Financial Review

Debasement

Sinclair Noe — October 24, 2017

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

Subscribe: Android | RSS

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

Cryptocurrency

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

Top Cryptocurrencies

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

Another record high close for the Dow Industrial Average.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Dow Rallies on Earnings

Charles Schwab: On the Market

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

Dow Rallies on Earnings 

 

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

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

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

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

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

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

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

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

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

Business activity reports show expansion stronger than expected

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

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

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

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

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

Europe mostly higher, Asia mixed

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

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

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

Financial Review

Close But No Cookies

Sinclair Noe — July 25, 2017

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

Subscribe: iTunes | Android | RSS

DOW + 100 = 21,613
SPX + 7 = 2477 (record)
NAS + 1 = 6412 (record)
RUT + 12 = 1450 (record)
10 Y + .07 = 2.33%
OIL + .61 = 48.50
GOLD – 5.40 = 1250.60
BITCOIN – 1.70% = 2547.12 USD
ETHEREUM – 2.57% = 201.76

The S&P 500 index, the Nasdaq Composite and the Russell 2000 all closed at record highs. The Dow is close but no cookies.

It is earnings season and there were plenty of good earnings and a few bad. 3M marked its sharpest-ever drop on a dollar-basis, off $11.43, or down 5.4%, cutting about 80 points from the price-weighted Dow. 3M’s share slide came after disappointing earnings.

The Post-it Notes-and-Scotch tape maker’s share decline, however, was more than offset by a tandem of firm rallies in McDonald’s and Caterpillar which reported second-quarter results that outstripped Street estimates. A drop in Google parent, Alphabet, weighed on the Nasdaq Composite, but the Nasdaq still managed to eke out a record high.

Before we dig into earnings news, there was a lot going on today. The Senate voted on healthcare legislation, in a way. Senate Republicans narrowly agreed to open debate on a bill to end Obamacare, but efforts to repeal or repeal and replace the law still face significant hurdles. Senator John McCain, who was diagnosed this month with brain cancer and has been recovering from surgery at home in Arizona, made a dramatic return to the Capitol to cast a crucial vote in favor of proceeding.

McCain received a standing ovation as he entered the chamber. The Senate vote was deadlocked at 50-50 and Vice President Mike Pence cast the deciding vote. Despite the successful procedural vote, there is no obvious path for any of the GOP’s various proposals to pass out of the Senate in the coming days.

Republicans who voted yes to begin debate warned that they still planned to oppose final passage if the amended legislation was not to their liking. The Senate will now move to an amendment process, but if none of the ensuing proposals can get 50 Republican votes, the party will be stuck again. The Better Care Reconciliation Act has already drawn public opposition from at least four Republicans.

In a speech on the Senate floor, McCain criticized both the underlying proposal and the secretive, partisan process Majority leader Mitch McConnell used to write it. McCain said he would not vote for the bill as it is today. He said the proposal must include changes demanded by Arizona’s governor, Doug Ducey, to win his vote.

The Senate’s next step is to vote on a full repeal of Obamacare – which will probably fail without a proposed bill to replace it. Then it will try an amended version of the Better Care Reconciliation Act, the latest Senate proposal; this will also likely fail since it hasn’t yet been scored by the Congressional Budget Office and thus needs 60 votes to pass rather than just 51.

Then we might be looking at a skinny repeal – a more limited repeal that only gets rid of Obamacare’s insurance mandates and some of its taxes, without eliminating Obamacare’s expansion of Medicaid. However, eliminating the mandates would result in much, much higher premiums for everybody who doesn’t opt out.

Today’s vote means there will be various amendments offered and there will be votes on the amendments, until the Senate can agree on something that seems to be a complete piece of legislation and then there will be a vote on that, maybe by the end of the week, if there is enough support. That means the next few days are going to be a whirlwind.

President Trump says they’ll come up with something really, really wonderful. At this point I’m just hoping I can get coverage for confusion.

The Conference Board said its consumer confidence index rose to 121.1 this month from 117.3 in June. The confidence index is now at its second highest level in 16 years. A big reason is the creation of millions of jobs since 2010 that’s driven the unemployment rate down to as low as 4.3%. That’s the lowest level since the turn of the century.

The difference between those who say jobs are “plentiful” (34.1%) and those who say jobs are “hard to get” (18%) was 16.1 points. Based on that measure, the last time the labor market was just as good was in August 2001.

A “present” situation index that tracks how consumers view the economy now rose to 147.8. That’s the highest level since mid-2001. A future expectations index that tracks how consumers think the economy will perform six months from now increased to 103.3.

Sales of existing homes continued to show solid growth. The S&P/Case-Shiller 20-city index rose 5.7% in the three-month period ending in May compared to a year ago, down from 5.8% in the prior period. The broader national index rose 5.6% for the year in May, the same as in April. Phoenix was right in line – posting 0.6% growth in resale home prices in May, and 5.7% in the 12 months through May.

Meanwhile, oil prices continue to rally. Saudi Arabia said at a meeting in Russia that it would cut August exports to 6.6 million barrels a day—a million barrels less than a year earlier. Separately, Nigeria, which isn’t part of the production-cut agreement led by the Organization of the Petroleum Exporting Countries, also promised to limit its daily production to 1.8 million barrels.

Oil traders have taken these developments as bullish for prices, though many do point out that the Saudis normally lower exports at this time of year because of stronger domestic demand for oil, and Nigeria’s output would still have to rise from its current level of just over 1.6 million barrels a day before the West African nation would cap its output.

Meanwhile, Halliburton forecast a flat rig count in the US; that implies a potential slowdown in oil production. Anadarko Petroleum, cut its investment guidance by $300 million for the full year after posting a larger than expected second quarter loss.

Copper is back to its highest levels in 2 years, as base metals extended a rally in the past month brought on, in part, by economists having become more upbeat about China’s economy;  coupled with the fact that a very strong housing market is creating strong demand for the physical copper. Freeport-McMoRan shares jumped 14.7 percent.

It wasn’t a very good day in the bond market, where the benchmark 10-year Treasury note fell the most in a month. A couple of possible reasons: bond investors expect only modest economic growth and inflation that is stuck well below the Fed’s 2 percent target, and bond traders don’t expect the Fed to increase rates anytime soon – as in maybe December, maybe next year – certainly not tomorrow.

The Federal Open Market Committee, the FOMC, started its 2-day meeting today; tomorrow they will issue a statement that they are standing pat on rates for now. Anything else from the Fed would be a major shock. The Fed’s policy is one of “normalizing” interest rates with a real emphasis that it continues to err on the side of market ease – that is, it does not want to make a mistake of disrupting markets and causing a correction.

That is, it wants to see the stock market continue to rise, the policy it has been following for most of the current economic recovery. The Fed will likely indicate that it is getting closer to trimming its $4.5 trillion balance sheet and selling off Treasuries and mortgage backed securities, but the big unwinding won’t really start to kick in until sometime in 2018, so for now the rally continues.

In earnings news: the markets looked past a 3% drop in Alphabet, which reported after the close yesterday. Alphabet was hit with a $2.7 billion dollar fine from the Euro Union, but looking past that, the parent of Google is still reporting impressive revenue and profit growth.

3M disappointed on earnings and it was punished. That seems to be the theme. Misses are punished. Slightly better than expected earnings get no love, but there is still plenty of good to great earnings news to lift the market to new highs.

With more than one-fourth of the S&P 500 having reported results, earnings are now expected to have climbed 9.1 percent in the second quarter, up from a projection of an 8-percent rise at the start of the month.

McDonald’s posted its biggest jump in global sales at established restaurants in five years, helped by stronger traffic worldwide. McDonald’s has also focused on value for U.S. customers with discounts on soft drinks and offering custom burgers.

And it seems to be working. Global same-restaurant sales climbed 6.6 percent in the second quarter, and sales at U.S. restaurants open at least 13 months rose 3.9 percent. Net income rose to $1.40 billion, beating estimates. Revenue was down slightly but still beat estimates. McDonald’s shares were up 4% and hit an all-time high and were the top gainer on the Dow Jones Industrial Average today.

Caterpillar shares jumped almost 6%, hitting a 5-year high. Earnings and revenue beat estimates and Cat raised its guidance.

AT&T’s quarterly profit topped estimates. Shares rose 2.5 percent. AT&T is locked in battle Verizon and Sprint and T-Mobile for customers in a market where most people already have cell phones. AT&T, which is in the process of buying Time Warner for $85 billion, has sought to compete by bundling mobile service with entertainment.

AT&T lost 89,000 U.S. phone subscribers who pay a monthly bill – that was better than expected.

Financial Review

Easy to Spot Winners

Sinclair Noe — October 22, 2015

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

Subscribe: iTunes | Android | RSS

DOW + 320 = 17,489
SPX + 33 = 2052
NAS + 79 = 4920
10 YR YLD un = 2.03%
OIL + .18 = 45.38
GOLD – .80 = 1166.90
SILV + .16 = 15.94

European Central Bank policymakers are meeting today in Malta. ECB President Mario Draghi announced no change to interest rates or asset purchases, but he warned that emerging markets are hurting Eurozone growth prospects, and he hinted the central bank may lower the deposit rate further or expand its quantitative easing at its December meeting. Markets just love an accommodative central bank.

The European Economics Commission says “Greece has done a certain number of reforms, and we are going to give them money, €3 billion-euro in all,” and in the course of November, December, the commission will deal with the issue of the recapitalization of Greek banks and Greek debt.”

Chinese stocks recovered today as the People’s Bank of China added liquidity to the market. After the close on Wednesday, the PBOC injected $16.6 billion into 11 financial institutions via medium-term lending facilities. Meanwhile, the government’s anti-corruption campaign continues with a crackdown on golf, considered a lavish extravagance. Or in my case, cruel punishment.

New applications for U.S. unemployment benefits inched up by 3,000 to 259,000 in the week ended Oct. 17. This is the first gain after two straight large declines. Claims had fallen by 20,000 in the prior two weeks.

Existing home sales rose 4.7% to a seasonally adjusted annual rate of 5.55 million, the second-highest monthly level since Feb. 2007 and an 8.8% rise from the same month of 2014. The National Association of Realtors attributed the improvement in the housing market to low mortgage rates, an improving jobs environment and a slight thawing in credit availability. There were 2.21 million available homes for sale, down 3% from August. The number of listed properties in August was the second-lowest for that month since 2002.

The White House is making a push to solve the debt crisis in Puerto Rico, pressing Congress to amend bankruptcy code, instate a financial control board and extend tax credits as the commonwealth struggles with $72 billion in debt. On Wednesday, the Government Development Bank, the island’s de facto fiscal authority, ended talks with a group of its bondholders and their advisers after failing to reach a deal on restructuring the debt.

The U.S. Treasury said it will postpone the two-year note auction previously scheduled for Tuesday, as an impasse over the debt limit constrains the nation’s borrowing and inflicts the first ceiling-related auction delay in a decade. The Treasury sent an e-mail saying: “Due to debt ceiling constraints, there is a risk that Treasury would not be able to settle the two-year note” on Nov. 2. The five-year note auction on Oct. 28 and the seven-year note auction on Oct. 29 will proceed as planned.

The yield on the two-year Treasury note slid after the announcement, as it means less supply than had been expected in this sector. Treasury Secretary Jacob Lew said he is concerned that “last-minute brinkmanship” in Congress could lead to a legislative “accident” in which lawmakers would fail to raise the debt ceiling before a Nov. 3 deadline. With $12.9 trillion in marketable securities, the U.S. is considered the world’s most reliable debt issuer. The last time an auction was delayed due to the borrowing limit was in November 2004.

And part of the reason why this is noteworthy is because the Treasury markets are supposed to be boring, incredibly boring and completely predictable, regular, and consistent. This consistency has allowed the government, and by extension the US dollar, to become the safe harbor for investors. Predictability translates into decreased borrowing costs for the US, roughly $27 billion in savings over the past 17 years, simply attributed to the predictable, consistent bond market schedule.

Remember the debt ceiling fight of 2011 was behind the credit rating downgrade that stripped the US of AAA rating. And now we are preparing for another fight over the debt ceiling, and the clock is ticking, and the most boring part of the markets just got important.

The median stock in the US has been flat for 2015. That is actually a big improvement from about one month ago when the median stock was down 8%, so we’ve seen a nice rally, but at the current pace we are on track for the worst performance since 2008. And it doesn’t look like stocks are going to rally on earnings news; third quarter reports are coming in and we are on track for a two consecutive quarters of declining earnings, or an earnings recession.

The bad news is that when we have an earnings recession we tend to get a real recession. This is a statistic not lost on the Fed. Historically there has been a very high correlation between changes in the Fed Funds rate and the profit cycle. The Fed traditionally begins a tightening cycle when profits are moving higher and begins easing when profits decelerated. The notion that the Fed would raise rates in a profits recession, well, it has never happened before.

United Auto Workers members have ratified a new 4-year labor contract with Fiat-Chrysler. UAW members sacrificed gains in a 2011 contract and two years earlier made concessions to allow the former Chrysler to go through bankruptcy. The new contract, effective as of next Monday, provides a clearer path to top pay for so-called “second-tier” workers in a two-tier wage system established in 2007, which pays newer workers less than those hired before 2007. The new contract allows newer workers to earn wages more in line with veteran employees. Next up, negotiations with Ford and GM.

A swift plunge in the stock price of Valeant Pharmaceuticals cost some of Wall Street’s top names billions of dollars on Wednesday but Pershing Square’s Bill Ackman took the meltdown as a buying opportunity. Ackman bought 2.1 million additional shares as the company plummeted as much as 40% on a report from Citron Research that alleged it fraudulently inflated revenues. The report goes so far as to call Valeant the “pharmaceutical Enron.” Today, the stock dropped 10% more.

Let’s take a look at earnings reports:
McDonald’s reported quarterly earnings and revenue that topped estimates. Global sales at established restaurants were up a much better-than-expected 4 percent in the third quarter, ending six straight quarters of flat or falling results. McDonald’s share hit an all-time high on the report.

American Express posted quarterly earnings and revenue that missed analysts’ expectations on Wednesday, citing continued headwinds from a stronger U.S. dollar and a rise in marketing spending.

3M, the maker of Scotch tape and Post-it notes, reported disappointing net sales for the third quarter and said it would cut about 1,500 jobs next year, hurt by a strong dollar and a global economic slowdown.

Caterpillar delivered quarterly earnings and revenue that fell short of expectations on Thursday. The company also lower its earnings outlook for this year and sharply increased its estimates on restructuring costs for 2015.

Southwest Airlines posted an 83% jump in third-quarter profit, boosted by lower fuel prices and cost controls.

Daimler, the owner of Mercedes-Benz, reported a net income of $2.7 billion, a 13% drop compared with a year earlier, but Mercedes car sales rose by 18% in the period.

Hyundai reported a 23% fall in net profit to $1.1 billion on falling China sales, missing estimates.

Freeport-McMoRan will further cut copper and molybdenum output as it posted a bigger-than-expected quarterly loss. The Phoenix-based company said it remains confident in the longer-term outlook for copper, but will halve operating rates at its Sierrita mine in Arizona as prices continue to drop. Freeport reported an adjusted loss of $156 million, or 15 cents a share, lagging analysts’ expectation for an 8 cent loss.

Three big earnings reports came out after the closing bell: Microsoft, Amazon, and Google parent Alphabet.

Microsoft reported a profit of $4.6 billion, or 57 cents a share, up from $4.5 billion, or 54 cents a share, a year earlier. Profit beat estimates, despite a decline in earnings. For the first time, Microsoft broke out financial results based on three operating division, including its mobile and cloud business.

Amazon posted a profit, always a bit surprising, a profit of $79 million, or 17 cents a share, compared with a loss of $437 million, or 95 cents, a year earlier. You’ll remember that last year’s results included a big whiff with the Fire phone. In the most recent quarter revenue gained 23 percent to $25.4 billion, pushed by Amazon Prime Day, which was even better than Black Friday.

As Amazon has been transformed from an online bookstore into a vast conglomerate, its video-streaming service competes with Netflix Inc. and its third-party logistics business rivals UPS. Its cloud business, with revenue growing 78%, competes with Google and Microsoft to rent storage and computing power. Meanwhile its core e-commerce business challenges brick-and-mortar chains such as Wal-Mart and Target. It has all worked well for CEO Jeff Bezos; with today’s gains Bezos saw his net worth climb to $55 billion, making him the third richest man in America.

Google parent Alphabet reported better-than-projected sales and profit in the latest quarter. Revenue was up 15% to $15.1 billion. Third-quarter net income was $2.74 billion. Total clicks on ads up 23 percent, even as the average price for an ad fell 16 percent. But Alphabet is now more than an online search engine.  Other initiatives range from computers and fast-Internet services, to projects such as like product-delivering drones, life sciences products, airborne wind turbines and self-driving cars. While the new areas have yet to bring in sales to rival Google’s core operations, they’re being given room to operate as distinct units under a new operating structure.

Financial Review

Chips and Salsa

Sinclair Noe — April 23, 2015

 

Podcast: Play in new window | Download (Duration: 13:15 — 6.1MB)

Subscribe: iTunes | RSS

DOW + 20 = 18,058
SPX + 4 = 2112
NAS + 20 = 5056
10 YR YLD – .02 = 1.95%
OIL + 1.32 = 57.48
GOLD – 1.00 = 1193.40
SILV + .02 = 15.85

Record highs on Wall Street today. On March 10, 2000 the Nasdaq Composite Index reached an intraday high of 5,132 and closed at 5,048. It only took a little over 15 years to get back to those levels. The Nasdaq is now up 6.8% for 2015. The Nasdaq Composite now trades at 30 times earnings, versus a multiple of 190 in March 2000; not exactly a value play, but not dot-com frothiness. The S&P 500 hit a new intraday high but could not take out the 2117 record close from early March.

The number of people who applied for regular state unemployment-insurance benefits ticked up 1,000 to 295,000 in the week that ended April 18. Also, the government said continuing claims, which show the number of people already receiving weekly unemployment checks, rose 50,000 to 2.33 million in the week that ended April 11.

Sales of new single-family homes dropped 11.4% to 481,000 in March, hitting the slowest pace since November.  Sales of new single-family homes increased about 19% over the past year. However, sales still remain almost 40% below a long-term pace set over 20 years.

Financial data firm Markit said its preliminary U.S. Manufacturing Purchasing Managers’ Index fell to 54.2 in April from the final March read of 55.7. A reading above 50 indicates growth in the sector. And as the manufacturing sector in the US expands, it is contracting in China.

China’s factory activity declined at its fastest pace in a year, according to HSBC/Markit’s Purchasing Managers Index. China said it will open up bank card processing to foreign firms, sending shares of Visa and MasterCard higher. Morgan Stanley thinks the firms could begin operations in China in late 2016 or early 2017. China said Thursday it will scrap export duties on rare earths and some metal products, including molybdenum, tungsten and some aluminum products, effective May 1. Beijing is attempting to boost exports, which fell 15% year-over-year in March.

Tensions continue to escalate in the Middle East. Earlier in the week, Saudi Arabia announced a cease fire in Yemen; that lasted about one day and then the Saudis resumed their airstrikes. The Saudi escalation of its Yemen campaign is producing exactly the kind of geopolitical tensions that push oil prices higher. Toss in US aircraft carriers and a few destroyers in close proximity to Iranian Navy boats that look like they are trying to deliver arms to the Houti rebels in Yemen, and it makes for a volatile mix. Oil prices are near the highs for the year.

The world is still a crazy place. Reuters reports the Russian Defense Ministry claims US troops are now in the conflict zone of eastern Ukraine to train Ukrainian combat troops. And the Taliban has announced that it will launch its annual spring offensive in Afghanistan later in the week; like it’s a supermarket opening or something.

Meanwhile, five years ago to the day, Greece officially submitted a bailout request…Today, Tsipras chats with Merkel. The Greek and German leaders will meet in Brussels in an attempt to reach a deal on Greece’s debt. The longer these negotiations have dragged out, the closer the opposing sides get to some sort of resolution; they haven’t worked it out yet, but they are closer, maybe.

U.S. and British regulators fined Deutsche Bank $2.5 billion and its British subsidiary pleaded guilty to criminal wire fraud for its role in a scam to manipulate the London Interbank Offered Rate (Libor) and its Euribor cousin – together benchmarks for hundreds of trillions of dollars of financial products and loans worldwide.

Brazil’s state-controlled oil giant, Petrobras, reported its long-delayed quarterly and annual results, which have been stalled by a corruption investigation. The overall loss was $7.2 billion in 2014; Petrobras is writing off $15 billion in overvalued assets and $2 billion for bribery related costs. Federal prosecutors have accused the former executives of illegally “diverting” billions from the company’s accounts for their personal use or to pay off officials. More than 80 people have been charged with bribery and money laundering during the criminal investigation, dubbed “Operation Car Wash.”

Dozens of senior officials and politicians are still under investigation. Brazilian President Dilma Rousseff was chairwoman of Petrobras during many of the years when the alleged corruption took place. She denies any knowledge of the corruption. Her popularity has sunk to record lows because of the scandal and Brazi’s poor economic performance. Dozens of other companies including construction and transportation firms are implicated in the scandal, and over 750 projects are now under investigation. And there is a class action suit, of course.

The Comcast-Time Warner merger is in jeopardy. The FCC has called for a hearing on the Comcast-Time Warner merger. According to The Wall Street Journal, the hearing is a sign the FCC feels the $45 billion deal is not in the best interest of the public. The Department of Justice has also recently spoken out against the deal. And today, Bloomberg reported that Comcast will drop the deal.

Today is one of the busiest sessions for earnings reports, so let’s dig in:
After the close, Google reported weaker-than-expected first-quarter profits, hurt by slowing growth and the rising U.S. dollar. (note – this is becoming a common theme.) Google reported revenue of $17.2 billion, up 12% from $15.4 billion in the year-ago period. Profit of $3.6 billion, up from $3.4 billion. On a side note; today marks the tenth anniversary of the first YouTube video. YouTube’s co-founder, Jawed Karim, posted the video of his visit to the zoo. Google now owns YouTube.

Microsoft revenue rose 6.5% from a year earlier to  $21.7 billion, thanks to the inclusion of sales from Nokia’s mobile-phone business, which Microsoft didn’t own a year ago. Microsoft reported net income of $4.9 billion, or 61 cents a share – in line with estimates. That was down from net income of $5.6 billion, or 68 cents a share, a year earlier.

Amazon posted a sales jump of 15% to $22.7 billion, compared with $19.7 billion a year earlier. And they still managed to lose $57 million.

Starbucks reported same store sales were up 7% in the Americas. Earnings and revenue jumped 18%; profits matched estimates.

General Motors came up short on both the top and bottom line; the problems came from Russia, Europe and South America. Despite ongoing legal problems with deadly ignition switches, GM reported strong sales in North America. The big seller is the Tahoe, a big SUV; no rebates, no incentives, 18 MPG. How quickly we forget $100 a barrel oil.

Caterpillar earnings and revenue came in well above estimates thanks to cost cutting and improved sales in North America. CAT raised its earnings per share outlook for the year.

PepsiCo posted net income was flat at $1.2 billion. Revenue fell 3.2% to $12.2 billion. Earnings per share were 83 cents, missing estimates of 79 cents. PepsiCo says currency exchange rates cut its profit by 11 percentage points this year.

3M revenue and earnings missed estimates with sales down 3% from a year earlier. They blamed a stronger dollar.

Procter & Gamble posted quarterly earnings in line with expectations. But revenue came up short for the fifth straight quarter.  P& G blames the strong dollar and warns foreign exchange rates will continue to be a drag on both sales and profit this year.

Southwest Airlines said its first-quarter profit nearly tripled but forecast a decline in unit revenue for April.

Freeport-McMoRan reported a first-quarter loss of $2.5 billion as it recorded one-time charges of $2.4 billion, mainly for the reduction of the carrying value of its oil and gas properties.

A common theme in earnings reports is a strong dollar hurting sales and profits of US companies. Procter & Gamble, the world’s largest consumer-products maker gets the majority of its sales outside North America, leaving the company vulnerable to a dollar that has gained against a number of currencies. 3M, the maker of Post-it notes and Scotch tape earns almost two-thirds of its revenue outside the U.S. General Motors’ struggled with overseas sales. Freeport-McMoRan grappled with lower commodity prices, directly tied to a strong dollar.

You might think that a strong dollar is about to destroy corporate America, and yet the stock market is hanging out in record high territory. Even though we know that companies use a stronger dollar as a scapegoat, it really doesn’t tell us much about their earnings. It is extremely difficult for an individual investor to know if a company was really hurt or just a little hurt by currency exchanges. You don’t know how much a company actually buys in the local currency; for example, if McDonald’s buys its beef and makes its bread in the same country where they sell hamburgers, then it shouldn’t be a big hit to profits. For others, it might be a very big deal indeed. More often than not, it just muddies the earnings news.

Of the 169 Standard & Poor’s 500 companies that have reported so far, 71 percent beat earnings estimates, according to data from Thomson Reuters; and most estimates had been ratcheted lower. But they did so with help from share buybacks, cost-cutting and other measures, instead of strong sales growth. Despite those beats, analysts are now trimming their profit and sales expectations for the second quarter. Revenue in the first quarter has disappointed – just 44 percent of the early reporters topped analysts’ forecasts – and sales are expected to have dropped 3.3 percent from a year ago. Of the early reporting companies for the first quarter, 59 have beaten earnings estimates but missed on sales, with the trend seen in a wide range of sectors.

Second-quarter S&P 500 earnings could slide 1.6 percent from a year ago. That is down from an April 1 forecast for a decline of 0.5 percent. Sales are forecast to fall 3.9 percent in the second quarter, compared with an April 1 estimate for a 2.8 percent decline. Third- and fourth-quarter estimates are also down since the reporting season began. There could still be negative surprises ahead, and most S&P 500 energy companies have yet to post results, and it’s a safe bet that there will be some ugly numbers in the oil patch.  Stay tuned.

FINANCIAL REVIEW

A Boatload of Economic News and Earnings Reports

Sinclair Noe — October 23, 2014

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

DOW + 216 = 16,677

SPX + 23 = 1950
NAS + 69 = 4452
10 YR YLD + .05 = 2.28%
OIL + 1.33 = 81.85
GOLD – 9.10 = 1232.90
SILV + .02 = 17.30

The S&P 500 has risen five times in the past six days, pushing the gauge up 4.9 percent since Oct. 15 and recouping about half the losses from a selloff that began in mid-September; the S&P is still down about 3 percent from a record.

The Federal Housing Finance Agency, which tracks deals involving mortgages backed by Fannie Mae and Freddie Mac, said home prices in August were up 4.8% from the year-earlier period; and up a seasonally adjusted 0.5% in August from July. The average rate for a 30-year fixed mortgage was 3.92 percent, down from 3.97 percent last week. The average 15-year rate dropped to 3.08 percent from 3.18 percent. Mortgage rates are now at the lowest levels since the summer of 2013. Refinancing applications jumped 23 percent in the week ended Oct. 17 to an 11-month high.

The number of people who applied for US unemployment benefits rose by 17,000 last week to 283,000, but initial claims remained below the key 300,000 level for the sixth straight week.

The Conference Board’s leading economic index rose 0.8% in September, after no change in August. The index points toward improving employment and income growth which are expected to support moderate economic expansion for the remainder of the year. The leading index is composed of 10 forward-pointing indicators. Nine of the 10 indicators showed strength in September, with the biggest positive contribution coming from a favorable spread of low interest rates. The only negative was average consumer expectations for business conditions.

The Chicago Fed’s national activity index rose to positive 0.47 from negative 0.25 in August. The three-month average stayed positive and accelerated, to 0.25 from 0.16 in August; indicating the economy grew at an above-trend pace in September, recovering after a slower August.

The Markit Economics flash manufacturing purchasing managers index for the US fell to a 56.2 reading in October from 57.5 in September. The index is at a three-month low. The rise in new orders was the slowest in nine months. A number of businesses expressed caution about export sales, perhaps due to the stronger dollar. Input cost inflation eased to its weakest level in six months.

Markit’s Eurozone Composite Flash Purchasing Managers’ Index rose to 52.2 in October from 52 in September. Germany’s private sector saw faster growth this month, France’s business slump deepened, with business activity hitting an eight-month low. In Britain, retail sales fell more than expected in September. Eurozone inflation slipped to its lowest for five years in September. The Flash Index is just a subset of the broader economy. For example, today, Spain reported the number of people without a job dropped by 195,000 in the third quarter, and the unemployment rate dropped to 23.7%, which is still incredibly lousy.

China’s flash HSBC/Markit manufacturing PMI edged up to a three-month high of 50.4 from a final reading of 50.2 in September.

Russian stocks have been falling sharply this week. Standard & Poor’s is scheduled to release a review of Russia tomorrow and it is widely expected that they will cut Russia’s credit rating to junk. Last week, Moody’s Investors Service cut Russia’s debt rating, citing concerns over the Ukraine crisis and the international sanctions.

The European Central Bank is scheduled to release the results of its stress test for Eurobanks on Sunday. The test of 130 lenders is aimed at answering the questions many investors still have about the health of the region’s banking system in the wake of the financial crisis. It is expected that most of the mega banks will pass the test but there are estimates that as many as 20 mid-sized banks might fall short.

The Federal Reserve will put US banks through a stress test, and the methodology was released today. US banks will have to show they can withstand a scenario where the unemployment rate jumps to 10%, the stock market dives by 60%, and oil prices reach $110 a barrel. The Dodd-Frank Act requires these tests of 31 of the largest banks, with $50 billion or more in assets, before the Fed signs off on stock buybacks and dividends. The 8 largest banks will also have to test for counterparty defaults, and 6 with large trading operations will have to test for a “global market shock scenario” that it hasn’t yet released. All the banks must submit these capital plans by January 2015.

Last year, Citi, Zions Bancorp and three foreign banks failed the tests, and Bank of America was forced to suspend a planned increase in its dividend and a stock buyback after finding it had erroneously reported $4 billion more in capital than it actually had.

After a sharp fall, crude oil seems to be finding support at $80 a barrel. Last week, the intraday price dipped below $80 but we have not seen a closing price under $80. Today, the price dipped down to $80.05 and then rallied. The past ten sessions have created a symmetrical triangle on the charts, and within the next few days, we should see a break from that pattern. Whichever way the market breaks out, or breaks down from that triangle pattern could be the way the trend goes for a long period. There is a tendency to go out of this pattern the same way we came in, which would be going down; but right now the prudent move is to wait and let the market tell us whether it can hold this important level of support.

General Motors disclosed in a Securities and Exchange Commission filing that its GM Financial unit was served with additional investigative subpoenas to produce documents from state attorneys general and other governmental offices relating to its subprime auto finance business and securitization of subprime auto loans.

General Motors said it earned $1.4 billion in the third quarter on strength in North America and China, where newly introduced models are more profitable than the ones they replace. That’s up from $700 million, or 45 cents a share, in the 2013 third quarter. Revenue was $39 billion, down slightly from the year-ago $39.3 billion. The earnings equaled 81 cents a share, lower than the 97 cents analysts expected. But the 81 cents is minus a special charge of 16 cents primarily for repairing flood damage at the Technical Center in Michigan and charges in Russia for lost value of long-term assets.

It is earnings reporting season.

3M reported strong growth in US sales and raised its full-year earnings forecast higher. In the latest quarter, profit totaled $1.30 billion, or $1.98 per share, up from $1.23 billion, or $1.78 per share. Sales grew 2.8% to $8.14 billion. Wall Street had expected earnings of $1.96 per share.

Caterpillar reported third-quarter net income rose to $1.63 a share from $1.45 a year earlier. Excluding one-time items, profit was $1.72, surpassing the $1.35 average of estimates compiled by Bloomberg. Caterpillar said per-share earnings excluding one-time items for this year are expected to be $6.50, 30 cents more than previously projected.

In a sign that earnings do still matter to the stock market, just look at 3M and Caterpillar today. 3M was up $6.10 at $145.05; that added about 25 points to the Dow Industrial Average. Caterpillar was up $4.97 at $99.27; adding about 45 points to the Dow. Two stocks, about one-third of the Dow movement.

Microsoft reported earnings of 54 cents per share on revenue of $23.2 billion, beating Wall Street estimates of 49 cents per share on revenue of $22 billion. Microsft was up about 4% today.

Amazon reported a third-quarter loss and revenue that missed analysts’ expectations; and then salt on the wound, Amazon projected weaker-than-expected sales for the important holiday quarter. The company posted a loss of 95 cents per share, compared to a loss of 9 cents per share in the year-earlier period. Three months ago, analysts thought the company would lose 7 cents a share in the third quarter. Then, after Amazon ratcheted down expectations, the estimated loss swelled tenfold, to 74 cents; and today, they missed that by 21 cents. Revenue for the quarter came in at $20.58 billion, against the comparable year-ago figure of $17.09 billion. Amazon tanked in after-hours trading, down about 13%.

Even with Amazon likely to hit $100 billion a year in revenue in 2015, it is having a hard time making a profit. It is getting to be a familiar story. The last time Amazon made a profit in the third quarter was in 2011.

Sears is closing 77 Sears and Kmart stores and cutting 5,300 jobs. And that’s not even the worst news. Most of the store closures will happen before Christmas, which makes it look like Sears is just throwing in the towel. Even the stores that won’t close until after the holidays are already holding going out of business sales rather than gearing up for seasonal promotions. Sears Holdings was up 4.4% on the news today. Go figure.

American Airlines, earned a $942 million profit in the third quarter. The company said it was its biggest profit ever for a quarter, and it was an 87 percent increase over the amount that American and US Airways earned separately last year before their December 2013 merger. Doug Parker, the airline’s chief executive, predicted more records for fourth-quarter and full-year earnings.

United Continental posted net income of $924 million, up from $379 million a year earlier. Excluding one-time items, its adjusted profit was a record $1.1 billion. Southwest profit rose 27 percent to $329 million.

All three companies beat Wall Street expectations for earnings. The airlines increased ticket prices back in April, and since then fuel prices have dropped by about 20%, and that works out to millions in savings: United cut its fuel bill by $13 million. Southwest saved $64 million. And the airlines are likely to save even more on fuel costs in the fourth quarter.

But if you are thinking those fuel savings will be passed along to fliers in the form of lower fares, well, that’s just hilarious. Recent mergers have reduced competition and helped the airlines limit the number of flights, making it easier to increase fares. And the big airlines have just pushed through a fare increase on domestic routes.