Morning in Arizona

Morning in Arizona
Rainbows over Canyonlands - Dave Stoker

The Headline Animator

Wednesday, March 01, 2017


Financial Review


DOW + 303 = 21,115
SPX + 32 = 2395
NAS + 78 = 5904
RUT + 26 = 1413
10 Y + .11 = 2.46%
OIL – .34 = 53.67
GOLD + 1.20 = 1249.00

The Dow industrials hit 21,000 this morning, and just kept running. The Dow closed at 20,000 just about 35 trading days ago, marking a then-second-fastest push (42 days) to a 1,000-point milestone.

So, for all those people who ponied up for a Dow 20K cap or T-shirt, it is now obsolete.

There is no question that the market has been in rally mode, but the consensus was that the market was overvalued and would likely sell off following President Trumps speech last night. Trump delivered his first address before a joint session of Congress.

Most of the policies were old favorites from the campaign. He still wants to repeal Obamacare. He still wants a border wall, although conspicuously absent was his call for Mexico to pay for it. He still wants to slash corporate tax rates. He still doesn’t think allies are shouldering enough of the cost of security alliances.

The speech was short on specifics but it was delivered in a presidential manner. And contrary to the consensus – the market did not sell off. It gapped up about 200 points, and then we started to see a short squeeze; traders who had bet on a sell-off were forced to cover their positions, and that pushed prices higher.

Algorithmic trading then pushed prices higher. Salt on the wound. This is not a Trump rally today; he said nothing new; he did not provide any details; he seemed to dump it over into the laps of Congress without even offering an instruction manual. Good luck with that.

Now, when we consider that the rally since the election has been parabolic, orderly as in 56 straight days without a move of more than 1%, but parabolic nonetheless, you should think that a 303-point short squeeze is a setup for a sell-off, but now the shorts are a little trigger shy. Just sayin.

Or maybe Wall Street is no longer interested in detail and logic and we are now living in a post-factual trading world. Meanwhile, it was just a bloodbath in bonds today.

Financials were the big winners on the day, up over 3%, as it looks more likely the Fed will raise rates sooner rather than later.  San Francisco’s John Williams said yesterday that an interest hike will be under “serious consideration” in March, while New York’s William Dudley feels the case for tightening “has become a lot more compelling.”

But the case for a rate increase is not unanimous – St. Louis Fed President James Bullard on Tuesday said the U.S. central bank could afford to be patient on interest rate hikes.

The Fed FOMC meets to determine monetary policy in 2 weeks, so today they published the Beige Book, which is an anecdotal look at the economy from the 12 Fed Districts. Overall, the economy continued to pick up steam in February, with all districts reporting “modest to moderate” growth.

However, business optimism cooled a bit amid opposition to President Donald Trump’s border-tax proposal from several industries. Manufacturers around Dallas said customers were taking a “wait and see” approach to the Trump White House. Only a “few” districts reported rising wages.

Regarding inflation, a third of districts say earlier price gains have “largely leveled off.” Consumer spending expanded modestly since the last report mid-January. Retail sales increased at a subdued pace across most of the nation, with many Districts noting an ongoing shift from in-store to internet purchasing.

The personal consumption expenditures price index, or PCE, which is the Fed’s preferred gauge of inflation, jumped 0.4% in January, pushing the increase over the last 12 months to 1.9% from 1.6% in December. The rate of inflation is the highest in 4 years and is now close to the Fed’s 2% long-term target, and if it keeps moving higher, the central bank could raise interest rates more aggressively.

The rise in inflation over the last year has largely been linked to a rebound in the cost of oil, though the price of staples such as rent and medical have also increased. Another PCE index that strips out food and energy has been more stable. The core PCE index, which rose 0.3% in January, has stuck to a narrow range of 1.6% to 1.7% for the past 13 months.

Personal spending missed, but personal income beat. For the month of January, personal income rose by 0.4% and personal spending came in at 0.2%. Economists had forecast that both personal income and spending would rise by 0.3%. The savings rate was little changed at 5.5%.

Consumers, for their part, are still spending at levels that propel the economy forward even as higher inflation eats into their earnings. Although they are spending more to fill up their gas tanks, they are also buying more cars and trucks and other consumer goods.

The Institute for Supply Management’s manufacturing index jumped 1.7% to 57.7%. Any reading above 50% indicates improving conditions. The components were very strong: the new-orders index rose 4.7 points to 65.1% and the production index added 1.5 points to 62.9%, though the employment index slipped 1.9 points to 54.2%. Prices cooled off a bit but were still strong, down 1 point to 68%.

YouTube has unveiled a web-TV service that will offer a package of over 40 broadcast and cable channels for $35 a month, making the tech giant the latest entrant in a race to win over millions of consumers who are shifting away from traditional TV. The new service, dubbed YouTube TV, is set to launch in the next few months.

Fidelity blew up the online brokerage sector yesterday after cutting stock and ETF trading commissions to $4.95 from $7.95, following Schwab, which slashed its commissions to $6.95 from $8.95 in early February. Hit hardest was TD Ameritrade, which tumbled 10.5%, and immediately announced a cut in its commissions to $6.95 from $9.99.

Best Buy forecast first-quarter profit that trailed analysts’ estimates. Best Buy will try to turn things around by expanding its online business, and providing customers with services.

Wells Fargo had previously estimated that up to 2.1 million customers may have had checking and credit-card accounts opened in their names without authorization over a period of several years. Today, Wells Fargo filed 10-Ks, official regulatory filings and the actual number is higher – how much higher, we don’t know and apparently Wells Fargo doesn’t know for sure. We only know they soft pedaled the initial estimates.

According to JPMorgan’s Investor Day presentation, not only did the bank not have a single losing day in all of 2016, but JPMorgan’s trading desk also had zero daily losses in 2014 and 2013. It did, however, lose money on two days in 2015. JPM generated on average $80 million in daily trading revenues in 2016, up from $70 million the year before.

Now you might be wondering how it is possible to trade daily, big sums, and only have 2 down days in 4 years. How is that possible? And that’s a great question. It’s almost like they know how the trade will turn out before they make the trade. It’s almost like they have a secret weapon or some insider knowledge that no one else has……

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