Financial Review

Debasement

Sinclair Noe — October 24, 2017

Podcast: Play in new window | Download (Duration: 13:16 — 7.6MB)

Subscribe: Android | RSS

DOW + 167 = 23,441 (Record)
SPX + 4 = 2569
NAS + 11 = 6598
RUT + 2 = 1500
10 Y + .03 = 2.41%
OIL + .55 = 52.45
GOLD – 5.70 = 1277.30

Cryptocurrency

• Number of Currencies: 877
• Total Market Cap: $162,434,872,389
• 24H Volume: $4,775,232,645

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	5,389.1	$90.68B	$2.49B	52.05%	1	-2.19%	-1.58%
	Ethereum	ETH	289.97	$27.88B	$585.60M	12.26%	0.0539363	-2.14%	-6.42%
	Ripple	XRP	0.19920	$7.81B	$197.42M	4.13%	0.00003745	-1.98%	-12.17%
	Bitcoin Cash	BCH	317.26	$5.38B	$247.20M	5.18%	0.0593921	-1.59%	-12.37%
	Litecoin	LTC	54.230	$2.93B	$168.61M	3.53%	0.0101183	-2.48%	-6.49%
	Dash	DASH	288.40	$2.23B	$57.30M	1.20%	0.0540349	-0.60%	-1.56%
	NEM	XEM	0.20618	$1.87B	$5.12M	0.11%	0.00003837	-2.73%	-3.50%
	NEO	NEO	28.700	$1.46B	$66.91M	1.40%	0.00539108	-3.89%	-4.28%
	BitConnect	BCC	190.311	$1.38B	$12.04M	0.25%	0.0350855	-0.41%	-0.58%
	Monero	XMR	86.84	$1.34B	$37.51M	0.79%	0.0162163	-1.84%	-3.26%

Another record high close for the Dow Industrial Average.

Caterpillar and 3M delivered results that topped estimates, while General Motors and Fiat Chrysler also rallied on earnings. Japanese equities built on recent gains, with the Nikkei climbing for a record-breaking 16th consecutive session.

Caterpillar’s earnings announcement reinforced the view that the international economic expansion is the most synchronized since the start of the decade. Cat projected 2017 sales of $44 billion, marking a third straight increase in annual revenue forecasts. But what stood out was the breadth of demand for its products.

Sales surged 27 percent in North America as the U.S. oil and gas industry cranked up, while China’s growing construction market helped sales in the Asia Pacific region balloon 31 percent. Dealers’ replenishing of inventories boosted sales in Europe, Africa and the Middle East by 22 percent and “stabilizing economic conditions” in Latin America lifted sales by 24 percent. Caterpillar earnings were more than 50 percent higher than what analysts were expecting. Shares popped by 6.7% today.

3M’s third-quarter earnings beat the highest analyst estimate, and the company increased its projected profit for the year. United Technologies also raised its profit forecast amid strength in demand for jet engines. Orders for business equipment in the US have also been increasing in recent months, which probably helped boost third-quarter growth.

AT&T’s quarterly results missed Wall Street estimates as the US No. 2 wireless carrier lost video subscribers to traditional and online TV competitors and fewer of its existing customers upgraded their devices ahead of Apple’s launch of the iPhone X. AT&T, which owns satellite television service DirecTV, said it lost 89,000 US video subscribers in the quarter

BlackRock downgraded US credit to neutral from overweight, citing “increased vulnerability to downside risk.” Credit spreads have tightened around the globe. The extra premium investors demand to own riskier corporate debt over U.S. government bonds is at the narrow end of a 17-year range. Tight spreads leave little safety cushion against rising interest rates or an increase in default risk.

BlackRock says the market is running at “relatively hot levels, versus a more neutral stance in U.S. equities compared with recent history.” That could make for a crowded exit should sentiment sour. Credit quality has been eroding in pockets of the debt market.

Tax legislation is coming soon, depending on who you listen to. House Freedom Caucus Chairman Mark Meadows said he’s been promised that the House Ways and Means Committee will release its plan about seven days after this Thursday’s scheduled vote on a budget resolution. That would mean a bill text would be published on or before Friday, Nov. 3.

Ways and Means Chairman Kevin Brady said only that the timing for a bill “is very shortly.” But the House decided to vote on the Senate’s version of the budget. And Senate Finance Committee Chairman Orrin Hatch said his own panel needs to produce a plan in the next two to three weeks. Whenever the tax legislation is rolled out, it might be a bumpy ride.

Republican Senator Bob Corker has expressed concern about the impact of the tax plan on the deficit and this morning Corker slammed Trump, saying: “When his term is over I think the debasing of our nation, the constant non-truth-telling, just the name-calling, the debasement of our nation will be what he will be remembered most for, and that’s regretful.”

Trump responded with a tweet calling Corker — who is chairman of the Foreign Relations Committee and isn’t seeking re-election — a “lightweight” who “couldn’t get elected dog catcher” in his home state.

In a separate interview, Corker said the president should stay out of the tax debate. It’s silly to expect any Republican politician to abandon long-held policy positions just because he thinks the Republican president is unfit for office. Still, let’s put Corker in the “undecided” category, at least for now.

Then, this afternoon, Arizona Republican Senator Jeff Flake announced he won’t seek re-election and then delivered a blistering attack on Trump on the Senate floor saying: “We must stop pretending that the conduct of some in our executive branch are normal. They are not normal. Reckless, outrageous and undignified behavior has become excused as telling it like it is when it is actually reckless, outrageous and undignified…

It is often said that children are watching. Well, they are. And what are we doing to do about that? When the next generation asks us, why didn’t you do something? Why didn’t you speak up? What are we going to say? I rise to say, enough!” (Here’s the speech.)

Again, it’s not at all clear that this will matter when it comes to tax cuts, but let’s put Senator Flake in the “undecided” category, at least for now.

And while Corker and Flake might be in the undecided category, along with a few other Republican senators – the public is coming down against Trump’s tax plan. A new Reuters/Ipsos poll released today finds fewer than one-third of Americans support the tax plan. The poll found that more than two-thirds of registered voters said reducing the federal budget deficit is more important than cutting taxes for the wealthy or for corporations.

Among Republicans surveyed, 63 percent said deficit reduction should take priority over tax cuts for corporations, while 75 percent said deficit reduction should take priority over tax cuts for the wealthy. The poll also found that the more people know about the tax plan, the less they like it.

A decade from now, the American economy could look much the way it does today — only more so. More dominated by the service sector jobs and fewer manufacturing jobs. More polarized in both earnings and geography. More tilted toward jobs that require at least a bachelor’s degree. That, at least, is the future foreseen by experts at the Bureau of Labor Statistics, which released its projections of what the United States employment picture will look like in 2026. (The estimates are based on long-term trends, not the short-term strength or weakness of the economy.)

The projections reflect some familiar patterns. Jobs in health care and clean energy will continue to grow rapidly. Manufacturing jobs will shrink, as will occupations involving data entry or other tasks that are increasingly being done by machines or algorithms. Overall job growth will continue to be slow, partly because of the aging of the baby boom generation; by 2026, even the youngest boomers will be approaching retirement.

The BLS thinks the fastest growing jobs will be solar photovoltaic installers, wind turbine service technicians, home health aides, personal care aides, and physician assistants. The report suggests that the polarization that has increasingly defined the United States economy will only increase over the next decade.

High-paying jobs in health care, computer science, and other fields heavy in math and science will grow quickly; so will low-paying jobs caring for older adults or waiting on tables. But continuing a decade-old trend, many job categories in the middle of the pay spectrum are growing slowly or disappearing.

For the first year, Americans are expected to spend more money online than in stores this holiday season. According to a survey from Deloitte, shoppers plan to spend 51% of their holiday shopping budget online, compared to 42% in stores. This is the first year that online sales are expected to exceed in-store sales. Deloitte’s survey looks at shoppers’ entire “holiday budget.” However, similar trends are expected to play out over Black Friday weekend.

So, what happens to all those stores that don’t have shoppers anymore? Well, many are closing. And one of the most iconic retail stores, Lord & Taylor announced it would sell its flagship building on Fifth Avenue in Manhattan to a company called WeWorks, a 7-year old office space start up. Lord & Taylor will rent a small portion of the building, but the rest will be used for offices.

Across the United States, retailers are rethinking the uses of their physical spaces, as more shopping moves online, and consumers prefer to spend less time in stores. Many struggling malls have converted their stores into rock-climbing gyms, movie theaters and community colleges. Other shopping centers stand mostly empty.

And it's not just shopping malls that are being re-purposed. In some regions of the country, shuttered manufacturing plants are being reopened for use as warehouses to fulfill the orders Americans are placing online.

Dow Rallies on Earnings

Charles Schwab: On the Market

Posted: 10/24/2017 4:15 PM EDT

Dow Rallies on Earnings 

 

U.S. stocks rebounded from yesterday's decline with the Dow rallying on upbeat earnings releases from Caterpillar, 3M and McDonald's, while domestic business activity reports showed growth in output was stronger than expected. Treasury yields gained ground and the U.S. dollar overcame early losses to finish mostly flat, while gold was lower and crude oil prices traded higher. In other earnings news, GM exceeded quarterly projections and Eli Lilly topped consensus revenue forecasts.

The Dow Jones Industrial Average (DJIA) rallied 168 points (0.7%) to 23,442, the S&P 500 Index increased 4 points (0.2%) to 2,569, and the Nasdaq Composite gained 12 points (0.2%) to 6,598. In moderate volume, 777 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil traded $0.57 higher to $52.47 per barrel and wholesale gasoline increased $0.03 to $1.67 per gallon. Elsewhere, the Bloomberg gold spot price declined $4.66 lower to $1,277.61 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 93.95.

Dow member Caterpillar Inc. (CAT $138) reported Q3 earnings-per-share (EPS) of $1.77, or $1.95 ex-items, versus the $1.27 FactSet estimate, as revenues jumped 23.9% year-over-year (y/y) to $11.4 billion, compared to the projected $10.7 billion. The heavy equipment maker said it continues to see strength in a number of industries and regions, including construction in China, on-shore oil and gas in North America, and increased capital investments by mining companies. As such, the company boosted its full-year outlook. Shares rallied.

Dow component McDonald's Corp. (MCD $164) posted Q3 earnings of $2.32 per share, or $1.76 ex-items, versus the estimated $1.76, with revenues decreasing 10.0% y/y to $5.8 billion, due to the impact of its strategic refranchising initiative, roughly in line with expectations. Q3 same-store sales grew 6.0% y/y, compared to the forecasted 4.6% gain. The company said its positive same-store sales and guest counts across all of its operating segments builds upon its strong first half of 2017. MCD was higher.

Dow member United Technologies Corp. (UTX $120) achieved Q3 EPS of $1.67, or $1.73 ex-items, compared to the expected $1.69, as revenues rose 5.0% y/y to $15.1 billion, topping the forecasted $15.0 billion. UTX raised its full-year EPS outlook and the low end of its revenue guidance. Shares closed lower.

Dow component 3M Co. (MMM $235) reported Q3 profits of $2.33 per share, versus the projected $2.21, with revenues rising 6.0% y/y to $8.2 billion, above the anticipated $7.9 billion. The company said it saw an even more robust performance in Q3 coming off a strong first half, with organic growth positive across all business groups and geographic areas. MMM raised its full-year outlook and shares finished nicely higher.

General Motors Co. (GM $46) posted Q3 EPS of $1.32, well above the expected $1.12, as revenues declined 13.5% y/y to $33.6 billion, above the forecasted $32.2 billion. The automaker said it delivered solid results even with planned lower Q3 production in North America, as it was profitable in all business segments for the first time since Q4 2014. GM issued full-year earnings guidance that exceeded estimates. GM traded higher.

Eli Lilly and Co. (LLY $85) achieved Q3 earnings of $0.53 per share, or $1.05 ex-items, compared to the estimated $1.03, as revenues grew 9.0% y/y to $5.7 billion, topping the expected $5.5 billion. The company raised its full-year guidance, primarily due to uptake trends for new pharmaceuticals products and, to a lesser extent, to the positive impact of the euro. Separately, the company announced that it is reviewing strategic alternatives for its Elanco animal health business. LLY traded lower.

Today's mostly positive earnings reports appeared to foster optimism and Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, Pumped Up Kicks: Several Important Kickers for a Strong Capex Cycle, that U.S. business capital spending has already picked up; but an even sharper recovery could be in the cards for 2018. Read more on the Market Commentary page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Business activity reports show expansion stronger than expected

The preliminary Markit U.S. Manufacturing PMI Index showed expansion in output accelerated more than expected after rising to 54.5 in October, from September's 53.1 level, above the Bloomberg expectation of 53.4. The preliminary Markit U.S. Services PMI Index showed growth for the key U.S. sector this month surprisingly accelerated, rising to 55.9 from September's 55.3 level, versus forecasts calling for a dip to 55.2.

The Richmond Fed Manufacturing Activity Index fell to 12 in October, from 19 in September, and versus estimates of a decline to 17. However, a reading above zero denotes expansion.
Treasuries lost ground, with the yield on the 2-year note ticking 2 basis points (bps) higher to 1.58%, the yield on the 10-year note advancing 5 bps to 2.41% and the 30-year bond rate rising 4 bps to 2.92%.

Treasury yields extended a recent rally, while the U.S. dollar recovered from early losses as the markets received a boost from the flood of positive earnings reports, which came as the markets continue to grapple with the possibility of tax reform with last week's passing of a Senate budget resolution nudging the notion further down the long path toward implementation.

As noted in the latest Schwab Market Perspective: Preparing for the Latter Innings, U.S. stocks continue to grind higher, with little appearing able to knock them off course. The possibility of a pullback always exists but a melt up is also reemerging as a real possibility. Earnings tend to drive equity market direction, and the next few weeks should help set the tone for market action for the rest of the year. Expectations came down a bit as we entered reporting season and recent robust economic data gives support to the potential for companies to meet and/or beat estimates. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend notes in his article, Tax Reform Framework Released, But The Road Ahead Is Long, both chambers of Congress passing their budgets is a critical step because that could shorten the long road to approval. Read these articles on the Market Commentary page at www.schwab.com and follow Schwab on Twitter: @schwabresearch.

Tomorrow, the U.S. economic calendar will offer preliminary durable goods orders, forecasted to have increased 1.0% m/m during September following August's 2.0% rise, while ex-autos, orders are expected to gain 0.5% m/m. As well, new home sales will be announced, with economists forecasting a 1.1% month-over-month decline in September to a level of 554,000 units after falling 3.4% in August. The weekly MBA Mortgage Applications report will round out the day.

Europe mostly higher, Asia mixed

European equity markets traded mostly higher, with the host of favorable earnings reports in the U.S. seeming to bolster sentiment, while bond yields in the region gained ground to boost the financial sector. The euro ticked higher versus the U.S. dollar even as the preliminary Markit Eurozone Composite PMI Index declined to 55.9 in October from 56.7 in September, and below the 56.5 level that economists had projected. However, the index remained solidly in expansion territory as depicted by a reading above 50. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives, Randy Frederick, note in the video, Is An Optimistic Outlook for Global Equities Warranted?, all of the world's top 20 economies are growing this year—a rare occurrence over the last decade, underpinning our positive outlook for global earnings. Read more on the Market Commentary page at www.schwab.com. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick. Spain rose despite the continued political turmoil on the heels of its announcement recently to take control of Catalonia, while the British pound finished lower as Brexit uncertainty lingered.

Stocks in Asia finished mixed on the heels of the modest retreat in the U.S. yesterday from a run as of late to fresh record highs, with global earnings season set to ramp up, which likely kept conviction in check. However, Japan extended its winning streak, with the Nikkei 225 Index registering its record 16th-straight positive session, even as the yen recovered some of a recent drop. The weekend's landslide election victory for Prime Minister Abe likely lingered to help preserve the winning streak. With Japanese markets contributing to the global rally, Schwab's Liz Ann Sonders discusses with Randy Frederick in the video, Tracking Sentiment: Are Investors Too Optimistic About Stocks?, that there seems to be no end in sight to the bull market in equities, but that doesn’t mean there’s nothing to worry about. See this video on the Market Commentary page at www.schwab.com. Mainland Chinese stocks rose, while shares in Hong Kong decreased. Australian securities ticked higher and South Korean equities finished flat. Indian stocks traded to the upside.

Tomorrow, the international economic docket will include CPI from Australia, the Ifo Business Climate Survey from Germany, industrial orders from Italy and Q3 GDP and the Index of Services from the U.K.

Financial Review

Oh Canada

Sinclair Noe — April 25, 2017

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

Subscribe: iTunes | Android | RSS

DOW + 232 = 20,996
SPX + 14 = 2388
NAS + 41 = 6,025
RUT + 13 = 1411
10 Y + .05 = 2.33%
OIL + .13 = 49.36
GOLD – 12.00 = 1265.00

This has been a very strong start to the week. The Dow Industrial Average has added about 460 points in the past two sessions and traded above 21,000. The S&P 500 has gained about 40 points. Both the Dow and the S&P are now back above their 50-day moving averages.

The Nasdaq Composite broke through 6,000 for a record high. To put this in perspective, the Nasdaq broke above the 5,000 milestone on March 9, 2000 – 17 years ago. Simple math tells you that the Nasdaq has returned just over 1% per year, on average, for the past 17 years. Of course, there was nothing average about the past 17 years.

The week started with somewhat positive news about the French elections, which translated to a risk-on trade for global markets; combined with easing geopolitical tensions; plus, the hope for some sort of tax cut measure to be announced tomorrow.

The threat of a US government shutdown this weekend appeared to recede after President Trump backed away from a demand that Congress include funding for his planned border wall with Mexico in a spending bill. However, even if the fight over wall funding is over, Republicans and Democrats still have some difficult issues to resolve as they face a Friday night deadline.

The big driver in the 2-day rally has been earnings, coming in much stronger than estimates. With half of the Dow 30 Industrial companies reporting earnings, with 11 beating earnings expectations, according to FactSet. That 73% beat rate is above the 5-year average of 68% for S&P 500 companies.

I know that is a little of an apples-to-oranges comparison, but still, it has been a good earnings reporting season so far.  The shares of the Dow companies that have revealed results have gained a combined total of $21.80 in price since the reports were released through Tuesday afternoon, with 10 winners rising a combined $36.33 and five losers falling $14.46.

The combined price gains are adding about 149 points to the Dow, which is a price-weighted index. That would represent about 36% of the Dow’s 417-point gain since earnings season started. The stocks of the five Dow companies that reported results today were adding about 125 points to the Dow’s price. Caterpillar and McDonald’s combined to add 100 points to the Dow today.

McDonald’s reported first-quarter earnings and sales that topped analysts’ most bullish estimates amid declining visits to restaurants industry-wide. McDonald’s cut prices and offered a smaller Big mac and a bigger Big Mac, plus they are doing well with all-day breakfast – that helped lift sales in the US by 1.7%. Global sales at stores open for at least one year — so-called comparable store sales — rose by 4%. Earnings and revenue beat estimates.

Caterpillar announced higher-than-expected earnings and revenue. In a press release, noted strong cost cutting measures, while downplaying guidance, writing: “While Caterpillar had strong first-quarter performance and is seeing signs of recovery in several of the industries it serves, geopolitical and market uncertainty along with volatility in commodity prices continue to present risks for the rest of the year.”

Coca-Cola reported a smaller-than-expected quarterly profit due to higher costs related to refranchising its North America bottling operations. Global soda sales fell 1 percent in the first quarter. Coke missed earnings estimates but beat revenue estimates.

AT&T’s quarterly revenue missed estimates on lower equipment sales, as customers held onto their phones longer and did not buy new replacement phones. AT&T lost 61,000 wireless subscribers who pay a monthly bill. Earnings also missed estimates. AT&T, which is in the process of acquiring Time Warner, also said it would no longer give a full-year revenue forecast due to the unpredictability of wireless handset sales.

3M, which makes Scotch tape and Post-it notes, raised its 2017 profit forecast and reported better-than-expected quarterly results, helped by growth across its major businesses. 3M beat earnings and revenue estimates.

Chipotle Mexican Grill reports same store sales rose almost 18 percent in the first quarter.  Sales by that measure had previously declined for five straight quarters following an E. coli outbreak and other food-poisoning incidents that began in 2015. Chipotle is still grappling with higher labor costs and a tight market for restaurant employees.

The chain raised menu prices at about 440 of its 2,200 locations earlier this month to cope with escalating expenses. Still, they managed to beat revenue and earnings estimates. Chipotle opened 57 new restaurants during the quarter, and it reiterated plans to add as many as 210 this year.

Panera Bread plans to hire 10,000 new employees by the end of the year as they expand their delivery services. Some 75 percent of the new hires will be delivery drivers, while the remaining 25 percent will be in-cafe jobs. Panera has already rolled out delivery to 15 percent of its system, including 20 percent of its company-owned locations.

By the end of 2017, it hopes to expand delivery to 35 percent to 40 percent of system-wide locations. The delivery option is expected to add about $250,000 in revenue per restaurant. Panera is in the process of being acquired by privately held JAB Holding in a deal valued at about $7.5 billion.

Earnings season kicked off with the big banks and today Wells Fargo and Citigroup held their annual shareholders’ meetings. It did not go well. Wells’ meeting ran nearly three hours, was repeatedly interrupted by angry shareholders seeking answers about how and why thousands of bank employees could open 2.1 million fake accounts in customers’ names without their permission.

Several shareholders were physically escorted out of the meeting. Proxy adviser Institutional Shareholder Services (ISS) argued the Wells Fargo directors failed in their oversight duties. All directors were re-elected but several, including Chairman Stephen Sanger, barely had a majority of votes. Hardly a show of confidence, and an indicator that we could see a shakeup in the board soon.

Citigroup is one of four lead banks in a group of 17 which have provided project financing for the Dakota Access Pipeline. The pipeline crosses land of the Standing Rock Sioux whose members are concerned about possible ground water contamination if the pipeline breaks.

Citigroup’s shareholder meeting was disrupted by protesters, prompting a rare apology from Chairman Mike O’Neill, who said, “We wish we could have a do-over on this.” CEO Mike Corbat said Citigroup had not given enough early consideration to the concerns of the indigenous people.

The Trump administration announced a 20% tariff on lumber imported from Canada, to be applied retroactively. The trade agreement that governed imports of Canadian lumber expired at the end of 2016, and prices have been on the rise since then. The National Association of Home Builders said higher input costs had already added almost $3,600 to the price of a new home, and the tariff will add $1236 to the price of the average single family home.

The NAHB also says the proposed tariff could cost as many as 8,241 jobs and over $350 million in taxes and other revenues for U.S. governments in 2017 alone. The US lumber industry alleges Canadian wood is heavily subsidized and imports are harming U.S. mills and workers. Canada is the world’s largest softwood lumber exporter, and the U.S. is its biggest market.

Canadian lumber companies called the tariff unfair and Canadian prime minister Justin Trudeau vowed to fight back. International tribunals have considered the issue of whether Canada provides unfair subsidies to lumber exports and ruled that it does not. Log costs are lower in some parts of the US than in some regions of Canada.

The US does not produce enough lumber to meet domestic demand. Homebuilders such as Lennar, Pulte, and DRHorton all dropped today. May lumber futures dropped $10.00 at $385.10, go figure.

Meanwhile, on the southern border, Mexico and the US have been fighting for years over dolphin safe tuna. Mexico says its fisherman play by the rules. The US government disagrees. Today, the World Trade Organization ruled in Mexico’s favor, allowing it to impose trade sanctions worth $163 million a year against the US. The WTO says that’s how much money Mexico has lost from the US unfairly penalizing Mexican tuna.

A US judge has blocked President Trump’s executive order that sought to withhold federal funds from sanctuary cities. The ruling said Trump’s order targeted broad categories of federal funding for sanctuary governments and that plaintiffs challenging the order were likely to succeed in proving it unconstitutional.

The Conference Board said its consumer confidence index fell to 120.3 this month from 124.9 in March, which was the highest reading since December 2000. The index in April was the second highest reading since 2000. Consumers’ assessment of labor market conditions was slightly less favorable than in March. That measure closely correlates to the unemployment rate in the Labor Department’s employment report.

House prices continued to show no signs of slowing, hitting their highest in nearly three years. The S&P/Case-Shiller 20-city index rose 5.9% in the three-month period ending in February compared to the same period a year ago, an acceleration from its 5.7% yearly increase in January. This is the highest rate since July 2014. The 20-city index was up 0.4% for the month, or a 0.7% gain when seasonally adjusted. Phoenix saw a 0.4% gain in the last month, and 5.3% over the past year.

The Commerce Department said new home sales jumped 5.8 percent to a seasonally adjusted annual rate of 621,00 units last month, the highest level since July 2016. New home sales were up 15.6 percent compared to March 2016. They have now increased for three straight months.

Financial Review

Watch and Wait

Sinclair Noe — March 8, 2017

Podcast: Play in new window | Download (Duration: 12:12 — 7.0MB)

Subscribe: iTunes | Android | RSS

DOW – 69 = 20,855
SPX – 5 = 2362
NAS + 3 = 5837
RUT – 8 = 1366
10Y + .04 = 2.55%
OIL – 2.95 = 50.19
GOLD – 7.70 = 1208.90

The S&P and Dow are down for 3 straight sessions. Oil closed at a 3-month low. Eight years ago, the Dow Industrial average was barely holding on at the 6,500 level. The S&P 500 index had dropped to 666. Since those dark days in the Spring of 2009, the Dow has climbed over 320%. The S&P is up 354%.

If you had purchased Apple 8 years ago, you would have a 1,000% gain. Home Depot delivered a 608% gain. Not very likely you were buying stocks 10 years ago, this week; a lottery ticket would have been an easier play.

Payrolls processor ADP reports the US economy added 298,000 private-sector jobs in February, the most since April 2014. ADP’s report wasn’t just strong at the headline—it also suggested growth in well-paying fields, as construction and professional & business sectors each added 66,000 jobs.

While the relatively lower-paid education & health and leisure & hospitality each added another 40,000 jobs, manufacturers added 32,000 jobs. The ADP report suggests the official non-farm payrolls report from the Labor Department, which also covers government jobs, might come in well ahead of the current 200,000 consensus estimate.

Productivity increased 1.3% in the fourth quarter. Even with a healthy fourth-quarter boost, productivity only rose 0.2% in 2016. That’s the smallest gain since 2011 and maintains a post-recession trend of extremely weak increases in productivity.

The government’s first revision of fourth-quarter productivity showed little change in output, hours worked or labor costs. Productivity has averaged 1% growth per year since 2007, compared to a 2.6% rate from 2000 to 2007.

The European Central Bank meets tomorrow to announce its latest call on rates and stimulus measures. Eurozone Inflation is finally back at the ECB’s target of around 2% for the first time since 2013. Inflation is one of the key measures the central bank uses to decide on interest rates and other stimulus measures.

And the Eurozone purchasing managers’ index jump to a 70-month high and gross domestic product growth is outpacing that of the US. But that doesn’t mean the ECB will raise rates; most analysts think they will only make adjustments to forward guidance.

The Federal Reserve meets next week to announce monetary policy. Yesterday, Jeffrey Gundlach, chief executive officer at DoubleLine Capital, said he expects the Federal Reserve to begin a campaign this month of “old school” sequential interest rate hikes until “something breaks,” such as a US recession.

Japan’s economy gets an upgrade. The Final GDP reading for the fourth quarter showed the Japanese economy grew at a 0.3% clip, ahead of the 0.2% that was previously recorded. Private business investment grew by 2% in the quarter, making for the fastest growth since the first quarter of 2014.

China reported a rare trade deficit in February equal to about $9 billion. However, the country’s trade data are frequently distorted this time of year, because of the celebration of the Chinese New Year. Still, it’s the first monthly trade deficit China has reported in three years.

An indicator of the health of the global economy grew at its fastest pace in 6 years. Data released by the International Air Transport Association showed that revenue passenger kilometers grew by 9.6% compared with a year earlier, making for the fastest growth since April 2011.

OPEC and non-OPEC producing countries have reiterated their pledge to uphold the terms of the production cut agreement reached late last year; top energy ministers said they were committed to removing 1.8 million barrels from the market. So far, it hasn’t happened.

This morning, the American Petroleum Institute reported oil stocks rose by 11.6 million barrels last week. US crude production is projected to surge to a record 9.7 million barrels a day next year, per the EIA’s monthly Short-Term Energy Outlook released Tuesday.

The US Energy Information Administration on Wednesday reported an 8.2 million-barrel climb in domestic crude supplies for last week, lifting total commercial inventories to a new record weekly level of 528.4 million. That marked a ninth straight weekly increase.

Mexico has canceled existing sugar export permits to the United States in a dispute over the pace of shipments. Reuters report a letter sent by Mexico’s sugar chamber to mills partly blamed the situation on unfilled positions at the US Department of Commerce, which it said has led to a “legalistic” interpretation of rules with no US counterparts in place in Washington for Mexican officials to negotiate with. Mexico is the top foreign supplier of sugar to the US.

A new report commissioned by the federal government accuses Caterpillar of using tax and accounting fraud to prop up its stock price. The New York Times reports no charges have been filed, and it is not clear whether investigators agree with the findings or intend to act on them.

The report, which has not been made public or made available to Caterpillar, outlines a company strategy for bringing home billions of dollars from offshore affiliates while avoiding federal income taxes on those earnings. Last week, federal agents raided three Caterpillar buildings near its headquarters in Peoria, Ill., as part of the investigation.

The company’s tax practices have been a focus of government investigators since a 2014 Senate hearing found that the company cut its tax bill by $2.4 billion over 13 years, moving earnings out of the United States and into a Swiss subsidiary, despite internal company warnings that the strategy lacked a business purpose, other than tax avoidance.

The CIA faces what could potentially be the biggest ever leak of its secrets, after Wikileaks published thousands of documents claiming to show how the agency uses cyber espionage tactics to hack into smartphones and other devices. The leak, named “Vault 7” by WikiLeaks, will once again raise questions about the inability of US spy agencies to protect secret documents in the digital age.

The methods could reportedly capture text and voice messages on iOS, Android and Whatsapp before they were encrypted, and could hack Microsoft software and Samsung TVs. Apple released a statement saying they have already dealt with some of the issues raised in the leaks. Microsoft is reportedly considering the issue.

Microsoft says it is committing to use chips based on ARM Holdings technology in the machines that run its cloud services, potentially imperiling Intel’s longtime dominance in the profitable market for data-center processors. Microsoft has developed a version of its Windows operating system for servers using ARM processors, working with Qualcomm and Cavium.

In Hawaii, the Kauai Island Utility Cooperative is now drawing energy from 272 Tesla power packs to provide electricity after dark. While the island previously relied on solar and other renewable energy during the day, it had no way to store the sun’s power after it went down.

Using stored energy from Tesla’s power packs is expected to save KIUC 1.6 million gallons of diesel fuel annually, which has traditionally been the way the utility generates power after dark. Tesla says the power packs will cut KIUC costs per kilowatt hour from 15.5 cents down to 13.9 cents. The 13.9 cents is a fixed price for the next 20 years.

The West Virginia Gazette-Mail obtained previously confidential drug shipping sales records sent by the US Drug Enforcement Administration to West Virginia Attorney General’s office. The records disclose the number of pills sold to every pharmacy in the state and the drug companies’ shipments to all 55 counties in West Virginia between 2007 and 2012.

In six years, drug wholesalers showered the state with 780 million hydrocodone and oxycodone pills, while 1,728 West Virginians fatally overdosed on those two painkillers. The unfettered shipments amount to 433 pain pills for every man, woman and child in West Virginia.

The nation’s three largest prescription drug wholesalers -McKesson, Cardinal Health and AmerisourceBergen – supplied more than half of all pain pills statewide.

Urban Outfitters CEO Richard Hayne does not have comforting words for the retail industry. Hayne said on the company’s earnings conference call on Tuesday: “Our industry, not unlike the housing industry, saw too much square footage capacity added in the 1990s and early 2000s,” “Thousands of new doors opened and rents soared. This created a bubble, and like housing, that bubble has now burst. We are seeing the results, doors shuttering and rents retreating. This trend will continue for the foreseeable future, and may even accelerate.”

Shares in H&R Block were higher after the company reported results that beat Wall Street expectations.

German sportswear giant Adidas reported its 2016 full-year earnings on Tuesday, and its revenue of 19.3 billion euros was slightly below analyst expectations, but they raised guidance for 2017 and beyond. Adidas’s overall sneaker sales jumped 80% in 2016; a substantially larger spike than any major competitor saw.

Wall Street firm, State Street Corp., has put up a statue of a girl in front of Lower Manhattan’s well-known bronze charging bull, as if to fearlessly stare it down. Placing the diminutive, grade school-aged girl in front of the massive bull on the eve of International Women’s Day was a way of calling attention to the lack of gender diversity on corporate boards and the pay gap of women working in financial services.

State Street said one out of four of the companies that make up the Russell 3000 Index still have no female representation on their boards.

Markets Shrug Off Solid Jobs Report

Charles Schwab: On the Market

Posted: 3/8/2017 4:15 PM ET

Markets Shrug Off Solid Jobs Report

U.S. equities finished mixed, despite a much stronger-than-expected ADP employment report, as the data may have added to already-elevated Fed rate hike expectations. Meanwhile, political uncertainty here and abroad continued to be a drag on conviction. Treasury yields and the U.S. dollar moved higher and crude oil prices tumbled in the wake of a bearish government oil inventory report, while gold also finished lower.

The Dow Jones Industrial Average (DJIA) lost 69 points (0.3%) to 20,856, the S&P 500 Index declined 5 points (0.2%) to 2,363, while the Nasdaq Composite inched 4 points (0.3%) higher to 5,838. In moderate volume, 892 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil tumbled $2.86 to $50.28 per barrel and wholesale gasoline was $0.03 lower at $1.65 per gallon. Elsewhere, the Bloomberg gold spot price moved $7.64 lower to $1,208.22 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 102.09.

H&R Block Inc. (HRB $24) reported a fiscal 3Q loss of $0.50 per share, or $0.49 per share ex-items, compared to the $0.52 shortfall that was expected, as revenues declined 4.8% year-over-year (y/y) to $452 million, above the projected $428 million. The tax preparation company said it has seen market share gains in both assisted and do-it-yourself categories for the first half of tax season. Shares were sharply higher.

Shares of Dow member Caterpillar Inc. (CAT $93) saw pressure following a report from the New York Times (NYT) that said a report commissioned by the government accuses the company of tax and accounting fraud. The report follows last week's raid on the company's headquarters by Federal agents. No charges have been filed and the NYT said CAT told it that the company has not seen a copy of the report and declined further comment.

Urban Outfitters Inc. (URBN $25) reported 4Q earnings-per-share (EPS) of $0.55, below the estimated $0.56, as revenues rose 2.0% y/y to $1.0 billion, roughly in line with forecasts. 4Q same-store sales were flat y/y, versus the expected 0.1% increase. The retailer's gross margin was pressured, missing expectations, and the company said its 1Q gauge of profits is expected to see similar results as the quarter has started off weak. Shares dropped decisively.

Ciena Corp. (CIEN $24) posted fiscal 1Q EPS of $0.03, or $0.26 ex-items, compared to estimates of $0.29, with revenues rising 8.4% y/y to $622 million, below the forecasted $632 million. The network strategy and technology company reported gross margin that missed expectations. Shares were sharply lower.

ADP payroll report jumps, mortgage applications rise

The ADP Employment Change Report showed private sector payrolls jumped by 298,000 jobs in February, well above the Bloomberg forecast of a 187,000 gain, while January's increase of 246,000 jobs was revised to a 261,000 rise. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday's broader February nonfarm payroll report, expected to show an increase of 200,000 jobs, and private sector payrolls are estimated to rise by 195,000 jobs (economic calendar). The unemployment rate is forecasted to dip to 4.7% from 4.8%, and average hourly earnings are projected to rise 0.3% month-over-month (m/m).

Final 4Q nonfarm productivity (chart) was unrevised at a 1.3% gain from the preliminary estimate on an annualized basis, below expectations of an adjustment to a 1.5% rise. 3Q productivity was revised lower to a 3.3% increase. Also, unit labor costs were unadjusted at a 1.7% increase, from the initial report, versus expectations of a 1.6% gain. Unit labor costs rose by a downwardly revised 1.6% in 3Q.

Wholesale inventories (chart) was adjusted to a 0.2% m/m decline for January, versus expectations of an unrevised 0.1% dip, and following December's 1.0% gain. Sales decreased 0.1% m/m, compared to forecasts of a 0.5% gain. The inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—remained at December's 1.29 months level.

The MBA Mortgage Application Index rose 3.3% last week, following the previous week's 5.8% gain. The increase came as a 5.2% jump for the Refinance Index was met with a 1.7% rise for the Purchase Index. The average 30-year mortgage rate rose 6 basis points (bps) to 4.36%.

Treasuries finished lower, as the yield on the 2-year note rose 2 bps to 1.35%, the yield on the 10-year note gained 4 bps to 2.56%, and the 30-year bond rate increased 3 bps to 3.15%.

The markets continue to focus on the timing and details of President Donald Trump's policy plans, boosted expectations of a Fed rate hike next week in the wake of continued solid economic data, and the recent rally to all-time highs for the stock markets. As such, see our latest article, End of an Era: Why Volatility May Return to the Stock Market at www.schwab.com/insights.

As noted in the latest Schwab Market Perspective: "Phenomenal" Expectations, higher inflation and stronger economic data—and perhaps the stock market's rip higher—have led to more "hawkish" commentary from the Fed recently. March Fed hike expectations have risen considerably, now well over 80. History compiled by Strategas Research Partners shows that the best stock market performance during a rate hiking cycle comes when the Fed moves slowly in the first year, but quicker in the second year. That pattern appears to be panning out in this cycle. Read more at www.schwab.com/marketinsight.

For analysis of the Fed and President Trump's highly-anticipated reflationary policies, see Schwab's Chief Fixed Income Strategist, Kathy Jones' article, What would a shake-up at the Fed mean for bond investors? at www.schwab.com/onbonds, and Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest article, Presidential Reset: What Does Trump's Speech Mean for His Agenda?, at www.schwab.com/insights. Follow Kathy on Twitter: @kathyjones.

Tomorrow's domestic docket will provide investors a look at weekly initial jobless claims, forecasted to rise to a level of 238,000 from the prior week's 223,000, as well as the Import Price Index, with economists anticipating a 0.1% m/m increase during February following the 0.4% rise registered in January.

Europe nudges higher on data, Asia mixed as conviction remains constrained

European equities ticked higher, with the markets digesting some relatively upbeat earnings and economic data, though a highly-anticipated U.S. rate hike loomed as a possibility and political uncertainty continued to linger. The upcoming key French Presidential election remained in focus as discussed by Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives, Randy Frederick in the video, Why Should the French Presidential Election Be Important to Investors? at www.schwab.com/insights. Also, be sure to check out Jeff's articles, Five Reasons to Stay Invested Despite Heightened Uncertainty and The future of Europe: EU 2.0 and its impact on the markets at www.schwab.com/oninternational. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick. Shares of Adidas AG (ADDYY $92) rallied after the German athletic gear maker posted stronger-than-expected earnings results and offered a favorable outlook. In economic news, German and Spanish industrial production rebounded more than expected in January, ahead of tomorrow's monetary policy decision from the European Central Bank, with forecasts calling for the central bank to leave its stance unchanged. The U.K. raised its economic growth forecast for 2017, but lowered its outlook for the next three years as the nation delivered its spring budget. The euro and British pound were lower versus the U.S. dollar, while bond yields in the region gained ground.

Stocks in Asia finished mixed amid heightened expectations of a rate hike in the U.S. next week, mixed economic data, and festering U.S. and European political uncertainty. Also, recently resurfaced geopolitical concerns may have contributed to a lack of conviction in the markets. Japanese equities declined, as the yen strengthened intra-day, while a report showed the nation's 4Q GDP growth came in at a 1.2% annualized quarter-over-quarter pace, revised up from the preliminary estimate of 1.0% growth, but below the projected 1.5% expansion. Stocks in China dipped slightly, but those traded in Hong Kong advanced, following data that showed the nation's exports missed expectations for February, resulting in the first trade deficit in yuan terms for the country in three years. However, the Lunar New Year holiday may have impacted the data. Meanwhile, markets in Australia finished flat, India's market saw a modest decline, while South Korean securities ticked higher. For insight on global investing, see Schwab's Director of International Research, Michelle Gibley's, CFA, articles, Currency Hedging: 5 Things You Need to Know and Emerging Markets: Why They Deserve a Place in Your Portfolio at www.schwab.com/oninternational, and be sure to check out our release, Why Your Portfolio Needs International Stocks—Despite 2017 Risks at www.schwab.com/insights.

In addition to the aforementioned European Central Bank meeting, tomorrow's international economic calendar will hold CPI and PPI from China, machine tool orders from Japan, and employment data from France.

Financial Review

And Pause

Sinclair Noe — March 2, 2017

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

Subscribe: iTunes | Android | RSS

DOW – 112 = 21,002
SPX – 14 = 2381
NAS – 42 = 5861
RUT – 17 = 1395
10 Y + .03 = 2.49%
OIL – 1.21 = 52.62
GOLD – 15.00 = 1235.00

Yesterday, the Dow advanced about 300 points to close above 21,000 for the first time, just 24 trading sessions after it first hit 20,000. That matches the fastest-ever move between thousand-point milestones, which last happened in 1999 and took the index above 11,000.

The number of Americans filing for unemployment benefits fell to near a 44-year-low last week. Initial claims for state unemployment benefits dropped 19,000 to a seasonally adjusted 223,000 for the week ended Feb. 25, the lowest level since March 1973.

It was the 104th straight week that claims remained below 300,000, a threshold associated with a healthy labor market. That is the longest stretch since 1970.

The Federal Reserve’s Beige Book, a collection of anecdotes about the economy gathered before the central bank makes interest-rate decisions, said “businesses were generally optimistic about the near term but to a somewhat lesser degree than in the prior report.” Overall, the US economy continues to meander along, with all districts reporting “modest to moderate” growth.

Federal Reserve Gov. Lael Brainard has been among the most consistent doves at the Fed, but now, “near-term risks” to the U.S. from abroad appear to have diminished. Brainard the US economy appears to be in transition to a more stable growth path and gradual interest-rate hikes are likely to be appropriate “soon.”

Fed Gov. Jerome Powell became the latest Fed official to hint that a hike is imminent when he said Wednesday that the case for raising interest rates in March “has come together.” Fed Chair Janet Yellen is set to speak on the economic outlook in Chicago on Friday in her last speech before the Fed’s March 14-15 meeting.

Emerging-market borrowers are selling bonds at an unprecedented pace before the Federal Reserve raises interest rates. Emerging-market issuance in dollars and euros this year has already exceeded $100 billion. That’s the fastest pace ever and almost 20 percent more than the previous record for the period in 2014. With yields still favorable to borrowers, they may accelerate plans to refinance maturing debt and lock in current yields.

The yield on the two-year US Treasury note rose 3 basis points to 1.32% in recent trade, its highest end-of-day level since June 10, 2009. Bond yields rise as prices fall. The yield also notched its largest four-day increase since Feb. 8, 2011. The yield on the 10-year Treasury note has popped about 16 basis points in the past week.

The dollar advanced. Oil closed at the lowest level in more than three weeks. US stockpiles expanded to 520 million barrels, the most in weekly government data going back to 1982, even as Saudi Arabia continued to lead OPEC’s efforts to cut production to end the glut.

Snapchat parent Snap Inc raised $3.4 billion in its IPO last night, valuing the company at $24 billion, more than double the size of Twitter and the richest valuation in a U.S. tech IPO since Facebook five years ago.

The shares priced at $17 each, above the expected range of $14-16. And the IPO was oversubscribed by more than tenfold; and when shares started trading, there was a pop to $25, and shares closed at $24.47.

Snapchat’s founder and early investors cashed out over $1 billion today. This for a company which reported revenues of $404 million with losses of $515 million in 2016. And shareholders don’t have voting rights. Go figure.

About 32 million Yahoo user accounts were accessed by intruders in the last two years using forged cookies. The company said some of the latest intrusions can be connected to the “same state-sponsored actor believed to be responsible for the 2014 breach,” in which at least 500 million accounts were affected.

Yahoo also said in December that data from more than 1 billion user accounts was compromised in August 2013. Yahoo’s board of directors have decided to forgo CEO Marissa Mayer’s 2016 bonus following the results of an internal investigation of how the company’s massive hacks were handled.

Yesterday, Amazon’s cloud service S3 went down for a few hours. Today, Amazon blamed the outage on human error and the movie LaLa Land.

Banks globally have paid $321 billion in fines since 2008 for an abundance of regulatory failings from money laundering to market manipulation and terrorist financing, per data compiled by Boston Consulting Group. That tally is set to increase in the coming years as European and Asian regulators catch up with their US peers, who have levied most charges to date.

The Labor Department has proposed delaying a rule that would require retirement advisers to act in the best interest of their clients. The “fiduciary rule” was set to go into effect on April 10 and would have prohibited retirement advisers from accepting incentives for promoting certain funds over others.

The Labor Department announced a proposed 60-day extension for the rule to go into effect on June 9. During that time, the department said it will collect applicable information on the possible effects of rule, including public comments.

As credit card companies compete for customers by offering increasingly better rewards and perks, American Express is giving its Platinum card a facelift and a benefits overhaul. The newly-enhanced card will come with Uber credits, increased travel rewards and more access to special events. But the new benefits don’t come cheap. The card carries a $550 annual fee, an increase from $450, and currently offers no sign-up bonus.

Federal law enforcement officials searched three facilities of heavy machinery manufacturer Caterpillar in Illinois. It was not immediately clear why federal agents raided the three locations, but Caterpillar has been fighting an Internal Revenue Service demand that the company pay $2 billion in taxes and penalties for profits assigned to a Swiss parts distribution subsidiary, Caterpillar SARL, or CSARL, per filings with the Securities and Exchange Commission.

That subsidiary was also the subject of a 2014 Senate committee report that charged Caterpillar “shifted billions of dollars in profits away from the United States.” Caterpillar also disclosed in its report that it had received grand jury subpoenas from the U.S. District Court for the Central District of Illinois seeking documents and information related to the movement of cash among U.S. and non-U.S. subsidiaries, and the purchase and resale of replacement parts.

Boeing is cutting its Seattle-area workforce by at least 1,800 jobs this year as the company streamlines operations. Boeing approved voluntary layoffs for 1,500 mechanics. Another 305 engineers and technical workers are leaving voluntarily.

Anheuser-Busch InBev  reported worse-than-expected quarterly results. The company said that challenges in Brazil hurt its overall performance.

Shake Shack same-store sales whiff. The burger chain announced adjusted earnings of $0.09 a share, matching estimates, but said same-shack sales, or sales in stores open at least two years, rose 1.6%, well shy of the 2.6% estimated gain.

Barnes & Noble reported third-quarter profit that missed expectations. Same-store sales fell 8.3%, largely due to lower traffic and a decline in coloring books, artist supplies and the best-selling Adele album that was released in 2015. The company now expects full-year 2017 same-store sales to decline about 7%.

Broadcom came in 15 cents above estimates with adjusted quarterly earnings of $3.63 per share, while the chip maker’s revenue was slightly above estimates. The company, which is a major supplier for Apple, said it expects healthy demand for its products to continue.

After the closing bell, Costco reported fiscal second-quarter per-share earnings and sales below expectations and said it plans to raise membership fees in June by $5.

The creepiest thing of the day, and there were multiple candidates – goes to Spiral Toys; a company that sells internet-connected teddy bears that allow kids and their far-away parents to exchange heartfelt messages left more than 800,000 customer credentials, as well as two million message recordings, totally exposed online for anyone to see and listen.

Since Christmas day of last year and at least until the first week of January, Spiral Toys left customer data of its CloudPets brand on a database that wasn’t behind a firewall or password-protected. The exposed data included more than 800,000 emails and passwords.

As we’ve seen time and time again in the last couple of years, so-called “smart” devices connected to the internet—what is popularly known as the Internet of Things or IoT—are often left insecure or are easily hack-able, and often leak sensitive data. There will be a time when IoT developers and manufacturers learn the lesson and make secure by default devices, but that time hasn’t come yet.

So, if you are a parent who doesn’t want your loving messages with your kids leaked online, you might want to buy a good old fashioned teddy bear that doesn’t connect to a remote, insecure server.

Tomorrow is the first Friday in March, but it is not a Jobs Report Friday. The jobs report is a monthly ritual for anyone following markets or the US economy, as it contains some of the main data points measuring the health of the labor market in the world’s largest economy.

The report almost always comes out on the first Friday of the month, but not this month: The February 2017 report is scheduled to be released on March 10, a week later than might be expected. It turns out that this is due to the way the jobs numbers are gathered and how the days of the week fell this year during a short month.

When the 12th is on a Sunday and there are 30 days or less in the month, the release date will wind up being the second Friday of the following month – so March 10, not tomorrow.

Attorney General Jeff Sessions said he would recuse himself from investigations involving the Trump campaign over his contacts with Russian officials during the 2016 election, but stood firm on the answers he gave during his Senate confirmation hearing about his past communications. Sessions denied during his confirmation hearing that he had ever communicated with any Russian officials while he was a top Trump campaign surrogate.

During his press conference, Sessions emphasized that he didn’t meet with Russian operatives about the Trump campaign during the election. So, the story is shifting. Is it too late to change my vote for Creepiest Thing of the Day?

Financial Review

Cat Herders in the Oil Patch

Sinclair Noe — January 28, 2016

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

Subscribe: iTunes | Android | RSS

DOW + 125 = 16,069
SPX +10 = 1893
NAS + 38 = 4506
10 Y – .02 = 1.99%
OIL + 1.43 = 33.73
GOLD – 9.70 = 1116.00

The story of the day was oil, and it made for another ridiculous day of trading, dragging stocks up and down in its wake. Oil rose as much as 7.8% after Russia’s energy minister said that OPEC and other producers may meet to discuss output. Then, OPEC delegates said no talks were planned and oil prices floated back down to earth.

OPEC is comprised of countries that rely on oil to fund national budgets. So, low oil prices have resulted in national deficits and desperate times. Several countries would probably welcome production cuts that might lead to higher prices but then you have Iraq pumping like never before; and then add Iran to the mix.

Iran has put the finishing touches on a deal to buy over 100 Airbus passenger jets. Iranian President Hassan Rouhani is in Europe, trying to revive business ties. Rouhani visited Italy with a 120-member delegation of business leaders and cabinet ministers, signing a raft of deals. The shopping trip then moved to France to buy planes. Peugeot is also scheduled to meet with the group.

All those planes and cars cost money. Iran will be adding to production, not cutting.  And that means that if Saudi Arabia cuts production, the void will simply be filled by Iran. The Saudis would lose market share with no commensurate increase in prices.  And the whole idea of coordinated production cuts is as realistic as herding cats.

So there is plenty of supply, but still no signs of demand. The world’s biggest oil companies are asking tanker operators to slow down delivery of crude. Tankers hauling 2 million-barrel cargoes are delivering them at speeds of about 13 knots, compared with a maximum of 15. The slower speeds might result in a voyage that would normally take 40 days, instead lasting 48. On-shore storage tanks are full and the oil tankers are serving as off-shore storage facilities.

Global economic growth is the driver for oil demand, but growth has slowed even faster than the oil tankers. It is difficult to determine the exact extent of the slowdown; the numbers from China might be less than accurate but there are other ways to measure. Whether you look at the Baltic Dry Index, the Shanghai Shipping index, or the US or European Air Freight statistics, or even the freight reports by US railroads the data all points to one conclusion: there is a big slowdown in the delivery of raw materials and finished products.

Demand for long-lasting “durable” goods sank in December, reflecting a downturn in business investment. Orders for durable goods fell a seasonally adjusted 5.1% last month, marking the biggest decline in a year and a half. The larger-than-expected decline could result in fourth-quarter growth turning negative. Orders for so-called core capital-goods, which strip out aircraft and defense, dropped 4.3% in December. For the full year they decreased 7.5%, erasing a 5.8% gain in 2015. It was the first annual decline in three years.

The Federal Reserve FOMC wrapped up its two-day policy meeting yesterday afternoon. The Fed left interest rates unchanged. In a written statement, policymakers said “economic growth slowed late last year,” and the risks are no longer balanced between an economy picking up steam and one slowing further.

We talked about that yesterday; you know that. Now here is the part of the Fed statement you did not hear about but it is probably the most important part. The Fed wrote: “The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way.”

Here is why that sentence is so important. Wall Street tracks the Federal Reserve’s balance sheet.  If you have been paying attention over the past 7 years, you know this.  Overlay a chart of the balance sheet on the S&P 500 and it is clear that you are looking at mirror images. And right now, the Fed’s balance sheet is flat lining with a hint of downward movement.

Initial jobless claims fell last week after touching a seven-month high earlier in January. Initial jobless claims declined by a seasonally adjusted 16,000 to 278,000 in the week ending January 23. The four-week average of initial claims also tacked lower, down 2,250 to 283,000. New claims remain at very low levels. The number of people applying each week for benefits has dropped more than 50% after hitting a 27-year high of 665,000 during the tail end of the Great Recession.

So, why is the job market looking strong in the face of all this negative news? The simple answer is that US companies are still making money.  According to FactSet Research, the trailing 12-month net margin of S&P 500 companies is 9.8%, which is above the 8.8% average over the last decade. Part of the problem for stocks is that, while we are still seeing earnings, the growth of earnings has slowed.

It is now estimated that fourth quarter earnings for the S&P 500 will decline 6.1% from the year earlier quarter. About a third of S&P 500 companies have now reported and the index is on track for a median 3.5% decline in sales, according to FactSet data. Companies are still making money, just not as fast as a year ago.

Today is the busiest day of the earnings reporting season.

Amazon.com’s holiday quarter profit missed Wall Street’s estimates by a wide margin. Fourth-quarter net profit rose to $482 million, or $1.00 per share, in the quarter ended Dec. 31 – marking its largest quarterly profit on record – up from $214 million, or 45 cents per share, a year earlier. It was the first time Amazon has reported three consecutive profitable quarters since 2012. Profit was well below estimates of $1.56 a share. Net sales rose 21% to $35.7 billion, but missed analysts’ expectations of $35.9 billion. Amazon shares were smacked 12% in after-hours trade.

Microsoft reported quarterly revenue and profit that beat analysts’ expectations. Total revenue, however, fell 10% to $23.8 billion, squeezed by a strong dollar as well as a weak personal computer market that has reduced demand for Microsoft’s Windows operating system. On an adjusted basis, revenue fell to $25.69 billion. Net income fell to $5 billion; excluding items, the company earned 78 cents per share, 7-cents better than estimates.

Ford Motor reported fourth-quarter net income of $1.9 billion, or 47 cents a share, swinging from a loss in the prior-year period and beating estimates. Ford’s North America operations posted record sales, as lower oil prices helped drive demand for Ford pickup trucks.

Harley-Davidson reported net income of $42.2 million, or 22 cents a share, in the fourth quarter, down from $74.5 million, or 35 cents a share, in the year-earlier period. Revenue also dipped slightly, but the results were good enough to top analysts’ estimates.

Caterpillar reported better-than-expected adjusted earnings for its fourth quarter, though its revenue missed expectations. Caterpillar said it now expects its revenue to fall by about 10% to a range of $40 billion to $44 billion. In October, the company had forecast a 5% sales decline for 2016, with lower sales of mining equipment accounting for two-thirds of the damage. The decline would mark its fourth straight year of lower sales, a record for the company. Still, Caterpillar forecast better than expected earnings of $4 a share for 2016.

Under Armour posted double-digit revenue and profit gains in its latest quarter on strong footwear and apparel sales; they also raised their 2016 revenue guidance. Apparel sales climbed 22% to $864 million, led by growth in training, running, golf and basketball. While more than 90% of the company’s revenue is North America-based, foreign revenue increased 70%.

Samsung Electronics’ fourth-quarter earnings displayed a sharp slowdown in profit growth from chips, signaling challenges ahead as the tech giant continues to grapple with weak smartphone sales. Net profit in the December quarter fell 40% to $2.7 billion, short of market expectations. Samsung also warned of a “difficult business environment” and “weaker IT demand,” joining Apple in foretelling a downbeat 2016 for the technology sector.

On Tuesday, Freeport McMoRan reported a net loss for the fourth quarter of just over $4 billion. The company already suspended its dividend and made deep cuts in capital spending and copper production; with the release of Q4 results they also said they were looking to sell interests in certain mining assets to help reduce debt, which stand at about $20 billion, nearly 4 times its market value of $5 billion.

Yesterday, Moody’s cut more than $9 billion of Freeport McMoRan’s debt to a senior unsecured rating of B1, from Baa3, and a resulting negative outlook; that’s a move from investment grade to junk. Moody’s wrote: “At this time no meaningful catalyst is seen that will improve the overall market dynamics given weak global growth rates and slowing demand in China.”

Salt on the wound: reports today that the company’s export license in Indonesian has expired without extension. The Indonesian government is waiting for Freeport-McMoRan to respond to its request for a $530 million deposit toward building a new smelter.

American Airlines has expanded its refunds for pregnant customers visiting areas impacted by the Zika virus to include Puerto Rico, Martinique and nine countries in the Americas and Caribbean. There is no vaccine or treatment for Zika, and an estimated 80 percent of people infected have no symptoms, but the problem is birth defects.

More than 4,000 cases of microcephaly have already been reported in Brazil. The World Health Organization is warning that the virus is “spreading explosively” and could infect as many as 4 million people in the Americas.