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Rainbows over Canyonlands - Dave Stoker

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Friday, March 31, 2017

1Q in the Can

Financial Review

1Q in the Can

DOW – 65 = 20,663
SPX – 5 = 2362
NAS – 2 = 5911
RUT + 3 = 1385
10 Y – .02 = 2.40%
OIL + .40 = 50.75
GOLD + 6.70 = 1250.20

The Dow Industrial Average posted a 4.9% gain since the start of the year, its sixth straight quarterly gain, its longest streak since 2006. Over the past 6 quarters, the Dow is up 30%.

Apple and Boeing were the biggest gainers in the Dow for the first quarter – those 2 stocks accounted for more than one-third of the Dow’s gain for the quarter. Rounding out the Top 5: 3M, Home Depot, and Visa. The big Dow losers were Chevron and Goldman Sachs.

The S&P 500 gained 5.5% in first quarter, best since 2015.

The Nasdaq Composite has registered 29 all-time closing highs since November. The Nasdaq has gained about 530 points in the first 3 months of the year – about a 10% gain, the strongest quarter since the fourth quarter of 2013.

It has been a solid quarter but tame, almost quiet. On average, the S&P 500 and the Dow are on track to average an 0.3% daily gain during the first quarter, the smallest average daily move since the mid- to late-1960s, per Dow Jones data.

Despite those moves, or perhaps because of them, some investors seem more hazy than usual about the direction the market takes from here, especially since by at least one measure stocks are trading at their most expensive levels since 2004.  Momentum seems to be cooling, at least slightly in March, with the Dow down 0.7%, the S&P flat, and the Nasdaq up 1.4%.

European stocks have also enjoyed a strong first quarter, with the Stoxx Europe 600 posting a 5.5% gain, its biggest quarterly advance since March 2015, and the third quarter of gains.

A 3-day oil rally ran out of steam. Oil started the year at $53.92 a barrel and traded flat through the first 2 months. For the first quarter and the month, oil is down 5.8%.  But this past week saw the biggest weekly gains of the year. This would indicate that oil is trading in a range, with resistance around $54.

The personal consumption expenditures (PCE) price index gained 0.1 percent last month after jumping 0.4 percent in January. That lifted the year-on-year rate of increase in the PCE price index to 2.1 percent, the biggest gain since April 2012.

The Fed has long targeted 2% inflation. However, the Fed tends to prefer the core PCE, which strips out volatile food and energy; and the core PCE price index increased 0.2 percent last month after rising 0.3 percent in January.

In the 12 months through February, the core PCE price index increased 1.8 percent after a similar gain in January. Still, today’s report shows inflation is gathering momentum and is close enough to target for the Fed to continue with rate hikes in June.

The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1 percent. That was the smallest gain since August and followed an unrevised 0.2 percent rise in January.

Rising price pressures are also eating into consumer spending. When adjusted for inflation, consumer spending fell 0.1 percent in February after declining 0.2 percent in January. That was the first back-to-back monthly decline in real consumer spending since April 2009.

Personal income rose 0.4 percent last month after advancing 0.5 percent in January. Wages increased 0.5 percent, the biggest gain in five months.

Americans spent more on drugs, health care and travel, but less on new cars and utilities during the second warmest February in 123 years. The slowdown in spending for the second straight month — abetted by tardier than usual tax refunds — is another chink in official scorecard for the economy, or gross domestic product.

The University of Michigan’s final reading of sentiment in March came in at 96.9, better than February’s 96.3 reading and near the strongest level for the measure in decades. This followed Tuesday’s report from The Conference Board, which by its measure had consumer confidence at its best level since 2000.

Richard Curtin, chief economist for the U of M survey said, “The continued strength in consumer sentiment has been due to optimistic views on three critical components: higher incomes and wealth, more favorable job prospects, and low inflation expectations.” A long-standing partisan divide in the sentiment survey widened after the election.

Comcast, Verizon and AT&T said today they would not sell customers’ individual internet browsing information, even after Congress approved legislation earlier this week to gut internet privacy rules. The bill would repeal regulations adopted in October by the Federal Communications Commission requiring internet service providers to do more to protect customers’ privacy than websites like Alphabet, Google or Facebook.

But customer blow back has been intense. Social media opposition to the repeal included the release of campaign contributions from telecom companies to politicians, plus crowdfunding campaigns to buy and publish the browsing history of politicians who voted for the repeal.

An even bigger internet battle could be in the works. Net neutrality has been the premier issue of internet policy wonks for years. Broadly speaking, it refers to regulations keeping internet providers from treating traffic differently based on its source. So, with net neutrality in place, Comcast Corp. couldn’t tell Netflix Inc. that the streaming provider will have to pay to keep its videos from slowing down.

In 2015, the FCC pushed through the most stringent net neutrality rules to date. this week’s legislation on the privacy rules is a precursor to arguments that the FCC shouldn’t regulate internet service providers at all. Net neutrality protections aren’t dead yet, but they’re effectively dormant.

The FCC is unlikely to open any new net neutrality investigations. And legislation could be introduced over the summer. But the pro net neutrality crowd believe they have a good populist issue to work with, as the fierce reaction to the privacy rules showed.

Airbus and Boeing both debuted new airliners this morning. The Boeing 787-10 took off for the first time from the company’s North Charleston, South Carolina, facility for a four-hour test flight. The Airbus A319neo also made its maiden test flight from the company’s factory in Hamburg, Germany, to its headquarters in France.

The newest 787 is the largest member of Boeing’s state-of-the-art Dreamliner family with room for 330 passengers in a two-class layout. With a range of 7,400 miles, the 787-10 is designed to make ultra-long-haul flights while delivering 25% better fuel economy than existing airliners of its size. Currently, Boeing has taken 149 orders for aircraft which carries a list price of $312.8 million per plane.

The Airbus A319neo is the smallest member of Airbus’ next generation neo or new engine option series of airliners. The A319neo has room for up to 160 passengers and is designed for short or medium range flights. Airbus has 55 orders for the $99.5 million jet. Its largest customers are Frontier Airlines and Colombia’s Avianca. Earlier this week, Embraer’s new E195-E2 airliner also made its maiden flight in Brazil.

SpaceX just made history by launching the same rocket into orbital space for a second time. Traditionally, rockets have been used just once, and are left to burn up in the atmosphere after a mission. But SpaceX has been working for years to change that and lower the cost of spaceflight.

Reusing pieces of spacecraft is the cornerstone of SpaceX’s business plan. Thursday’s launch marked a huge step toward that goal. It proved not only that the first stage of SpaceX’s $62 million Falcon 9 rocket can be re-launched to orbit, but that it can be successfully recovered a second time. (SpaceX says the first-stage rocket is by far the most expensive part of the rocket, accounting for about 70% of the overall cost.)

The rocket also made history the two times it landed on a platform — called a droneship — about the size of a football field in the middle of the Atlantic Ocean.

Late yesterday, firefighters were called to a fire burning along the I-85 highway in Atlanta. The fire was burning near an elevated portion of the highway, close to downtown Atlanta. Traffic was detoured. And then something strange happened – the highway collapsed. North and south-bound lanes, 5 lanes in each direction were damaged and are closed, possibly for several weeks or even months.

Three sections of northbound I-85 — including the section that collapsed — and three sections of southbound I-85 will have to be replaced. That’s 350 feet of highway – about the length of a football field – in each direction. The I-85 is one of the busiest highways in the country; the section that collapsed typically carries 220,000 cars per day.

In today’s edition of Banks Behaving Badly: Swiss bank Credit Suisse has been dragged into yet more tax evasion and money laundering investigations, after a tip-off to Dutch prosecutors about 55,000 suspect accounts triggered raids in five countries.

Coordinated raids began on Thursday in the Netherlands, Britain, Germany, France and Australia, resulted in at least 2 arrests. Dutch prosecutors said they are “investigating dozens of people who are suspected of tax fraud and money laundering”, adding that suspects had deposited money in a Swiss bank without disclosing that to authorities.

British tax authorities said they had opened a criminal investigation into suspected tax evasion and money laundering by “a global financial institution” and would be focusing initially on “senior employees”, along with an unspecified number of customers.

Credit Suisse has paid more than $2 billion since 2011 in the United States, Germany and Italy to settle allegations it helped clients dodge taxes. So, Credit Suisse apparently did not learn their lesson. Or after a while, you might just conclude that this is their business model.

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