Financial Review

Follow the Money

Sinclair Noe — December 5, 2017

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DOW – 109 = 24,180
SPX – 9 = 2629
NAS – 13 = 6762
RUT – 20 = 1516
10 Y – .02 = 2.36%
OIL – .88 = 57.48
GOLD – 9.70 = 1266.90

• Number of Currencies: 1,362
• Total Market Cap: $358,989,749,532
• Volume (24h): $15,655,689,224

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Volume (24h)	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	11,668.0	$199.82B	$6.95B	44.42%	1	+0.63%	+17.05%
	Ethereum	ETH	453.66	$44.65B	$1.21B	7.71%	0.0395611	-2.44%	-2.83%
	Bitcoin Cash	BCH	1,431.10	$25.53B	$1.03B	6.56%	0.128851	-7.02%	-2.10%
	IOTA	MIOTA	3.94900	$10.95B	$1.43B	9.13%	0.00033564	+49.30%	+180.91%
	Ripple	XRP	0.23477	$9.58B	$169.47M	1.08%	0.00002106	-4.18%	-14.06%
	Dash	DASH	741.77	$5.88B	$201.44M	1.29%	0.0647502	-2.78%	+20.17%
	Litecoin	LTC	101.700	$5.56B	$332.54M	2.12%	0.00874786	-2.26%	+5.92%
	Bitcoin Gold	BTG	284.42	$5.15B	$112.20M	0.72%	0.0262096	-8.56%	-5.44%
	Monero	XMR	246.00	$4.04B	$331.67M	2.12%	0.0223129	+19.11%	+33.20%
	Cardano	ADA	0.127907	$3.30B	$49.71M	0.32%	0.00001083	-1.16%	+12.24%

The Dow slipped after posting its 64^th record high close yesterday. Not a surprise given the weak finish in the markets yesterday. Today was another example of stocks closing near the lows for the day. And for the broader market, the S&P and Nasdaq have now posted three consecutive losing sessions – we haven’t seen that since August.

A Tuesday pause aside, it’s been a rough week or so for technology shares, which have been the victim of a violent rotation that’s seen investors flee what’s been by far the hottest sector of 2017 for companies expected to get a bigger boost from tax legislation working its way through Congress.

Meanwhile, telecom shares, which have been the worst-performing sector of the year, were world beaters last week. And financials, which were also laggards, have also enjoyed a shot in the arm. In case you were wondering – yes, it is very rare for the tech sector to fall at least 2% while the S&P or Dow posts gains.

Risks “are high and rising” from the potential for a sudden drop in the stock and bond markets, according to the Office of Financial Research, the government agency tasked with looking for threats to the economy from the financial sector.

The report highlighted vulnerabilities to cybersecurity incidents, obstacles to resolving failing systemically important financial institutions and structural changes in markets and industry as three key threats to the financial system. Stock valuations are high by historical standards. The report noted that the cyclically adjusted price-to-earnings ratio of the S&P 500 is at its 97th percentile relative to the last 130 years.

In the bond market, sensitivity of bond prices to interest rate moves has steadily increased since the crisis. At current levels of duration, a 1 percentage point increase in interest rates would lead to a decline of almost $1.2 trillion in the securities underlying the index; and that doesn’t include high yield, or fixed-rate mortgages and fixed income derivatives. Some investors have been financing long-term asset with short-term loans and therefore a correction could trigger financial instability, according to the OFR annual report.

It looks like the bond market is worried that the Federal Reserve, which is due to raise interest rates for a third time this year next week, is being overly cautious and may end up curbing growth too much, especially since there’s few signs that inflation is accelerating. The fundamental story among bond investors is one of a central bank committed to the removal of accommodation late in a very long economic expansion.

The Senate Banking Committee backed the nomination of Jerome Powell to lead the Federal Reserve, in a vote that basically cements the likelihood he’ll run the central bank. Powell was backed by all the panel’s Republicans and Democrats except for Sen. Elizabeth Warren. Warren said she disagreed with Powell’s statement in his nomination hearing there was no danger of banks that are “too big to fail.”

Good point, the big banks are bigger now than in 2008. At some point you might think too big to fail might not be the best policy, but it will likely be policy for the next several years under the Powell Fed.

The Institute for Supply Management’s index of service-oriented companies fell to 57.4% in November from a 12-year high of 60.1% in October. Numbers over 50% are viewed as positive for the economy, however, and anything over 55% is considered exceptional.

The US trade deficit increased to a nine-month high in October due to rising oil prices and the widening of America’s long-standing deficits with China and Mexico. The Commerce Department said the trade gap widened 8.6 percent to $48.7 billion, the highest level since January. The politically sensitive U.S.-China trade deficit increased 1.7 percent to $35.2 billion and the deficit with Mexico surged 15.9 percent to $6.6 billion.

The worsening trade deficit came even as exports to China and Mexico were the strongest in more than three years, which challenges the argument that the United States was being disadvantaged in its dealings with trade partners.

Deutsche Bank AG has reportedly been told to hand over information about its dealings with President Donald Trump, as part of the U.S. investigation into suspected Russian meddling in the 2016 election. The German bank received a subpoena from Special Counsel Robert Mueller several weeks ago, asking for data on client accounts held by the president and his family, according to reports from Bloomberg and German newspaper Handelsblatt.

Trump owed Deutsche Bank about $360 million in real-estate loans before he became president. In June, the lender — Germany’s largest — rejected demands by House Democrats to share information on its dealings with Trump, citing privacy laws. The bank said at the time that it would hand over details if it received a formal request to do so.

Trump’s lawyer Jay Sekulow and White House press secretary Sarah Sanders say it’s not true that Special Counsel Robert Mueller has subpoenaed Deutsche Bank, as Handelsblatt and other media outlets have reported. “No subpoena has been issued or received,” Sekulow said in a statement. “We have confirmed this with the bank and other sources.”

This summer, Trump said he considered his family’s personal finances a “red line” that Mueller should not cross. But by targeting Deutsche Bank with a subpoena for more information about Trump’s accounts, Mueller may well be crossing that line.

More important perhaps, he is digging into a massive Trump conflict of interest and one of the biggest questions regarding Trump’s business empire: Why would this German bank lend him so much money when US banks wouldn’t?

Trump’s history with Deutsche Bank dates back to the 1990s, when his personal finances were at an all-time low. Trump’s reputation with major lenders was in tatters. So when he set out to relaunch his empire, he turned to Deutsche Bank for the financing he couldn’t find elsewhere. Deutsche Bank went on to back several lucrative deals.

In the summer of 2016, The New Yorker detailed how Deutsche Bank was involved with a complex scheme to move as much as $10 billion out of Russia on behalf of powerful individuals facing sanctions in the West.

Since Trump came to office, the Justice Department investigation into the Russian money-laundering scandal had gone dormant. It is not clear why. There is no public indication of precisely why Mueller subpoenaed the bank.

American voters say the Republican tax plan that both chambers of Congress have passed benefits the wealthy the most, a new poll finds. Quinnipiac University found that 64% of Americans — including 61% of independents and 94% of Democrats — say the plan benefits the wealthy the most.

An analysis of the final Senate bill by the Tax Policy Center shows that the voter assessment is correct. While the bill will not pay for itself, the Joint Committee on Taxation found an earlier version of the Senate tax bill would lift GDP by about 0.8% over a decade.

The Quinnipiac poll finds Americans disapprove of the bill by a 53% to 29% margin. A Gallup poll found that 29% of people surveyed approved of the tax bill, while 56% disapproved. The data-journalism site FiveThirtyEight found that the current legislation was one of the least popular tax-related bills dating to 1981 — even less so than two bills that hiked taxes in the 1990s.

Disney and Twenty-First Century Fox are closing in on a deal, and it could come as soon as next week. CNBC has been reporting that Disney has held talks with the Rupert Murdoch-controlled media company to acquire its studio and television production assets, leaving Fox with its news and sports assets. Fox is also talking with CNBC parent company Comcast, but the talks with Disney have progressed more significantly.

Nestle is buying Canadian vitamin maker Atrium Innovations for $2.3 billion.

Bitcoin powered to a record high of $11,850 It started the year at less than $1,000. CBOE plans to start trading bitcoin futures on Dec. 10 while CME Group has set Dec. 18 as its start date. Bitcoin itself is currently bought and sold on platforms that are virtually unregulated.

Russia’s team has been barred from the 2018 Winter Olympics in South Korea. Government officials will be forbidden from attending, the flag will not be part of the opening ceremony, and records will show that Russia didn’t win any medals. Some qualifying Russian athletes who have passed several drug tests will be allowed to compete at the IOC’s discretion, but they will do so in neutral uniforms.

The decision comes after a 17-month investigation by the IOC into what was deemed to be state-supported doping. It confirmed other findings that Russian officials had tampered with samples to conceal evidence of its systematic doping of top athletes.

California has already suffered a brutal season of massive fires. Now tens of thousands of people are being evacuated as a Ventura wildfire rages over 45,500 acres. Fire fighters in Ventura County say the prospects for containment are not good.

The blaze, dubbed the Thomas Fire, broke out on Monday evening in the foothills above Ventura. Winds quickly drove it west into the city some 50 miles northwest of Los Angeles. More than 250,000 homes were without power. All schools in the Ventura Unified School District were closed.

Financial Review

G19

Sinclair Noe — July 6, 2017

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DOW – 158 = 21,320
SPX – 22 = 2409
NAS – 61 = 6089
RUT – 19 = 1400
10 Y + .04 = 2.37
OIL + .16 = 45.29
GOLD – 1.70 = 1226.00
BITCOIN +0.08% = 2621.33 USD
ETHEREUM – 1.30% = 265.59

The G20 Summit is underway in Hamburg Germany.

China’s President Xi Jinping and German Chancellor Angela Merkel pledged to work together more closely on a range of issues. Japan and the European Union agreed a free trade pact to create the world’s biggest open economic area and signal resistance to what they see as President Trump’s protectionist turn.

German chancellor Merkel, who is hosting the summit, wants to unite world leaders on environmental goals, but will be careful not to mention the words “climate change” around the US president. Japanese Prime Minister Shinzo Abe urged the G20 states to continue working together on climate protection, after Trump pulled the United States out of the 2015 Paris agreement on climate change policy.

France announced it will end the sale of gasoline and diesel vehicles by 2040 and become carbon neutral 10 years later. Earlier today, Trump delivered a speech in Warsaw before heading to the summit. Tomorrow, Trump meets with Russian President Putin.

The G20 is the G19 this year. Brazil is absent. Brazilian President Michele Temer faces criminal corruption charges. Meanwhile, protesters are capturing the spotlight. There are 20,000 riot police in Hamburg; six times more protesters. What are they protesting? Well, it’s a mixed bag of issues but it seems to include globalization, a lack of action on climate change, war, inequality, refugees, and authoritarianism in general.

Germany, the host of the G19, saw its bond yields climb to the highest levels in 18 months. The yield on German 10-year bunds rose nine basis points to 0.56 percent; part of a drop in global government bonds that spread to the US and pushed the yield on 10-year Treasury notes to the highest level since May.

Bonds across Europe fell after the results of a French debt auction showed a drop in excess demand for 30-year securities. Trading volumes in bund futures contracts jumped after the auction results were announced, sparking the surge in yields. The Stoxx Europe 600 Index fell 0.7 percent as bond yields rose, bringing its decline since mid-May to about 4 percent. Eurozone stocks were hot a couple of months ago, now, not so much.

Hedge funds that built up bullish long-end Treasury wagers to the highest outright level since 2008 are rushing for the exit. DoubleLine Capital Chief Executive Officer Jeffrey Gundlach says the recent selloff is a sign of more pain to come for Treasury bulls.

With a Federal Reserve seemingly committed to raising interest rates a third time this year and speculation the European Central Bank could announce a tapering of bond purchases by the end of the year, the fundamentals aren’t encouraging. As yields are now approaching key technical marks that could trigger a fresh flush out of long-end bulls, the risk is building that Treasury yields go even higher.

Tomorrow we will receive the Labor Department’s monthly non-farm payroll report. Today we had a sampling of predictive data.

The ADP National Employment Report showed private sector payrolls increased by 158,000 jobs last month, stepping down from the 230,000 positions created in May and below expectations for a gain of 185,000.

While the ADP report has a spotty record predicting non-farm payrolls, June’s modest job gains together with the modest rise in first-time applications for jobless benefits and cooling services sector employment pose a downside risk to the government’s June jobs report.

Last month, for example, ADP recorded 253,000 private-sector job gains while the Labor Department tallied just 147,000 private jobs and 138,000 total additions, after subtracting out government job losses.

Outplacement consultancy firm Challenger, Gray & Christmas reports the number of planned layoffs fell in June to its lowest level of the year as employers opted to hold onto existing jobs in a tight labor market where skilled laborers are harder to find.

Meanwhile, initial claims for state unemployment benefits increased 4,000 to a seasonally adjusted 248,000 for the week ended July 1. It was the third straight weekly increase in claims. Still, it was the 122nd straight week that claims remained below 300,000, a threshold associated with a healthy labor market.

A report from the Institute for Supply Management showed its non-manufacturing sector index rose half a point to a reading of 57.4 in June. A reading above 50 indicates expansion in the vast services sector. Industries reported an increase in new orders, but said employment growth had slowed.

A report from the Commerce Department showed the trade deficit fell 2.3 percent to $46.5 billion in May. When adjusted for inflation, the trade deficit narrowed to $62.8 billion from $63.8 billion in April. Real goods exports surged to an all-time high in May, propelled by record high petroleum exports.

Still, the real trade deficit averaged $63.3 billion in April and May, above the first quarter’s average of $62.2 billion. That suggests trade will be a drag on gross domestic product in the second quarter after contributing 0.23 percentage point to the economy’s 1.4 percent annualized growth pace in the first three months of the year.

As the US economy enters its ninth year of expansion this month, many Americans feel the recovery has been incomplete — and the numbers back them up. Five states — Arizona, Connecticut, Mississippi, Nevada and Wyoming — still haven’t regained their levels of gross domestic product from before the financial crisis, more than five years after the country hit that milestone.

Arizona’s GDP is still 0.3% below the pre-recession peak. Home prices in Arizona are still almost 11% lower than 2007 levels. Eight states are below pre-recession levels of employment. And 15 have home prices that have yet to rebound fully.

Eighteen states and the District of Columbia sued the US Education Department and Secretary Betsy DeVos over the recent suspension of rules that would have swiftly canceled student-loan debt of people defrauded by Corinthian Colleges Inc and other for-profit schools.

The suits claim the department broke federal law in announcing the delay with limited public notice and opportunity to comment. They said the department and DeVos were using the pending litigation as “a mere pretext” to repeal the rules and replace them with one that “will remove or dilute student rights and protections.”

DeVos said she wanted to pause the acceleration of the debt cancellation process because it “puts taxpayers on the hook for significant costs.” She also said a delay was needed while current litigation in California over the rules, works its way through the legal system. Consumer groups Public Citizen and Project on Predatory Student Lending sued to remove the delay as well.

The Home Shopping Network is having a sale. The buyer is QVC, the shopping channel owned by Liberty Interactive is buying Home Shopping Network for $2.6 billion. A combined QVC-HSN ranks as the No. 6 U.S. online retailer ($7.5 billion eCommerce sale in 2016), dwarfed by Amazon ($123.8 billion). QVC and HSN will continue to operate as individual brands.

We’re waiting for an announce from Berkshire Hathaway. Berkshire Hathaway’s energy business is close to a deal to acquire Oncor, the electric-utility giant based in Texas. Oncor, one of the largest utility companies in the US, says it serves 10 million customers across Texas. It earned $935 million in operating revenues and $73 million in net income in the quarter ended March 31.

We just had a vote in Illinois. A financial showdown, more than two years in the making, went to a vote this afternoon in the Illinois House as Democrats enacted a $36 billion spending plan fueled by a 32 percent income tax increase over the Republican governor’s objection.

Votes to override Gov. Bruce Rauner’s vetoes of the budget package give Illinois its first annual budget since 2015 and spell the end of the nation’s longest fiscal stalemate since at least the Great Depression. The standoff entered a third fiscal year on July 1. Credit-rating houses had threatened to downgrade the state’s creditworthiness to “junk,” signaling to investors that buying state debt is a highly speculative venture.

Yesterday, Moody’s Investors Service, put Illinois under review for a downgrade even with the new budget. Moody’s said that while lawmakers have made progress, the House budget does not address the state’s massively underfunded pensions or do enough to pay down bills.

The resolution to the fiscal standoff, which emerged from the Democrat-led legislature over the last several days, triggered a rally in Illinois bond prices by signaling that elected leaders are beginning to tackle the government’s long-building financial strains. Without a full-year budget for the past two years, Illinois continued to run up deficits, leaving it with dwindling reserves, a record pile of unpaid bills and increasing obligations to its underfunded employee pension system.

Thirty-three of the 50 U.S. states reported revenues that came in below projections in fiscal year 2017, the highest number of states since the recession decimated budgets in 2010.

Microsoft announced a major reorganization that will include up to 3,000 layoffs, largely in sales. The job cuts amount to less than 10 percent of the company’s total sales force, and about 75 percent of them will be outside the US. Reports from last week suggested this was going to happen and that Microsoft was going to specifically focus on how it sells its cloud-services product, Azure, which has been booming in recent quarters.

Stocks Bounce with Financials in the Lead

Charles Schwab: On the Market

Posted: 6/28/2017 4:15 PM ET

Stocks Bounce with Financials in the Lead

U.S. equities posted solid gains with financials leading the way, adding to their recent rebound, and as Treasury yields at the mid-to-long end of the curve saw gains. Technology issues stabilized from their recent tumble and energy stocks gained ground on an uptick in crude oil prices, despite an unexpected bearish inventory report. The U.S. dollar finished nearly unchanged after a choppy session, on some euro volatility and as comments from Bank of England Governor Carney boosted the pound. Gold was higher.

The Dow Jones Industrial Average (DJIA) rose 144 points (0.7%) to 21,455, the S&P 500 Index increased 21 points (0.9%) to 2,441, and the Nasdaq Composite jumped 88 points (1.4%) to 6,234. In moderate volume, 854 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.50 to $44.74 per barrel and wholesale gasoline was $0.02 higher at $1.47 per gallon. Elsewhere, the Bloomberg gold spot price increased $3.03 to $1,250.20 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat at 95.99.

General Mills Inc. (GIS $57) reported Q4 earnings-per-share (EPS) of $0.69, or $0.73 ex-items, versus the $0.71 FactSet estimate, as revenues declined 3.0% year-over-year (y/y) to $3.8 billion, roughly in line with forecasts. GIS issued current year EPS guidance that came in slightly below forecasts. Separately, the company increased its quarterly dividend by 2.1% to $0.49 per share. Shares were higher.

KB Home (KBH $24) posted fiscal Q2 EPS of $0.33, above the projected $0.26, as revenues grew 24.0% y/y to $1.0 billion, north of the expected $930 million. Home deliveries rose 11% y/y, while net order and backlog values both posted mid-to-high double-digit growth. KBH said the housing market recovery continues on a steady path, supported by favorable industry fundamentals, while raising its full-year guidance. KBH gained ground.

Spectranetics Corp. (SPNC $38) surged over 25% after Royal Philips NV (PHG $36) agreed to acquire the maker of devices to treat cardiac disease for $38.50 per share in cash or about $1.7 billion.

The recent tech sector volatility remains in focus, and we discuss this in the latest article, Tech's Rough Ride: Is There More Turmoil Ahead? on the Insights & Ideas page at www.schwab.com, and be sure to follow us on Twitter: @schwabresearch. Moreover, Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, The Space Between … Tech Today Doesn't Resemble Tech Circa 2000, that in typical fashion, the financial media may have gone a little overboard with its breathless reporting on the recent "tech wreck." She adds that tech companies' fundamentals and valuations look vastly dissimilar to the 2000 era. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

This volatility surrounding the tech sector has fostered some rotation among the major sectors and Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, provides us with a fresh method to view the 11 major sectors in his latest Schwab Sector Views: From the Top Down on the Markets & Economy page at www.schwab.com.

Pending home sales unexpectedly decline, mortgage applications fall

Pending home sales declined 0.8% month-over-month (m/m) in May, versus the Bloomberg projection of a 1.0% increase, and following the downwardly revised 1.7% drop registered in April. Compared to last year, sales were 0.5% higher, matching forecasts. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which surprised to the upside in May.

The MBA Mortgage Application Index fell 6.2% last week, following the previous week's 0.6% rise. The drop came as an 8.6% fall in the Refinance Index was met with a 4.1% decline for the Purchase Index. The average 30-year mortgage rate remained at 4.13%.

The advance goods trade deficit narrowed more than expected to $65.9 billion in May, from the downwardly revised $67.1 billion in April, and compared to the Bloomberg expectation of $66.0 billion.

Preliminary wholesale inventories rose 0.3% m/m in May, versus forecasts for a 0.2% increase, and following April's favorably revised 0.4% decrease.

Treasuries were mixed, as the yield on the 2-year note declined 2 basis points (bps) to 1.35%, while the yield on the 10-year note ticked 1 bp higher to 2.22% and the 30-year bond rate rose 2 bps to 2.77%. Bond yields have rebounded somewhat as of late from depressed levels and Schwab's Kathy Jones notes in her Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer' in the second half of 2017, we expect 10-year Treasury yields to remain in a 2% to 2.5% range, consistent with the eight-year "lower for longer" theme in the bond market. We expect the Federal Reserve to continue to tighten monetary policy and reduce its balance sheet gradually, assuming inflation doesn't slip further. Read more, including how we feel investors should position themselves in this environment on the Fixed Income page at www.schwab.com and follow Kathy on Twitter: @kathyjones.

Finally, the political front remains in focus with yesterday's delay in the Senate healthcare bill vote until after the July 4th holiday exacerbating uncertainty, while the debt ceiling debate continues and the markets are looking for any developments on tax and regulatory reforms, as well as other reflationary policy implementation. As such, Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest article, Washington Midyear Update: 4 Key Issues for Investors to Watch, on the Insights & Ideas page at www.schwab.com.

Tomorrow's economic docket will consist of the third and final read for Q1 GDP, with economists anticipating no revision to the quarterly 1.2% annualized growth rate in the second release, nor the 2.2% increase in personal consumption, as well as weekly initial jobless claims, forecasted to tick lower to 240,000 from the prior week's 241,000.

European mixed amid euro and pound volatility, Asia mostly lower on uncertainties

European equities finished mixed following a brief afternoon recovery on a short-lived reverse to the downside for the euro on reports that European Central Bank (ECB) members are saying the markets misjudged President Mario Draghi's comments yesterday. The euro moved back into the green, extending yesterday's rally that came as the markets appeared to have a hawkish takeaway from Draghi's speech. He pointed out a strengthening and broadening recovery, while saying that pressures on inflation are temporary and that "the threat of deflation is gone and reflationary forces are at play." Bond yields in the region finished mixed. Amid this backdrop, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his article, Are bonds signaling a major stock market peak? on the Markets & Economy page at www.schwab.com. The British pound rallied versus the U.S. dollar as Bank of England Governor Mark Carney said policy makers may need to begin the removal of stimulus if the trade-off between growth and inflation continues to lessen and the central bank will discuss this in the coming months. Oil & gas issues pared early pressure as crude oil prices reversed losses. Political uncertainty continued to linger ahead of key elections in the eurozone and as U.K. Brexit negotiations are set to ramp up. Jeff and Vice President of Trading and Derivatives, Randy Frederick offer the video, Political Risk: How Should Investors Respond?, on the Insights & Ideas page at www.schwab.com, where you can also find our article, Brexit Begins: What's Next for the U.K?. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick. In economic news, French consumer confidence jumped and Spanish retail sales rebounded.

Stocks in Asia finished mostly lower following the declines in the U.S. and Europe yesterday that came courtesy of the continued rollover in technology stocks, the delayed U.S. healthcare bill vote and hawkish commentary from ECB President Draghi that boosted the euro. Japanese equities declined, with the yen choppy following a recent decline. Mainland Chinese stocks and those in Hong Kong declined amid the aforementioned headwinds, and ahead of Friday's release of manufacturing and services sector reports. Meanwhile, Australian securities advanced nicely, led by strength in basic materials, oil & gas and financial issues amid a rise in global bond yields and continued rebound in crude oil prices, while markets in South Korea and India declined. For a look at the global landscape, see Schwab's Jeffrey Kleintop's, CFA, 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks on the International Investing page at www.schwab.com.

Tomorrow's international economic calendar will include retail sales and the trade balance from Japan, CPI from Spain, consumer and business confidence from the Eurozone, and CPI from Germany.

Stocks' Recent Run Rolls On

Charles Schwab: On the Market

Posted: 5/25/2017 4:15 PM ET

Stocks' Recent Run Rolls On

U.S. stocks finished higher for the sixth-straight session as traders reacted favorably to yesterday's Fed minutes which indicated a systematic approach to unwinding the central bank's inflated balance sheet. A plethora of favorable earnings reports out of the retail sector also aided the upbeat sentiment, however, the energy sector was under pressure with crude oil prices falling in the wake of the highly-expected extension of OPEC's production cuts. In economic news, weekly jobless claims nudged higher and the preliminary trade deficit unexpectedly widened. Treasury yields were mixed, the U.S. dollar ticked higher and gold dipped.

The Dow Jones Industrial Average (DJIA) increased 71 points (0.3%) to 21,083, the S&P 500 Index added 11 points (0.4%) to 2,415, and the Nasdaq Composite gained 42 points (0.7%) to 6,205. In moderate volume, 814 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil dropped $2.46 to $48.90 per barrel and wholesale gasoline was $0.05 lower at $1.60 per gallon. Elsewhere, the Bloomberg gold spot price decreased $2.57 to $1,256.16 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 97.22.

Best Buy Co. Inc. (BBY $61) reported Q1 earnings-per-share (EPS) of $0.60, versus the $0.40 FactSet estimate, as revenues rose 1.0% year-over-year (y/y) to $8.5 billion, topping the forecasted $8.3 billion. U.S. Q1 same-store sales rose 1.4% y/y, compared to the expected 1.8% decline. BBY issued Q2 earnings and sales guidance that exceeded estimates, while its full-year revenue growth outlook also came in above forecasts. Shares rallied sharply.

Dollar Tree Inc. (DLTR $79) posted Q1 profits of $0.85 per share, or $0.98 ex-items, versus the projected $0.98, as revenues rose 4.0% y/y to $5.3 billion, roughly in line with expectations. Quarterly same-store sales increased 0.5% y/y, compared to the estimated 1.2% gain. DLTR raised its full-year EPS outlook, while lowering the high end of its revenue forecast. Shares overcame early losses and finished higher.

HP Inc. (HPQ $18) announced fiscal Q2 EPS of $0.33, or $0.40 ex-items, compared to the projected $0.39 expectation, with revenues growing 7.0% y/y to $12.4 billion, above the forecasted $11.9 billion. HPQ issued Q3 earnings guidance that was roughly in line with estimates, while projecting full-year EPS that was slightly above expectations. Shares gave up early gains and closed lower.

PVH Corp. (PVH $107) reported Q1 EPS of $0.89, or $1.65 ex-items, versus the forecasted $1.60, as revenues rose 4.0% y/y to $2.0 billion, roughly in line with expectations. The company said it continues to experience strong momentum in its Calvin Klein and Tommy Hilfiger businesses, despite the volatile macroeconomic environment and the highly promotional retail market in the U.S. PVH raised its full-year guidance and issued a Q2 outlook that topped estimates. Shares rose solidly.

Williams-Sonoma Inc. (WSM $49) posted Q1 EPS of $0.45, or $0.51 ex-items, compared to the estimated $0.49, as revenues grew 1.2% y/y to $1.1 billion, matching forecasts. Quarterly same-store sales ticked 0.1% higher y/y, versus the projected 0.4% decline. WSM issued Q2 revenue guidance that bested forecasts, while estimating full-year EPS and revenues above expectations. Shares relinquished early gains and dipped.

General Motors Co. (GM $33) saw pressure following a class-action lawsuit against the automaker, alleging that it installed emissions-cheating defeat devices in over 705,000 Duramax Diesel trucks. GM responded by calling the claims "baseless" and saying it will vigorously defend itself.

Jobless claims tick higher

Weekly initial jobless claims (chart) rose by 1,000 to 234,000 last week, below the Bloomberg forecast of 238,000, with the prior week’s figure being revised higher by 1,000 to 233,000. The four-week moving average fell by 5,750 to 235,250, while continuing claims rose by 24,000 to 1,923,000, south of estimates of 1,925,000.

The advance goods trade deficit widened to $67.6 billion in April, from the upwardly revised $65.1 billion in March, and compared to expectations of $64.5 billion.

Preliminary wholesale inventories declined 0.3% month-over-month (m/m) in April, versus forecasts for a 0.2% increase, and following March's downwardly revised 0.1% gain.

The Kansas City Fed Manufacturing Activity Index for May increased to 8, from April's 7 reading, but below forecasts of a rise to 9, though a level north of zero depicts expansion.

Treasuries were mixed, with the yield on the 2-year note increasing 1 basis point (bp) to 1.29%, the yield on the 10-year note flat at 2.25% and the 30-year bond rate declining 1 bp to 2.92%. For analysis of the bond markets, see our article, Mixed Signals: What Does Recent Economic Data Mean for Bonds?, on the Insights & Ideas page at www.schwab.com, where you can also find Schwab's Randy Frederick's and Chief Fixed Income Strategist, Kathy Jones' video, Fed Rate-Hike Cycle: How Can Bond Investors Prepare? Follow Kathy and Schwab on Twitter: @kathyjones and @schwabresearch.

Please note: Treasury markets will be closing early tomorrow in observance of the Memorial Day Holiday.

Treasury yields finished lower yesterday following the May Fed meeting minutes that kept June rate hike expectations intact but noted that the Federal Open Market Committee (FOMC) was looking for more evidence suggesting that the recent soft patch of economic data was transitory. The report also offered details of the discussion regarding shrinking the Central Bank's bloated balance sheet. Most of the FOMC favored an approach where it would determine a set of slowly but surely increasing caps, or limits, on the dollar amounts of Treasury and agency securities that would be allowed to run off each month. They also agreed that discussions of potential changes to the Committee's reinvestment policy will be continued in its June 13th-14th meeting.

Schwab’s Chief Investment Strategist Liz Ann Sonders points out in her video, June Rate-Hike Highly Likely?, on the Insights & Ideas page at www.schwab.com, with Vice President of Trading and Derivatives, Randy Frederick, that shrinking the Fed balance sheet is a form of policy tightening and we are probably going to hear a lot more about a transition from quantitative easing (QE) to quantitative tightening (QT). Liz Ann addresses the question of why shrink the balance sheet now in her latest article, Gimme Three Steps … and a Stumble?, noting that allowing the balance sheet to shrink gives ammunition back to ease policy when the next recession occurs. But the Fed is navigating uncharted waters in trying to shrink such a gargantuan balance sheet; which is why the process is likely to be very gradual, but also why periods of market volatility could ensue. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann and Randy on Twitter: @lizannsonders and @randyafrederick.

The economic week will conclude with tomorrow's release of the first revision (of two) to Q1 GDP, projected to be adjusted to a 0.9% quarter-over-quarter (q/q) annualized pace of growth, from the initial estimate of a 0.7% rate of expansion. Q1 growth slowed noticeably from Q4's 2.1% expansion, matching the pattern seen in the past 10 years and the Fed is watching data to see evidence this is transitory. Schwab’s Chief Investment Strategist Liz Ann Sonders discusses this phenomenon in her article, ½ Full: Seeing Through a Weak Q1, pointing out that the average GDP growth for the subsequent quarters over the past 10 years has been 1.8%, but hard data has been stubbornly weak relative to soft data.

This sets the stage for tomorrow's preliminary April durable goods report, giving some hard data for the markets to look at post Q1. The volatile headline figure is expected to show a 1.5% drop m/m, after March's 1.7% gain, while excluding transportation, orders are projected to rise 0.4% after increasing 0.8% in March. Nondefense capital goods orders excluding aircraft—a gauge of business spending—will likely be highly scrutinized, forecasted to increase 0.5% for a second-straight month to cap off four-consecutive monthly increases. This figure is part of the Conference Board's Index of Leading Economic Indicators, which Liz Ann points out in her article remains quite healthy, solidifying our view that we likely just experiencing yet another "soft patch" in an ongoing expansion. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Europe dips as oil drops, Asia mostly higher after Fed minutes

European equities finished modestly lower, with oil & gas issues seeing some pressure as crude oil prices fell in the wake of the highly-expected extension of OPEC production cuts by nine months. Crude oil prices gave back a recent rally that came in anticipation of the OPEC production cut extension, with some apparent disappointment that more was not announced to fight the global supply glut that has kept crude oil prices depressed. The global markets reacted to yesterday's Fed May meeting minutes out of the U.S. The report appeared to foster some relative dovish takeaways as it suggested that after June's highly-expected rate hike, the Central Bank may wait until it sees evidence the recent soft economic patch was transitory before raising rates further. In economic news, U.K. Q1 GDP growth was revised lower to a 0.2% q/q pace of expansion, from a previously-estimated rise of 0.3%, where it was expected to remain. The growth was a deceleration from the 0.7% expansion posted in Q4. The euro was little changed and the British pound dipped versus the U.S. dollar, while bond yields in the region mostly moved to the downside.

Political uncertainty remained, as U.K. Brexit negotiations continue, while elections loom for the U.K., Germany and Italy later this year, and U.S. President Trump continued his first overseas trip in Europe today. For analysis, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com, as well as Jeff's article, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop. Volume was lighter today as a few markets in the region, including Switzerland, were closed for a holiday.

Stocks in Asia finished mostly higher, on the heels of the extended winning streak in the U.S. yesterday, while the markets awaited the highly-expected OPEC decision to extend production cuts. Also, yesterday's May meeting minutes from the Fed in the U.S. were eyed, showing a June hike was likely, but the pace thereafter may be in question, while the Central Bank discussed how to begin unwinding its huge balance sheet. Japanese equities gained ground, overcoming early losses that stemmed from some firming of the yen after the Fed minutes, aided by some optimism regarding corporate earnings in the nation. Shares trading in mainland China and Hong Kong advanced, continuing to shrug off yesterday's credit downgrade of the nation by Moody's, with financials showing some strength. South Korean stocks moved nicely higher amid the global market advance as the Bank of Korea kept its benchmark interest rate unchanged as expected. Australian securities rose, buoyed by strength in basic materials and oil & gas issues, while Indian listings jumped back to record highs, amid a rally in industrial equipment makers. Schwab's Director of International Research, Michelle Gibley CFA, offers some timely commentary of the global markets in her latest article, Different Drivers: Why Emerging Market Stocks Aren't All the Same on the Insights & Ideas page at www.schwab.com.

Tomorrow, the international economic docket will again be light, offering CPI from Japan and consumer confidence from South Korea and Italy.

Financial Review

Take 63

Sinclair Noe — April 4, 2017

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

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DOW + 39 = 20,689
SPX + 1 = 2360
NAS + 3 = 5898
RUT – 1 = 1368
10 Y + .01 = 2.36%
OIL + .94 = 51.18
GOLD + 2.70 = 1256.70

The U.S. trade deficit fell in February as exports increased to a two-year high and slowing domestic demand weighed on imports. The Commerce Department reports the trade deficit declined 9.6 percent to $43.6 billion. Some of the decline in imports in February likely reflects slower consumer spending.

Trade will probably be either neutral or impose a small drag on gross domestic product in the first quarter after subtracting 1.8 percentage points from fourth-quarter growth. In addition to trade, weak consumer spending also likely constrained the economy in the first three months of the year. The Atlanta Federal Reserve is forecasting GDP rising at a 1.2 percent rate in the first quarter, a deceleration from the 2.1 percent pace logged in the fourth quarter.

In a separate report, Factory orders rose 1% in February for the seventh increase in eight months, a sign of the rebounding fortunes of the manufacturing industry.

The U.S.-China trade deficit dropped 26.6 percent to $23.0 billion in February. The decline in the U.S.-China trade deficit comes ahead of Chinese President Xi Jinping’s visit later this week. President Trump has declared China the “grand champions” of currency manipulation. Trade relations with China are further complicated by growing tensions with North Korea.

The outcome of their talks could have longstanding ramifications for two of the world’s most important currencies. The valuation of a given currency can make stocks and bonds denominated in that currency attractive to foreign investors. Cheaper currencies can help to boost stocks by making companies’ goods more competitive on the global market.

President Trump vowed  today to cut red tape to speed up approval of infrastructure projects and said his overhaul could top $1 trillion on roads, tunnels and bridges, one of his 2016 election campaign promises. Trump did not provide further details on the amount or where the money would come from when he spoke to a White House meeting of 50 chief executives and other business leaders.

U.S. Transportation Secretary Elaine Chao said at the forum that the administration plans to release a legislative package in May. The administration wants to improve the electrical grid and water systems, rebuild airports, bridges, roads and potentially hospitals for military veterans and broadband. National Economic Council director Gary Cohn told executives that privatizing air traffic control, which the administration proposed in its budget outline in March, “is probably the single most exciting thing we can do.”

The Washington Post reported this morning that the White House is looking at the possibilities of creating a carbon tax and a value-added tax as part of tax reform. The Post’s report cites administration officials and “one other person briefed on the process.” Administration officials told the Post that no final decisions have been made about whether a value-added tax or a carbon tax would be included in a tax-reform plan.

Trump will need to come up with ways to raise revenue if he wants to lower tax rates without adding to the deficit. House Republicans have proposed raising revenue through a tax on imports known as border adjustment, but that proposal is opposed by several GOP senators.

Value-added taxes are a type of consumption tax, while carbon taxes would be imposed on the manufacturing of some types of fuel. Later in the day, the White House issued a statement saying, “As of now, neither a carbon tax nor a VAT are under consideration.” One thing is certain though, tax reform will not be easy.

Take 63. There is a new plan to repeal and replace Obamacare. Vice President Mike Pence and two top White House officials made an offer in a closed-door meeting with members of the House Freedom Caucus.

The proposal under discussion  would allow states to opt out of two key Affordable Care Act provisions: essential health benefits, which require insurers to cover certain services, and community rating, which bars carriers from charging consumers based on their medical history or gender. Eliminating these federal requirements could wipe out the safeguards requiring insurance companies to offer insurance to people with pre-existing conditions – one of the most popular provisions of the Affordable Care Act.

The benchmark 10-year Treasury yield fell Tuesday to as low as 2.31 percent, within a basis point of its 2017 low. The level to watch now is the Feb. 24th low at 2.308%. Anything below this pivot, even on an intraday basis, signals that a meaningful top was put in at the March high. And if support falters, the next support is 2.13%.

For all the talk of consumer confidence, it isn’t translating to sales at brick and mortar stores. Retail is the worst performing sector so far, this year. Today, Ralph Lauren said it was shutting its flagship Fifth Avenue store in New York and cutting jobs; Urban Outfitters announced a decline in same store sales; Citigroup downgraded L Brands; First Data Corp., the payments processor, said point-of-sales data for department stores slumped 10.9 percent in March.

Payless ShoeSource is the latest retailer to file for Chapter 11 bankruptcy protection. Payless will close nearly 400 stores as it attempts to boost its balance sheet and restructure its debt load. Payless has 4,400 stores in 30 countries and employs nearly 22,000 people. It was bought in 2012 by private equity firms Golden Gate Capital and Blum Capital partners.

Federal Reserve Bank of Richmond President Jeffrey Lacker said he’s resigning immediately and he regrets his role in disclosing confidential information related to the U.S. central bank’s deliberations in 2012 in an interview with an analyst from Medley. That info, dealing with the Fed’s planned purchase of mortgage securities, was published by the analyst; followed by various investigations over the years, leading to today’s resignation. In a statement emailed by his lawyer, Lacker wrote: “In 2012, my conduct was inconsistent with those important confidentiality policies.”

JPMorgan Chase CEO Jamie Dimon is out with his annual letter to shareholders, in which he discusses not only the bank’s business outlook but also various current economic and political issues. Dimon said he has high hopes for the U.S. but believes there is “something wrong” with the country as well, writing: “Our problems are significant, and they are not the singular purview of either political party. We need coherent, consistent, comprehensive and coordinated policies that help fix these problems.”

Dimon added: “The solutions are not binary — they are not either/or, and they are not about Democrats or Republicans. They are about facts, analysis, ideas and best practices (including what we can learn from others around the world).”

Dimon noted that the U.S. is “an exceptional country,” but there are numerous areas where the country needs to improve. Among them are low wage growth, high health-care costs and overcrowded prisons. Businesses are overburdened with regulations, the nation’s infrastructure needs help, and the education system “is leaving too many behind,” he added.

Among the other ills: Taxes are making U.S. companies less competitive globally, income disparity is widening, and social mobility is decreasing. “The lack of economic growth and opportunity has led to deep and understandable frustration among so many Americans,” Dimon said. “It is understandable why so many are angry at the leaders of America’s institutions, including businesses, schools and governments — they are right to expect us to do a better job.”

Dimon listed 11self-inflicted problems for the economy: excessive regulation, high spending on wars, student loan growth, high health care costs, high-skilled immigrants leaving the US, felony convictions leaving millions with criminal records, a tight mortgage market, the labor force participation rate is too low, education leaves too many behind, the need to invest in infrastructure, and a flawed corporate tax system.

On other issues; Dimon said he’s concerned the U.K.’s departure from the European Union might trigger political unrest throughout the region that could split the currency union, resulting in “devastating economic and political effects.” Dimon devoted more than a third of his letter to deregulation.

Dimon asserted that the Dodd-Frank Act effectively ended the possibility of government bailouts for “too big to fail” banks. He also called for modifying the Financial Stability Oversight Council — the panel of regulators created by the Dodd-Frank Act, however he did not call for repeal of Dodd-Frank.

Separately, JPMorgan said in its annual report that it expects $49 billion of net interest income this year, up from about $46 billion in 2016, assuming additional loan growth and no changes in interest rates. Average core loan growth will be about 10 percent, and loan write-offs will remain close to historically low levels.

In what appears to be a reference to Warren Buffett, Dimon talked about the “secret sauce” that powers the American economy: trust. In the past, Buffett has also talked about the “secret sauce”. Dimon wrote: “A strong and vibrant private sector (including big companies) is good for the average American. Entrepreneurship and free enterprise, with strong ethics and high standards, are worth rooting for, not attacking.”

Dimon is right, trust is important, but it can’t be cajoled or demanded. It must be earned.

Wells Fargo has been ordered to reinstate a former bank manager who was fired after reporting suspected illegal behavior to his superiors and a company hotline. The manager, who wasn’t identified, was dismissed in 2010 after reporting on incidents of suspected bank, mail and wire fraud by two bankers in the Los Angeles area.

Wells Fargo was also ordered to give the whistle-blower about $5.4 million in back pay, compensatory damages and legal fees after OSHA determined his warnings were at least a contributing factor in the termination.

Wells Fargo said they would immediately issue a check along with thanks to the whistle-blower for alerting them to the problems. No, just kidding about that last part – Wells Fargo said they would appeal the order.

Financial Review

Trumpcare

Sinclair Noe — March 7, 2017

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

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DOW – 29 = 20,924
SPX – 6 = 2368
NAS – 15 = 5833
RUT – 9 = 1374
10 Y + .02 = 2.51%
OIL – .16 = 53.04
GOLD – 9.70 = 1216.40

Healthcare stocks were in focus today after the GOP unveiled its Obamacare replacement bill, called the American Health Care Act. The bill rolls back the Medicaid expansion and eliminates the individual mandate, which requires everyone to buy health insurance.

Under the ACA, tax credits were provided to 85% of people enrolled in the exchanges, and the amount of the subsidy was determined based on income level, geographic region, and age. The amount of the tax credit in the House bill is based exclusively on age: The older you are, the more you get per month (though still less than you would get under the ACA).

A report from the non-profit Kaiser Family Foundation found that older Americans will receive significantly less help paying for their premiums, as will the poorest young Americans. Americans earning $40,000 to $75,000, on the other hand, are the winners—their subsidies will increase. The proposal would  kill a 3.8% investment tax on the wealthy that had used to finance the health-care law. It would also kill a 0.9% surcharge on wages above $250,000.

Under the ACA, insurers could not discriminate against people with pre-existing conditions like cancer, diabetes, or heart disease. The new plan does away with coverage for pre-existing conditions and institutes a continuous coverage provision.

People who have lapses in insurance cannot be denied coverage, but they can be charged more. Enrollees cannot have gone 63 continuous days (or more) without coverage, or they would pay a 30% penalty on premiums.

Older consumers would pay more for coverage under the GOP plan. The oldest consumers on the individual market are 64, just shy of the Medicare eligibility age of 65, and under the Affordable Care Act they can be charged no more than 3 times what a 21-year-old would pay. The GOP plan would broaden the age bands, as these rate limits are called, to 5 to 1, allowing insurers to charge the oldest consumers five times more than younger ones.

What’s more, the proposal would give the states the latitude to broaden those limits even further or to constrict them back to 3 to 1 or another level. Moving to a 5-to-1 rating would increase monthly premiums for a silver plan in 2018 by 25% for a 64-year-old before tax credits.

Older consumers would get hit with a double whammy: not only may their premiums increase, but the restructured tax credits won’t go as far as those under the Affordable Care Act in subsidizing the premium cost. The new tax credits are based on age, not on income, while many of the consumers on the individual market are lower income.

The new tax credits would also rise at a slower rate than under the Affordable Care Act, where credits were pegged to the cost of the second-lowest cost silver plan in the consumer’s region. That benchmark reflects the true market cost of the plan. The new peg, by contrast, is pegged only to a measure of inflation.

The GOP’s plan includes the phase out of the Medicaid expansion. About 10.7 million people were newly eligible for Medicaid coverage after the ACA went into effect. One of the only ways to pay for the GOP’s health subsidies and cut taxes the ACA imposed on the wealthy is to cut off federal Medicaid funding.

States will be allowed to continue to enroll people into Medicaid until 2020. Then, it will “freeze,” and no other enrollees can be added, the thinking being people will eventually drop out of the program as they earn more money; 31 states expanded Medicaid to people above the poverty level under the ACA, and the Republican plan would roll that back, though how has become a major point of argument inside the party.

There are several other components to the bill, including restrictions on funding for Planned Parenthood, plus more generous use of health savings accounts. But the meat and potatoes is that the bill repeals the mandate and replaces it with a 30 percent premium penalty for anyone – healthy or sick – who does not maintain continuous insurance coverage; which sounds kind of like a mandate, and will surely be challenged in the courts.

The tax credits for buying insurance are also altered and reduced, making it more expensive for the old and poor. And major cuts to Medicaid funding which are already running into roadblocks. With Medicaid reductions and smaller tax credits, there is a strong chance that many people would lose their coverage. In other words, the new plan is less of a repeal and more of a revamp or re-branding, absent significant improvements and sustainable solutions.

The proposal has not yet been scored by the Congressional Budget Office, the federal agency that calculates the impact that proposed legislation would have on the debt and other considerations; that means we do not know how it will be paid for and whether it will cost more than ACA.

If all proceeds smoothly, and the votes are lined up, the full House could vote on the bill within two weeks. The votes might not be lining up. The new bill to replace Obamacare is being savaged by early bad reviews from a wide range of conservatives, with one Republican senator declaring it “dead on arrival” in the Senate – if it can make it through the House, and it would take less than two dozen defections among Republicans to sink the repeal effort, assuming Democrats vote as a bloc.

In other words, this could be a long, drawn out process. Just a reminder, Trump has said the repeal and replace of Obamacare needed to take place before moving on to tax reform.

Drug companies were generally lower today, including Endo, Valeant, and Mallinckrodt, which were all down more than 4%. Generics giants Allergan and Mylan were also down as much as 2%.

Losers in the hospital space include Tenet Healthcare, down 4%, and Universal Health Services, down about 2%, and HCA Holdings was down a bit less than 1%.

Biotech stocks were also getting hit, including Juno Therapeutics, Sage Therapeutics, and Intercept Pharmaceuticals, each down as much as 2%. The large health insurance stocks were flat.

The US Citizenship and Immigration Services said it plans to suspend fast-track processing for the H-1B skilled-worker visa program, a move that could slow down the process of hiring foreign workers for US companies.

The US trade deficit shot up in January to a five-year high. The trade deficit rose 9.6% to $48 billion in January from a revised $44 billion in December. The wider deficit was spurred by a 2.3% increase in imports of consumer goods such as cell phones from China and other countries.

The higher cost of oil also boosted the value of US imports. Imports totaled $240 billion in January. US exports, meanwhile, rose a smaller 0.6% to $192 billion. Exports of cars and trucks, oil and soybeans all rose sharply.

Looking further afield, a new report shows the Eurozone economy grew by 1.7% in the fourth quarter. This was in line with expectations and slightly slower than US growth over the same period. However, German industrial orders in January delivered a nasty shock, slumping 7.4%.

In South America, new figures from Brazil show the country continues to grind through its longest recession ever, spanning eight consecutive quarters. Brazil’s economy shrank 3.6% in 2016. That’s just a slight improvement from 2015, when it contracted 3.8%, but still far from good.

Exxon Mobil promised to invest $20 billion over 10 years to build and expand refineries, chemical and liquefied natural gas plants along the Gulf Coast. Chairman and CEO Darren Woods said the work, which would focus on 11 plants in Texas and Louisiana, would create 12,000 permanent jobs and 35,000 construction jobs. Exxon currently has about 71,000 employees. The promised $20 billion, decade-long investment would be roughly equal to Exxon’s total capital spending last year.

The Justice Department is seeking additional information from General Electric and Baker Hughes over their pending merger, extending the waiting period related to the regulatory review until 30 days after the companies comply. GE announced a deal in October to combine its oil and gas business with Baker Hughes, forming one of the industry’s largest oilfield services and equipment companies.

Salesforce announced an artificial intelligence partnership with IBM. As part of the agreement, data from Big Blue’s Watson will be available to Salesforce customers, and the cloud company’s technology will be integrated into IBM’s system for internal use.

Amazon has abandoned its legal battle to protect its Alexa assistant with First Amendment rights – for now. The company filed a motion against a police search warrant in an Arkansas murder case earlier this month, but dropped it after the defendant agreed to hand over the data contained on his Echo speaker. Amazon previously claimed that voice interactions were a “constitutionally protected opinion.”

RadioShack stores are closing again. General Wireless, the joint venture with Sprint that purchased 1,700 stores from the original RadioShack Corp. after it filed for bankruptcy in 2015, apparently hasn’t been able to fix the 96-year-old brand. General Wireless is now preparing its own bankruptcy filing.

Toshiba is spinning-off its core memory chip business and seeking outside investors in it. Potential suitors include Apple, Foxconn, TSMC, Microsoft, Western Digital, Micron, and SK Hynix. Apple could have the edge to win the business, which would allow it to lock in memory technology for its iPhone and other products. Micron and SK Hynix face antitrust issues while Foxconn faces national security issues. The seller values the business at $17-18 billion. Bids are due March 29.

The Oakland Raiders have found a financial partner to back their new proposed stadium in Las Vegas. Bank of America has been secured to help complete financing on a $1.9 billion, 65,000-seat stadium that would be located on the Las Vegas Strip.

The state of Nevada has committed $750 million to the project, with the team and the league paying the remaining cost contingent on the owners’ approval. The Raiders are eligible for relocation, but 24 of the 32 NFL owners must approve any move. The league’s owners are set to meet in Phoenix later this month.

Financial Review

The Streak Ends

Sinclair Noe — February 28, 2017

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

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DOW – 25 = 20,812
SPX – 6 = 2362
NAS – 36 = 5825
RUT – 21 = 1386
10 Y – .01 – 2.36%
OIL – .13 = 53.92
GOLD – 4.30 = 1248.80

After 12 straight record high closes, the Dow Industrials finally posted a losing session. No milk and cookies today. It was the best run of record highs since 1987.

After topping out at 103.82 on January 3, the US dollar has weakened against a basket of its peers, pulling back into the 100 area. Dollar weakness is good news for the multinationals that dominate the S&P 500. Stocks rallied right after the election, bonds sold off for roughly the same reasons.

Yields on the benchmark 10-year Treasury note rose to a high of 2.64% in the middle of December (yields move opposite to prices) – reflecting expectations for faster growth, but in the past month buyers returned to bonds, pushing yields down as low as 2.32% and today finishing at 2.36%.

The rally in bonds might be explained by recent headlines that Trump’s proposed stimulus plans will take longer to implement than previously expected and that the stimulus will be less expansionary than first thought. Today, the market paused ahead of President Trump’s address before Congress; and the markets will be looking for specifics with specific timelines.

President Trump speaks to a joint session of Congress tonight, where investors hope for more details on the administration’s plans for tax reform, deregulation and infrastructure spending. The future of the Affordable Care Act could also be a subject, as well as updates on the Border Tax Adjustment.

Trump said he believes the extra $54 billion dollars he has proposed spending on the US military will be offset by a stronger economy as well as cuts in discretionary spending. Still to be answered – what will be cut, and how will the military spend an extra $54 billion, and how will it be accounted for.

Today, Trump signed an executive order that asks new EPA Administrator Scott Pruitt to begin the long process of repealing the Clean Water Rule (also known as the “Waters of the US rule”) and replacing it with… something else. Here’s the catch: Rolling back this rule won’t be easy to do.

By law, Pruitt must go through the years-long federal rulemaking process and replace the Obama-era regulation with his own version – and then defend it in court as legally superior. And, as Pruitt’s about to find out, figuring out which bodies of water deserve protection is a maddeningly complex task that could take years and years.

Gross domestic product increased at a 1.9 percent annual rate, per the Commerce Department’s second estimate for the fourth quarter, confirming the estimate published last month. Output increased at a 3.5 percent rate in the third quarter. The economy grew 1.6 percent for all of 2016, its worst performance since 2011, after expanding 2.6 percent in 2015.

Consumer spending was revised from 2.5 percent to 3.0 percent. Economic data early in the first quarter has been mixed, with retail sales rising in January but home-building and business spending on capital goods easing.

The US trade deficit for goods widened in January, as Americans snapped up consumer goods made abroad. The advance look at the trade deficit widened 7.6% to $69 billion. Imports widened by $4.4 billion while exports fell by $400 million. Imports of consumer goods jumped 4.8% in January and climbed 7.8% over 12 months.

The S&P/Case-Shiller 20-city index rose 5.6% in the three-month period ending in December compared to a year ago, up from a 5.2% annual gain in November. The broader national index rose 5.8% for the year in the December period, the strongest gain in 30 months.

In December, the hottest markets were again in the West. Seattle prices rose 10.8% compared to a year ago. In Phoenix, home prices rose 0.2% in December, and 4.9% compared to a year ago.

The Conference Board’s survey of consumer confidence rose to 114.8 in February from 111.6 in January. That’s the highest level since July 2001. Only 20% of survey respondents said jobs are “hard to get,” that is an 8-year low. In February, the present situation index rose to 133.4 from 130.0. The index measures how Americans feel now. The expectations index that looks six months ahead increased to 102.4 from 99.3 last month.

The Senate has confirmed billionaire investor Wilbur Ross as Commerce secretary, clearing another one of Trump’s economic team members. Ross has agreed to divest from much of his business empire.

Dallas Fed President Rob Kaplan says the financial market is pricing in the probability of an interest-rate hike by the Federal Reserve in either March, May or June and that is “likely in the neighborhood of where we are heading.” Kaplan said, “I don’t think the exact timing is the most important thing. I think the path of rates is.”

Kaplan, who is a rate-policy voter this year, said the economy is making good progress toward the Fed’s goals of full employment and a stable 2% rate of inflation. Meanwhile, Philadelphia Fed President Patrick Harker, another rate-policy voter said today, “I see three hikes as appropriate for 2017, assuming things stay on track.”

Well, if the Fed does raise rates in 2 weeks, we have been warned. Those comments helped push the 2-year yield to its highest since December. Interest rate futures implied traders saw a nearly 57 percent chance the Fed will raise rates at its next meeting on March 14-15, up from roughly 31 percent late on Monday, per Reuters data.

Morgan Stanley gave some wealth management clients incorrect tax information that caused some to underpay and others to overpay. The bank is setting aside $70 million to cover the costs and is in discussions with the IRS over the errors that occurred in tax years 2011 through 2016.

South Korean authorities have formally charged the heir of Samsung – Jay Y. Lee – with bribery and embezzlement in the corruption scandal that has rocked the country’s political establishment. Samsung Electronics President Park Sang-Jin has also resigned, as well as Vice Chair Choi Gee-Sung.

YouTube viewers worldwide are now watching more than 1 billion hours of videos a day, threatening to eclipse US television viewership, which is estimated at 1.25 billion hours. YouTube surpassed the figure, which represents a 10-fold increase since 2012, late last year. By comparison, Facebook and Netflix, as of January 2016, counted 100 million and 116 million hours of daily video views, respectively.

It goes to show… Comcast has announced a deal that will allow customers with the latest gear to search for and watch YouTube videos through their cable boxes. The deal follows a similar tie-up with Netflix unveiled last July. YouTube apps are available through many smart TVs and internet-connected boxes like Roku, but those don’t allow for an integrated search across traditional TV networks and Netflix.

YouTube is getting ready to take on traditional cable companies, today unveiling Unplugged, a live TV service streamed over the internet. Unplugged will be similar to Dish’s Sling TV and AT&T’s DirecTV Now, allowing you to subscribe to a so-called “skinny bundle” of popular pay TV channels at a cost of around $30 to $40 per month.

A large swath of the internet went down today when Amazon’s cloud-based Simple Storage Service, or S3, went offline. Amazon’s service provides website and image hosting and storage capabilities for a variety of companies including Imgur, Dropbox, Slack, Snapchat’s Bitmoji, parts of Amazon itself and a slew of others.

UBS published a research report on Apple, writing: “the company may have over 1,000 engineers working on a project in Israel that could be related to AR [augmented reality]. Augmented reality is an area where Apple could leapfrog competition in providing a superior user experience. This could result in sustained iPhone retention rates and more switchers.”

However, if you really want the skinny on Apple, they were holding their annual shareholder meeting today, and Apple CEO Tim Cook predicts tons of revenue from “future stuff I can’t talk about.”

Target forecast a drop in full-year sales at established stores and reported a steeper-than-expected fall in holiday-quarter sales due to “unexpected softness” at its stores. Target’s net sales have now declined for six quarters in a row as shoppers increasingly gravitate to online retailers. Target said it expects sales at stores open for at least a year to decline in the low-single digit percentage range, and they cut earnings guidance 16% to 24%.  Target shares down about 13% at a 2-year low.

Valeant Pharmaceuticals  posted better-than-expected earnings and revenue for the fourth quarter as it cut costs and saw strength in its Bausch & Lomb eye care business. However, revenue fell 13% from a year ago. The company has been struggling to regain investor confidence after it came under investigation over its accounting and drug pricing practices last year.

Priceline Group hit a 52-week high after reporting a beat on both its top and bottom lines for the fourth quarter. Revenue was up 17% thanks to a jump in hotel reservations.

Saudi Aramco will buy a 50% equity stake in Malaysian firm Petronas’ major refining and petrochemical project for $7 billion. The deal will boost Aramco’s downstream business ahead of a planned initial public offering next year.

OneWeb Ltd, a US satellite startup backed by Japan’s SoftBank Group, and debt-laden satellite operator Intelsat SA agreed to merge in a share-for-share deal.  SoftBank will buy voting and non-voting shares in the combined company for $1.7 billion in cash.

Starbucks will locate one of its ultra-luxurious coffee “roasteries” in Milan, Italy, marking the chain’s first entry into the Italian coffee market where founder and CEO Howard Schultz originally drew inspiration for the company. Starbucks plans to open 20 to 30 Roastery locations worldwide, where customers are treated to personalized small-batch brews of Starbucks Reserve coffee.