $7.38, as revenues excluding traffic acquisition costs (TAC) at the parent of Google rose 22.2% y/y to $20.1 billion, topping the projected $19.8 billion. Shares finished solidly to the upside.

Dow member Microsoft Corp. (MSFT $68) achieved fiscal Q3 EPS of $0.61, or $0.73 ex-items, versus the expected $0.70, as revenues increased 6.0% y/y to $23.6 billion, compared to the forecasted $23.7 billion. MSFT dipped.

Dow component Intel Corp. (INTC $36) reported Q1 profits of $0.61 per share, or $0.66 ex-items, compared to the projected $0.65, as revenues grew 8.0% y/y to $14.8 billion, roughly in line with expectations. INTC issued Q2 guidance with midpoints exceeding estimates, while raising its full-year outlook. However, shares saw pressure amid disappointment among analysts about the company's softer-than-expected operating margin and revenues out of its data center business that missed expectations again.

With a plethora of major earnings reports out of the tech sector, see the rationale behind our outperform rating for the group in Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Is Retail Really Dead?, on the Markets & Economy page at www.schwab.com. Follow Schwab on Twitter: @schwabresearch.

Starbucks Corp. (SBUX $60) posted fiscal Q2 EPS of $0.45, in line with estimates, as revenues rose 6.0% y/y to $5.3 billion, below the expected $5.4 billion. Q2 same-store sales increased 3.0% y/y, slightly missing the forecasted 3.1% gain. Shares traded lower.

Dow member Exxon Mobil Corp. (XOM $82) announced Q1 EPS of $0.95, above the anticipated $0.85, as revenues rose 29.9% y/y to $63.3 billion, below the estimated $66.4 billion. Shares of XOM advanced.

Dow component Chevron Corp. (CVX $107) reported Q1 EPS of $1.41, including an asset sale gain, which may be impacting comparability to the Street's expected $0.86, with revenues rising 41.9% y/y to $33.4 billion, below the forecasted $34.9 billion. CVX traded in positive territory.

Qualcomm Inc. (QCOM $54) cut its Q3 guidance as Dow component Apple Inc. (AAPL $144) informed the chipmaker that it is withholding payments to its contract manufacturers for the royalties those contract manufacturers owe under their licenses with Qualcomm for sales during the quarter ended March 31, 2017. QCOM said "Apple is improperly interfering with Qualcomm's long-standing agreements with Qualcomm's licensees." QCOM said it will continue vigorously to defend its business model, and pursue its right to protect and receive fair value for its technological contributions to the industry. QCOM shares overcame heavy losses and finished modestly higher.

First read on Q1 GDP misses estimates

The first look (of three) at Q1 Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of expansion of 0.7%, from the unrevised 2.1% expansion in Q4, and below the 1.0% growth forecasted by Bloomberg. Personal consumption gained 0.3%, south of the forecasted 0.9% rise and following the unadjusted 3.5% increase recorded in Q4. The sharp slowdown in GDP growth came as the deceleration in personal consumption was met with downturns in private inventory investment and government spending, which were partly offset by an upturn in exports and accelerations in both nonresidential and residential fixed investment.

On inflation, the GDP Price Index came in at a 2.3% rise, above expectations of a 2.0% gain and the unrevised 2.1% increase seen in Q4, while the core PCE Index, which excludes food and energy, moved 2.0% higher, matching expectations and following the unrevised 1.3% advance in Q4.

The deceleration in Q1 GDP growth was expected as that has been the trend for several years, with subsequent quarters accelerating, something Schwab’s Chief Investment Strategist Liz Ann Sonders expects to happen again as discussed in her latest article, ½ Full: Seeing Through a Weak Q1. Liz Ann notes that leading indicators say a lot more about the economy prospectively than backward-looking measures like GDP, and they remain quite healthy. Liz Ann concludes that we are likely just experiencing yet another "soft patch" in an ongoing expansion; so for now, "I am seeing the glass as half full." Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

The final April University of Michigan Consumer Sentiment Index (chart) was revised to 97.0 from the preliminary level of 98.0, where it was expected to remain. However, the index was up slightly compared to March's level of 96.9. Compared to last month, the expectations component improved, while the current conditions component declined. The 1-year and 5-10 year inflation outlooks remained at March's levels of 2.5% and 2.4%, respectively.

The Chicago Purchasing Managers Index (chart) unexpectedly moved further into a level depicting expansion (above 50), after rising to 58.3 in April—the highest level since January 2015—from 57.7 in March, and versus expectations of a decline to 56.2.

The Q1 Employment Cost Index (chart) increased by 0.8% quarter-over-quarter (q/q), north of forecasts of a 0.6% rise, and compared to the 0.5% gain seen in Q4.

Treasuries were mostly higher, with the yield on the 2-year note flat at 1.26%, and the yields on the 10-year note and the 30-year bond ticking 1 basis point lower to 2.28% and 2.95%, respectively. For analysis of the bond markets, see Schwab's Chief Fixed Income Strategist, Kathy Jones' article, Three Reasons to Own Bonds When the Fed is Raising Interest Rates on the Markets & Economy page at www.schwab.com. Follow Kathy on Twitter: @kathyjones. Also, Schwab's Vice President of Trading and Derivatives, Randy Frederick and Senior Fixed Income Research Analyst, Collin Martin, CFA, offer the video What's Driving the Ongoing Drop in Long-Term Bond Yields? on the Insights & Ideas page at www.schwab.com. Follow Randy on Twitter: @randyafrederick.

The markets continue to grapple with this week's rough framework of President Trump's tax-reform plan and Congress Facing Possible Government Shutdown—Again as discussed by Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend on the  Insights & Ideas page at www.schwab.com.

European and Asian stocks mixed on earnings and politics

European equities finished mixed, with the markets digesting a plethora of global earnings reports. Moreover, political and geopolitical uncertainty continued to fester despite Sunday's French Presidential election that eased political risk concerns, with comments and actions from U.S. President Trump being eyed, along with his tax-reform details released this week amid the backdrop of the U.S. government trying to avoid a shutdown. Also, Brexit negotiations continue and the nation heads for a vote in June, while a German election looms later this year. For analysis of the political uncertainty on both sides of the pond, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com , where you can also find our article, Brexit Begins: What's Next for the U.K?, while Director of International Research, Michelle Gibley CFA, offers her article, Europe Votes: Could More Countries Reject the EU? on the International Investing page at www.schwab.com. German retail sales surprisingly ticked higher and Spain's Q1 GDP growth topped forecasts, while U.K. Q1 GDP expansion came in a bit shy of estimates. The euro and British pound gained ground on the U.S. dollar, while bond yields in the region were mostly higher.

Stocks in Asia finished mixed following a flood of mixed global earnings data, while U.S. trade uncertainty and geopolitical concerns remain following comments and actions from President Trump. Schwab's Jeffrey Kleintop, CFA, offers timely commentary in his article, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com, while he also delivers a look at the global landscape in his article, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com. Japanese equities declined as the yen continued to claw back some early week softness, while earnings in the region disappointed and economic data showed industrial production fell more than expected, vehicle production slowed and headline consumer price inflation came in cooler than expected. However, the nation's retail sales unexpectedly rose. Chinese stocks continued to be hamstrung by regulatory concerns, with shares trading in Hong Kong declining, though mainland listings ticked higher. Australian securities finished flat, while equities in South Korea and India traded lower.

Earnings and eased French political risk concerns spark rally

U.S. stocks posted a back-to-back weekly gain that has pushed April into positive territory as the first round of the French Presidential election eased political risk concerns to kick the week off in rally mode. The jump was extended with Dow members Caterpillar Inc. (CAT $103) and McDonald's Corp. (MCD $140) setting a positive tone for the busiest week of earnings season. For the 287 companies in the S&P 500 that have reported earnings thus far, about 65% have topped revenue expectations and roughly 81% have bested earnings projections, per data compiled by Bloomberg. Technology stocks were among the best performers, along with health care and consumer discretionary issues. Financials were also solidly higher, with Treasury yields recovering from a recent bout of pressure. The energy sector eked out a gain, amid some improved earnings results and even as crude oil prices were choppy, with bullish oil inventory data being met with festering supply concerns.

However, the divergence between "hard" and confidence/survey-based "soft" data continued, with March durable goods orders and Q1 GDP missing forecasts, while consumer sentiment figures remained elevated. As such, the U.S. dollar extended a recent soft patch. The markets demonstrated some relative resilience in the face of U.S. political/trade uncertainty, with President Trump offering his tax-reform framework, making comments and taking some action regarding trade relations, while the government approved to extend the deadline to avoid a shutdown by a week. Finally, the markets shrugged of exacerbated geopolitical tensions with North Korea.

This brings us to next week, with earnings continuing to pour in and the economic calendar setting up to deliver looks at activity on the heels of the sluggish Q1, with April readings on the ISM Manufacturing and non-Manufacturing Indexes, and domestic auto sales, followed by Friday's key nonfarm payroll report. The headlining event will likely be Wednesday's Federal Open Market Committee's (FOMC) monetary policy decision, expected not to deliver another rate hike and be sans updated economic projections and press conference by Chairwoman Janet Yellen. However, the statement could be highly scrutinized for clues to the timing of future rate hikes.

As noted in the latest Schwab Market Perspective: Should Sharp Sentiment Shifts Mean a Change in Strategy?, U.S. equities turned around 180 degrees on a reduction in investor fear that had been building. We believe this is a positive shift, but underlying fundamentals haven't changed. Recent soft economic data contributed to the earlier stock market slump, but economic growth continues to muddle through, and a recession doesn't appear imminent. Putting too much emphasis on political risk globally could be one of the bigger risks facing investors in the current environment. Read more on the Markets & Economy page at www.schwab.com.

Along with a plethora of global manufacturing and services PMI reports, headlined by the eurozone, China and Japan, next week's international economic calendar will also bring the Reserve Bank of Australia's monetary policy decision, along with preliminary eurozone CPI and Q1 GDP.