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

Boring Record Highs

Sinclair Noe — October 16, 2017

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

Subscribe: Android | RSS

DOW + 85 = 22,956
SPX + 4 = 2557 (Record)
NAS + 18 = 6624 (Record)
RUT + 0.02 = 1502
10 Y + .03 = 2.31%
OIL + .42 = 51.87
GOLD – 8.80 = 1295.50

Cryptocurrency

• Number of Currencies: 879
• Total Market Cap: $172,368,733,175
• 24H Volume: $5,079,040,463

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	5,630.4	$93.83B	$2.02B	39.87%	1	-2.33%	+17.30%
	Ethereum	ETH	328.70	$31.21B	$653.51M	12.87%	0.0580434	-1.70%	+10.33%
	Ripple	XRP	0.25810	$9.99B	$992.48M	19.54%	0.00004592	+0.47%	+4.45%
	Bitcoin Cash	BCH	310.19	$5.19B	$111.39M	2.19%	0.0549922	-1.29%	-5.04%
	Litecoin	LTC	62.630	$3.34B	$196.10M	3.86%	0.0110818	-3.23%	+24.30%
	Dash	DASH	302.36	$2.31B	$38.49M	0.76%	0.0536745	+0.12%	+5.98%
	NEM	XEM	0.22402	$2.04B	$14.73M	0.29%	0.00004015	+0.88%	+11.51%
	Monero	XMR	94.51	$1.44B	$32.29M	0.64%	0.0167811	-1.26%	+9.31%
	NEO	NEO	28.205	$1.41B	$31.54M	0.62%	0.00498581	-0.87%	-3.03%
	BitConnect	BCC	195.007	$1.40B	$14.05M	0.28%	0.0345448	+1.17%	+21.68%

This year, the S&P 500 index has hit records on almost four dozen different occasions, with the single biggest drop from the latest record amounting to less than 3 percent. More than $3.2 trillion of market value has been added to U.S. equities, and volatility is at an all-time low. With the S&P already up, 14 percent so far this year, investors are looking to justify the relatively high valuation of stocks through the earnings.

The S&P 500 hasn’t experienced a decline of at least 3% since Nov. 7, 2016. That 237-day span registers as the second-longest period without a single-session drop of that magnitude since the 241 days from Jan. 26, 1995 to Jan. 9, 1996 – so, if we make it to next Wednesday without breaking down – this will officially become the most boring stock market of all time. The VIX index is reflecting that complacency, hovering around levels last seen in 1993. Just a reminder – the absence of risk doesn’t mean the elimination of risk.

Asian shares rallied to a decade high after figures showed China’s producer prices beat market expectations to rise 6.9 percent in September from a year earlier, suggesting the Chinese economy is growing much faster than expected. Upbeat data from China came before the Communist Party Congress on Wednesday and third-quarter economic data on Thursday. Japan’s Nikkei climbed to a level not seen since 1996.

Wide-ranging comments from Trump on tax cuts and health-care reforms following a luncheon meeting with Senator Majority Leader Mitch McConnell did not move the market. However, both issues are critical for the market as lower taxes are as crucial to supporting a continued rally in stocks. The House is on recess this week, and when it returns, it will have just 28 days left on its calendar to tackle issues including taxes and funding the government.

Trump also told reporters he is looking at reforming the welfare system. The White House began circulating a draft order in late September, calling on agencies to review regulations and propose new rules that conform to a broad set of principles, streamline or eliminate duplicative services, set metrics to measure accountability and create greater cooperation with state and local governments.

Trump’s proposed fiscal 2018 budget called for a massive reduction in funding for social safety nets, such as food stamps, Social Security disability insurance benefits, and the Temporary Assistance for Needy Families program. The problem is that there’s very little welfare left to reform. The Temporary Assistance for Needy Families program has a budget of $16 billion, which is unchanged since 1996; even though inflation has reduced its actual value by a third since then.

In 1979, more than 80 percent of families living below the federal poverty line received welfare benefits under the old Aid to Families with Dependent Children program. By 2015, that figure had fallen to just 23 percent. That doesn’t mean poverty has been reduced significantly, just that the states have made it much tougher to get welfare assistance.

Iraqi government forces captured the major Kurdish-held oil city of Kirkuk. The military action was in response to a Kurdish election 3 weeks ago, that called for Kurdish independence. Baghdad refuses to recognize Kurdish control of the area. Iraq is the second-largest producer within the Organization of Petroleum Exporting Countries, pumping most of its 4.47 million barrels a day from fields in the south and shipping it from the Persian Gulf port of Basra.

Kirkuk’s oil fields and deposits inside the adjacent Kurdish region were exporting about 600,000 barrels a day through a Kurdish-controlled pipeline to Turkey. Best estimate is that Iraq taking control in Kirkuk could cut shipments by 450,000 barrels daily until the federal government repairs its own disused pipeline to Turkey or reaches a revenue-sharing deal with the Kurds. Crude oil climbed to a 2-week high intra-day.

The Spanish government has given Catalan leaders until Thursday to drop their push for independence, signaling to could act to strip the Catalonia region of its autonomy if they do not comply. The move came after Catalan President Carles Puigdemont ignored an ultimatum from Madrid to provide a clear answer on whether the region has declared independence.

That lack of response, seen as an act of defiance, has opened the door for the central government to take over control of the region. Meanwhile, Monday night in Spain, 2 Catalan leaders were arrested for investigation of acts of sedition.

Federal Reserve Chair Janet Yellen said that the central bank expects to continue to raise interest rates gradually as solid growth, a strong labor market and a healthy global economy lift prices even as she recognized that inflation has been surprisingly low. Yellen said: “The biggest surprise in the U.S. economy this year has been inflation,” or more specifically the lack of inflation, which according to the Fed’s preferred gauge is running at 1.3%, for the core rate.

Still, it looks more and more that the Fed will raise rates at their December policy meeting. The Fed voted last month to begin unwinding their balance sheet, and Yellen reiterated on Sunday that they do not intend to use that process as an active monetary policy tool.

Here’s a thought – maybe the Fed could keep buying debt for just one more month – they could buy all of Puerto Rico’s debt, probably pick it up for about 30 cents on the dollar, and then just let it fade away on their balance sheet. Just a thought.

After the closing bell, Netflix report earnings of 37 cents per share, topping estimates of 32 cents. Revenue of $2.98 billion just barely beat estimates. But for Netflix, the key number is new subscribers. The company now has about 109.3 million subscribers globally.

Netflix said it added 850,000 subscribers in the U.S., ahead of the 810,000 estimates for the quarter. It boomed internationally, signing up 4.45 million subscribers versus the 3.69 million estimates. The subscription additions were up 49 percent year over year.

It’s official: Nordstrom’s quest to go private is over — at least for now. This morning, the family members who own the department store chain suspended their attempt to sell the company to a private equity firm through the end of the year. The family struggled to raise enough debt to finance the deal. The news sent Nordstrom’s shares down more than 6%, and then the declines rippled throughout the rest of the retailers.

Food services company Aramark said it would buy Avendra LLC, majority owned by Marriott International, and uniform and linen supplier AmeriPride Services for a total of $2.35 billion.

Reuters reports T-Mobile and Sprint plan to announce a merger agreement without any immediate asset sales, as they seek to preserve as much of their spectrum holdings and cost synergies as they can before regulators ask for concessions. The companies are expected to make a merger announcement within the next month.

The Supreme Court agreed to resolve a privacy dispute between the Justice Department and Microsoft over whether prosecutors should get access to emails stored on company servers overseas. The justices will hear the Trump administration’s appeal of a lower court’s ruling last year preventing federal prosecutors from obtaining emails stored in Microsoft computer servers in Dublin, Ireland in a drug trafficking investigation.

The Microsoft dispute is the second that the justices have agreed to hear in their current term that touches upon digital privacy rights. The other case concerns whether police officers need a warrant to access information on the past locations of cell phone users that is held by wireless carriers. Rulings in both cases are due by the end of June.

The Supreme Court also agreed to decide whether American Express is violating federal antitrust law by forbidding merchants that accept its credit cards from encouraging customers to use rival cards that charge lower fees. The justices will hear an appeal by 11 states led by Ohio that had sued American Express of a 2016 lower court ruling that endorsed the legality of the company’s “anti-steering” provisions in contracts with merchants.

Merchants annually pay more than $50 billion in so-called swipe fees to process credit card transactions, and these fees can be passed along to customers through higher prices. American Express charges merchants higher fees relative to the other credit card networks.

Financial Review

Sparring

Sinclair Noe — July 20, 2017

Podcast: Play in new window | Download (Duration: 11:25 — 6.5MB)

Subscribe: iTunes | Android | RSS

DOW – 28 = 21,611
SPX – 0.38 = 2473
NAS + 4 = 6390 (record)
RUT + 0.58 = 1442 (record)
10 Y – .01 = 2.27%
OIL – .39 = 46.73
GOLD + 3.00 = 1245.00
BITCOIN – 1.93% = 2821.99 USD
ETHEREUM – 0.26% = 227.99

Sen. John McCain tweeted a message of gratitude for the outpouring of support that greeted news Wednesday of his brain-cancer diagnosis. He tweeted: “I greatly appreciate the outpouring of support – unfortunately for my sparring partners in Congress, I’ll be back soon, so stand-by!”

The Dow and the S&P fell slightly from record highs, while the Nasdaq and Russell 2000 squeaked out new record highs. It was close, but the MSCI Emerging Markets Index of stocks managed to eke out its ninth straight increase. That’s the longest rally since April 2015. The 0.02 percent rise in the index was the smallest of the current streak. Still, that brought the index’s gain for the year to 23 percent.

Europe’s economy is experiencing a pickup in both current and forward indicators of growth. Improvements in household and corporate sentiment and activity have been reinforced by a decline in perceptions of political risk following the victory of Emmanuel Macron in the presidential and legislative elections in France.

The European Central Bank may not make a decision on the future of its bond-buying program until October. Policy makers are currently committed to spending 60 billion euros ($70 billion) a month on debt until at least December, and have repeatedly said any winding down must be gradual.

The ECB Governing Council met in Frankfurt today, ECB President Mario Draghi told reporters that policy makers unanimously agreed to put off a formal debate until the fall, but that they opted not to set a precise date for talks.

If you missed out on the euro’s rally because you thought European Central Bank President Mario Draghi was leaning dovish at today’s news conference after policy makers decided to keep interest rates unchanged, you’re forgiven. After all, Draghi emphasized several times the need for patience and evidence that wages and inflation are on the rise before winding down stimulus measures.

All that would normally weigh on a currency. But what Draghi didn’t do was dwell on the recent strength of the euro, other than to say it had received “some attention.” For traders, that was a green light to push it above $1.16 for the first time since May 2016. The euro is spiking because Draghi has not been able to put ‘FX’ and ‘policy’ into the same sentence.

The Fed is on a course of gradual rate increases. Bond guru Bill Gross is warning about looming interest rate increases and the damage they can do to a debt-laden global economy. In his monthly investor outlook, the Janus Henderson Advisors fund manager said the course of global central banks toward tightening policy could be perilous for the economic recovery. Raising interest rates will increase the cost of short-term debt that corporations and individuals hold.

In the U.S. alone, households have $14.9 trillion in debt while businesses owe $13.7 trillion. Gross said, “While governments and the U.S. Treasury can afford the additional expense, levered corporations and individuals in many cases cannot. ”

A broad measure of how well the U.S. economy is performing surged in June after a strong gain in May, suggesting growth could speed up in the months ahead. The leading economic index jumped 0.6% last month after a revised 0.4% increase in May.

The improvement in the index was spearheaded by strong housing permits after several months of weakness. Home builders plan to step up construction to meet rising demand as the economy enters is ninth year of expansion.

The U.S. got off to a slow start in 2017, and although growth accelerated in the spring, the economy is still not expanding full bore despite the strongest labor market in more than a decade.

The Congressional Budget Office has release its analysis of the latest version of Senate Republicans’ legislation to repeal and replace the Affordable Care Act. CBO says it would leave 22 million Americans without health insurance coverage by 2026. Yesterday, the CBO said that a repeal-only version would result in 32 million uninsured by 2026.

The number of Americans who applied for unemployment benefits sank in mid-July and hovered near a 44-year low, reflecting the healthiest jobs market in more than a decade. Initial jobless claims in the period running from July 9 to July 15 fell by 15,000 to a seasonally adjusted 233,000.  That matches the second-lowest level since the 2007-09 recession.

Arizona’s seasonally adjusted unemployment rate remained the same at 5.1% in June. The US unemployment rate was 4.4% in June. A year ago, the Arizona seasonally adjusted rate was 5.3% and the US rate was 4.9%. Arizona lost 42,800 Non-farm jobs in June. The Private Sector lost 5,700 jobs. Government lost 37,100 jobs. Arizona Non-farm employment grew by 2.4% (62,700 jobs) over the year in June.

With tech stocks at a record high — and stalwarts like Microsoft having doubled their market cap in just about three and a half years — some may worry that we’re setting up for a repeat of the tech bubble. Others may point to research that shows tech earnings are rising in-line with the index’s overall march higher.

Sometimes, things are different. And, on cue, Microsoft reported a better-than-expected quarterly profit and revenue. Microsoft said revenue from its cloud unit, which includes the flagship Azure platform and server products, rose about 11 percent to $7.4 billion in the quarter.

The company’s net income more than doubled to $6.5 billion, or 83 cents per share, from $3.1 billion, or 39 cents per share, a year earlier. Excluding one-time items, Microsoft earned 98 cents per share beating estimates of 71 cents. On an adjusted basis, revenue rose 9 percent to $24.7 billion – also beating estimates.

Microsoft shares hit an intraday record price of $74.30 and closed at an all-time high of $74.22. Microsoft reported after the closing bell, and share were up about 1.5% in after-hours trade.

Visa reported a better-than-expected quarterly profit and raised its full-year earnings forecast. Consumer spending has been on the rise in the United States, and shoppers pay with plastic. Visa’s payment volumes in the US rose 12.1 percent on a constant dollar basis to $840 billion in the quarter.

More than half of the company’s total volume of transactions comes from the United States. Net income rose to $2.06 billion, or 86 cents per share – beating estimates of 81 cents, and up from $412 million, or 17 cents a year ago. Visa also raised its forecast for full-year profit.

EBay reported a nearly 94 percent fall in quarterly profit. Net income fell to $27 million, or 2 cents per share, in the second quarter, from $435 million, or 38 cents per share, a year earlier. They did have about $400 million in income tax provisions that dented profits… still, not good.

As part of its review of Amazon’s agreement to buy Whole Foods, the Federal Trade Commission is considering allegations that Amazon misleads customers about its pricing discounts. The FTC is probing a complaint brought by the advocacy group Consumer Watchdog, which looked at some 1,000 products on Amazon’s website in June and found that Amazon put reference prices, or list prices, on about 46 percent of them.

And for 61 percent of products with reference prices, Amazon’s reference prices were higher than it had sold the same product in the previous 90 days.

Retailers and appliance makers fell after Sears said it would sell its Kenmore home appliances on Amazon and integrate the brand’s smart gadgets with the Alexa digital assistant. Sears was up 10.6 percent at $9.60 and Amazon shares rose 0.2 percent.

Once a dominant force, Sears Holdings appliance sales account for about 15 percent of its total sales of $3.3 billion in fiscal 2016. So, you no longer need to go to Sears for Kenmore appliances or Craftsman tools – so, why would you go to Sears?

Home Depot fell 4.1 percent, shaving off 40 points from the Dow and weighing the most on the S&P 500. Retailers Lowes and Best Buy, as well as appliance maker Whirlpool, were down between 3.9 and 5.6 percent. The market cap loss in Home Depot, Lowe’s, Whirlpool and Best Buy was about $12.5 billion by the end of the day.

Financial Review

A Tale of Two Markets

Sinclair Noe — May 16, 2017

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

Subscribe: iTunes | Android | RSS

DOW – 2 = 20,979
SPX – 1 = 2400
NAS + 20 = 6169 (record)
RUT + 0.76 = 1394
10 Y – .01 = 2.33%
OIL – .35 = 48.31
GOLD + 6.30 = 1237.70

Another record high close for the Nasdaq Composite, with minor losses for the other major indices. The safe play appears to be mega-cap tech plays.

A rally in the euro was reinforced by dollar losses, prompted by allegations that President Trump disclosed highly sensitive intelligence information to senior Russian officials. Late yesterday, White House National Security Adviser H.R. McMaster rejected the conclusions of a Washington Post article which claimed the president had revealed sensitive classified information to Russia’s top diplomat during an Oval Office meeting last week.

McMasters said the story “as reported is false”. Then this morning, Trump took to Twitter and confirmed reports by the Washington Post and other media outlets that he gave sensitive information to Russian officials, tweeting he had the “absolute right” to do so. Questioned about the report in the early afternoon, Trump simply said he had a “great meeting” with the Russians.

The disclosures add to concern over the administration’s chances of passing legislation, including tax reform, that has partly been priced in by financial markets. Sen. Majority Leader Mitch McConnell said, “I think we could do with a little less drama from the White House on a lot of things so that we can focus on our agenda,” “I think we could do with a little less drama from the White House on a lot of things so that we can focus on our agenda.”

Well.., not today – NBC News has just reported that Trump allegedly asked ousted FBI Director James Comey to “let go” of the investigation into former national security advisor Michael Flynn. According to Comey’s account of events, the conversation happened the day after Flynn resigned.  Stock markets continue to hit new highs, even as new headlines out of Washington reflect what appears to be a profoundly dysfunctional White House.

Stocks remain supported by the strongest earnings season for S&P 500 components since 2011. There are mostly two markets, tech and everything else. S&P 500 tech valuations, as measured by price/cash flow, have struggled to break above the 15x threshold that served as valuation floor during the 2002-07 bull market.

The 60%-plus gain in the S&P 500 Technology Index since the end of 2013 has occurred with that price/cash flow ratio hovering at a 15 multiple. The tech trade may be crowded but it still doesn’t look like a bubble at these valuations. The mega-cap tech trade is a different beast. Amazon.com trades at 144x 2017 EPS consensus, 85x 2018 EPS consensus. Netflix trades at 155x 2017 EPS consensus, 84x 2018 EPS consensus. Tesla doesn’t have positive expected EPS for 2017 or 2018.

China‘s latest efforts to curb risky debt levels are not only shocking local markets but raising worries globally about another market shock. As a result, China has replaced Europe as the top worry for global money managers, according to the latest Bank of America Merrill Lynch survey published today. Thirty-one percent of the 184 respondents consider Chinese credit tightening the biggest “tail risk” for markets.

The second worry is a crash in the global bond market, at 19 percent, followed by trade war, at 16 percent. The China worries also feed into existing worries about expensive stocks. The BofAML survey found that 37 percent of respondents think global equity markets are overvalued. That’s the most since January 2000, just before the burst of the tech bubble.

 The Commerce Department said  housing starts ticked down 2.6% to a 1.17 million annual pace, and stood just 0.7% higher than in the same month last year. Permits fell 2.5% to a 1.23 million pace in April. That was 5.7% higher than a year ago. Starts have been 6% higher in the first four months of this year than in the same period last year, and the pace of permit authorizations is over 10% higher, pointing to stronger growth in the future.

Housing starts remained strong but the more volatile multi-family sector dropped. This should be expected. Apartment construction bounced backed more quickly after the recession and may have peaked. More of the action should now be in the single-family component, which continues to gain traction. Given under-building in many markets, there seems to be plenty of room for continued growth in that sector.

The Federal Reserve said that industrial production grew 1% in April. This is the fastest pace of growth since February 2014. Compared with a year ago, production was up 2.2%. Manufacturing was hurt by the strong dollar in 2015 and 2016 but business investment has picked up this year.

In April, manufacturing output grew 1% after a 0.4% increase in the prior month. This is also the fastest rate since February 2014. One point to watch is the improvement in automobile assemblies. Given tepid auto sales, this may add to inventories and ultimately place downward pressure on car prices.

The US economy is forecast to expand at a 4.1 percent annualized pace in the second quarter, according to the Atlanta Federal Reserve’s GDP Now forecast model.

Investors shrugged off reports Ford plans to cut about 10 percent of its salaried workforce in North America and Asia. Ford does not plan any cuts to its hourly workforce or production capacity. Ford plans to offer financial incentives to convince salaried employees to depart voluntarily, including generous early retirement offers.

In 2016, Ford cut hundreds of white-collar jobs in Europe to cut costs by $200 million annually. The focus of the new cost-cutting effort is on North America and Asia. Ford has about 30,000 salaried U.S. employees.

It seems like the U.S. automakers are in an odd spot. A secular shift toward electric, driverless, or some other automotive technology paradigm seems possible. We also can’t rule out a cyclical downturn, considering a recent flattening in auto sales. Meanwhile, shareholders are clamoring for cost reductions, making it hard to double down on growth projects.

Home Depot’s first-quarter profit and same-store sales topped estimates as customers spent more on expensive items such as appliances and flooring and roofing materials. The company’s shares rose about 2 percent to hit a record high. Sales at stores open for more than a year rose 5.5 percent, topping estimates.

The company also raised its earnings forecast for the year ending January 2018. Home Depot’s results contrast with falling sales at department stores such as Macy’s and JC Penney, which are struggling with lower customer spending on apparel and growing competition from online and off-price retailers.

Shares of Staples jumped 3.5% in premarket trade but then lost 3.5% in regular trade as the retail sector struggled. The office supply retailer beat same-store sales expectations, while matching on profit and coming up short on revenue. The net loss for the quarter to April 29 was $815 million, or $1.24 a share, after a profit of $41 million, or 6 cents a share, in the same period a year ago.

TJX, the owner of T.J. Maxx and Marshalls stores, posted its slowest comparable-store sales growth in more than 10 quarters and forecast a disappointing current-quarter profit. Shares dropped about 5%.

Urban Outfitters became the latest major retailer to report dismal first-quarter results, with key metrics missing on all fronts. Same store sales fell 3.1%. Revenue decline 0.2%. Gross profit margins fell.

Another one bites the dust… retailer Rue21, owned by Apax Partners, has filed for Chapter 11, as shoppers shift their spending online and away from teen fashion trends. Rue21 entered into a Restructuring Support Agreement with certain stakeholders and expects to continue normal operations throughout the Chapter 11 process.

There’s a blame game brewing over the massive cyberattack that infected hundreds of thousands of computers. Microsoft is pointing a finger at the US government, while some experts say the software giant is accountable, too. The hack used a technique purportedly stolen from the US National Security Agency to target Microsoft’s market-leading Windows operating system.

The attack started Friday and has affected computers in more than 150 countries, including severe disruptions at Britain’s National Health Service. The hack effectively takes the computer hostage and demands a $300 ransom, to be paid in 72 hours with bitcoin. Microsoft blamed the NSA’s practice of developing hacking methods to use against the U.S. government’s own enemies.

The problem is that once those vulnerabilities become public, they can be used by others. In 2014, Microsoft ended support for the highly popular Windows XP, released in 2001 and engineered beginning in the late 1990s, arguing that the software was out of date and wasn’t built with modern security safeguards.  The company had already been supporting it longer than it normally would have because so many customers still used it and the effort was proving costly.

Microsoft released a patch for the flaw in March after hackers stole the exploit from the NSA, but some organizations didn’t apply the updates. Businesses that failed to update Windows-based computer systems that were hit by the WannaCry ransomware attack could be sued over their lax cyber security, but Microsoft likely enjoys protection from such lawsuits.

Hackers claim to have stolen an upcoming Disney movie for a ransom, and will release the film if the company doesn’t transfer the fee via bitcoin. It is believed that the movie is the latest installment in the Pirates of the Caribbean series.  CEO Bob Iger said he’s not paying, but is working with the FBI on the matter.

The issue is reminiscent of Netflix’s recent troubles with Orange is the New Black, which had most of its new season released online by hackers.

Financial Review

A Deluge and an Eclipse

Sinclair Noe — April 27, 2017

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

Subscribe: iTunes | Android | RSS

DOW + 6 = 20,981
SPX + 1 = 2388
NAS + 23 = 6048 (record high close)
RUT – 2 = 1417
10 Y – .02 = 2.29%
OIL – 1.01 = 48.61
GOLD – 5.50 = 1264.50

Today brought a deluge of earnings.

Google parent Alphabet posted a 29 percent rise in quarterly profit, driven by a surge in advertising on mobiles and its popular YouTube video service. Alphabet’s net income rose to $5.43 billion. The company’s consolidated revenue rose 22 percent to $24.75 billion.

Google’s ad revenue, which accounts for a lion’s share of its business, rose 18 percent to $21.4 billion in the first quarter. Revenue from its Google Other unit, which includes Pixel smartphone, Play Store and cloud business, rose 49 percent to $3.10 billion.

Alphabet sales from its moonshots projects like Fiber and Nest also grew to $244 million in the quarter, up from $165 million a year earlier. However, Google’s loss for these ambitious projects ticked up slightly to $855 million. Up 5% in after-hours trade.

Also, after the closing bell, Amazon reported revenue of $35.7 billion, versus Wall Street estimates of $35.3 billion. A nice beat. This compares to $29.1 billion a year ago. EPS of $1.48, versus estimates of $1.13 per share. A big beat.

Analysts were also closely watching the performance of Amazon’s cloud computing unit, Amazon Web Services. AWS reported $3.66 billion in sales, and 43% percent growth, which is not quite as strong as the growth seen in the past 3 quarters but it is still a big beat. Amazon up almost 5% in after-hours trade.

Microsoft net income rose to $4.8 billion, or 61 cents per share, from $3.7 billion, or 47 cents per share, a year earlier. That was an earnings miss. Revenue climbed 6 percent to $23.5 billion, missing estimates.

Microsoft said LinkedIn, which it bought for about $26 billion, contributed $975 million in revenue in the quarter. Revenue from Microsoft’s personal computing unit, its largest by revenue, fell 7.4 percent. Demand for its cloud computing services failed to offset weak growth in its personal computing division. Microsoft down about 2% in after-hours.

Intel reported lower-than-expected revenue for the first quarter. Intel still gets most of its revenue from selling PC chips, a business that returned to growth in 2016 due to stabilizing demand in the second half of the year.

Revenue from Intel’s higher-margin data center business rose 6 percent to $4.2 billion in the quarter, missing analysts’ expectations. Revenue from client computing rose 6 percent to $8 billion. Intel’s net income rose to $2.96 billion, or 61 cents per share, from $2.05 billion, or 42 cents per share, a year earlier. That was a miss of 4 cents per share. Intel dropped about 3.5% after-hours.

Starbucks reported fiscal second-quarter profit of $652 million, or 45 cents per share – in line with estimates. Revenue of $5.29 billion was a slight miss. Comparable-store sales rose 3%, below analysts’ forecast for 3.6%.

United Parcel Service reported a higher-than-expected quarterly net profit as revenue grew across its domestic and international package delivery segments and as well as freight and supply chain operations.

Often seen as a bellwether of US economic activity, UPS said revenue increased to $15.3 billion in the first quarter from $14.4 billion in the year-ago period. Revenue beat estimates. Net income rose 2.4% to $1.15, also beating estimates.  During the quarter, UPS invested to expand its new Saturday deliveries, with $35 million in increased costs.

Ford Motor’s first-quarter profit fell 35% from a year earlier to $1.6 billion, down from $2.5 billion in 2016’s first period, when strong demand for a newly redesigned F-150 pickup truck helped Ford post its best quarterly operating profit in history.

Earnings per share were 39 cents in the latest quarter, beating analysts’ consensus of 36 cents. Revenue for the first quarter rose 4% to $39.1 billion, driven by a favorable mix of pickup trucks and sport-utility vehicles. Ford plans to cut $3 billion in costs this year and expects profit to rebound in 2018, driven by continued strength in the pickup-truck market.

American Airlines Group has a healthy track record with respect to earnings. The company has delivered positive earnings surprises in three of the last four quarters, with an average beat of 20%. The first quarter down 60% from the year ago quarter but it was another beat. Adjusted earnings per share came in at 61 cents per share, beating estimates of 57 cents. American shares dropped about 5% today.

American Airlines announced it was increasing pilot and flight attendant salaries an average of 6.5 percent, or by a total of $930 million through 2019. A JPMorgan analyst described it as a “wealth transfer” to labor groups. American CEO Doug Parker described the higher wages as a correction to years of “incredibly difficult times” for airline employees. American employees had been underpaid compared to other airline employees. Parker called the pay hikes an “investment” in better service.

Southwest Airlines dropped about 2%, after the air carrier reported first-quarter profit and revenue that missed expectations. CEO Gary Kelly announced that Southwest will no longer overbook its flights, ending a practice that sometimes leaves paying passengers without a seat.

It’s impossible for an airline to guarantee it will never have to bump a passenger. Carriers still must transport other pilots and crew members to work, and an air marshal could also need a seat. But ending overbooking does make it less likely.

Comcast beat expectations ahead of the bell and jumped 3%, while Abbvie performed similarly. Those companies were joined by railroad company Union UNP, which also gained 3% in early trade, and another pharmaceutical giant, Bristol-Myers Squibb + 3.5%. Other post-earnings gainers included KKR +5% and Domino’s Pizza, up 2.5%.

European markets closed slightly lower Thursday. The European Central Bank kept interest rates unchanged. ECB President Mario Draghi surprised some investors by explicitly recognizing the bloc’s economic recovery.

The euro initially reached the day’s peak of $1.0930 as Draghi struck an optimistic tone when answering questions from reporters. The ECB maintained a deposit rate of -0.4% for banks, a base interest rate of 0.0%, and a quantitative easing (QE) program of up to €60 billion per month.

President Trump said he’ll give the re-negotiation of the North American Free Trade Agreement a “good, strong shot” but reiterated he would “terminate” U.S. participation if he doesn’t get what he called a fair deal. He said he decided to have talks since pulling out would be a “shock to the system.”

House Speaker Paul Ryan said he’s confident Congress will pass a “short-term extension” of current government funding that would keep operations going past Friday. Ryan did not give a time for a vote.

A gauge of pending home sales declined in March as inventory continued to tighten. The National Association of Realtors’ index fell 0.8% to a reading of 111.4. The index forecasts future sales by tracking real estate transactions in which a contract has been signed, but the deal has not yet closed.

Thanks to a strong first quarter, the Realtors forecast sales in 2017 to rise 3.5% compared to 2016. But supply isn’t keeping up with demand. There were 3.8 months of supply in March, and properties stayed on the market an average of only 34 days. A balanced market is usually thought to have 6 months of supply.

West Virginia is coal country. Chris Beam, president of Appalachian Power, the state’s largest utility, is not a coal guy. Beam told the West Virginia Gazette-Mail he had a recent conversation with the governor of West Virginia, who asked him to burn more coal.  Beam responded, “That’s not going to happen.” And the reason is customers don’t want it.

Beam says the debate over climate change, and the role of coal in it, is essentially over. Appalachian Power’s parent company AES believes the regulation of carbon dioxide is inevitable. In the coming decades, renewable energy and natural gas are poised to dominate the fuel mix. Appalachian Power’s residential and industrial customers are now asking about switching to 100% renewables.

To get out in front of this growing demand, the utility, which serves more than a million customers across the US mid-Atlantic region, has begun preparing power plans that would allow customers to stop using fossil fuels. Appalachian Power estimates it will reduce its coal capacity from 60% of its energy mix to about 50% by 2020.

At the same time, wind and solar will rise from about 4% of capacity to 20% by 2031. And yes, West Virginia trails most of the rest of the country in its switch to renewables.

And we finish with a special note for the philatelists among us. The Postal Service will debut a new shape-shifting Forever stamp in June ahead of a rare solar eclipse set for Aug. 21. The new issue will transform from an image of a total solar eclipse into an image of the moon when you press it with your finger. The back will feature a U.S. map tracking when the eclipse will appear across the country.

It’s the first time a stamp will make use of thermochromic ink, which is sensitive to body heat (and changing temperatures — which means stamps should be kept away from direct sunlight). The stamp’s photo of the eclipse was taken in Libya in 2006 by an Arizona-based astrophysicist, Fred Espenak, aka Mr. Eclipse, of Portal, AZ.