Stocks Mostly Advance Amid Fed Hike and Tentative Tax Deal

Charles Schwab: On the Market

Posted: 12/13/2017 4:15 PM EST

Stocks Mostly Advance Amid Fed Hike and Tentative Tax Deal

 

U.S. stocks traded mostly higher mid-week as the Federal Reserve expectedly increased its federal funds rate target range and recent headlines suggest that legislators have reached a tentative agreement on a final tax bill with full House and Senate votes expected to be held next week. Treasury yields declined despite the Fed decision and the U.S. dollar lost ground on the heels of a cooler-than-forecasted core consumer price inflation reading. Crude oil prices were lower and gold ticked higher. Shares of Finisar surged after receiving an investment from Dow member Apple. 

The Dow Jones Industrial Average (DJIA) increased 81 points (0.3%) to 24,585, the S&P 500 Index ticked 1 point lower to 2,663, and the Nasdaq Composite advanced 13 points (0.2%) to 6,876. In moderate volume, 874 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil decreased $0.54 to $56.60 per barrel and wholesale gasoline lost $0.05 to $1.65 per gallon. Elsewhere, the Bloomberg gold spot price moved $10.93 higher to $1,255.43 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.7% lower at 93.46.

VeriFone Systems Inc. (PAY $18) reported Q4 earnings-per-share (EPS) of $0.03, or $0.44 ex-items, versus the $0.43 FactSet estimate, as revenues rose 2.6% year-over-year (y/y) to $477 million, compared to the projected $472 million. The payment transaction device company issued Q1 and 2018 EPS guidance that missed expectations. PAY also announced the sales of its Taxi business and a new $100 million share repurchase program. Shares were solidly lower.

Finisar Corp. (FNSR $24) jumped after Dow member Apple Inc. (AAPL $173) announced it will invest $390 million into the manufacturer of optical communications components. AAPL said the investment is part of its Advanced Manufacturing Fund and will enable Finisar to increase its production of vertical-cavity surface-emitting lasers (VCSELs) that power some of Apple's new features, including Face ID, Animoji, and Portrait mode selfies. AAPL traded higher.

Honeywell International Inc. (HON $156) reported that it expects Q4 EPS to be at the high end of its previous guidance, while issuing a 2018 profit outlook that had a midpoint below expectations as it executes its previously-announced restructuring plans that include spinning off a couple business units. HON gained ground.

Eli Lilly and Company (
LLY $88) issued 2018 EPS guidance with a midpoint slightly above the Street's expectations, while noting that in 2018 it expects continued product pipeline progress, including U.S. regulatory action for some of its experimental treatments. Shares traded higher.

Fed raises target range as expected, consumer price inflation report mixed

The Federal Open Market Committee (FOMC) concluded its two-day monetary policy meeting, voting seven to two to increase the target range for the federal funds rate by 25 basis points (bps) to 1.25-1.50%, a move that was widely expected. The Committee noted that it expects "with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will remain strong." The Fed also updated its economic projections, increasing its GDP annual growth estimate to 2.5% from September's forecast of 2.1% and Janet Yellen held her final press conference as the Fed Chair. For in depth analysis of the Fed’s decision look for commentary later today from Schwab's Senior Fixed Income Research Analyst, Collin Martin, CFA, on the Market Commentary page and see Schwab's article, Fed Rate Hike: What Does It Mean for Your Portfolio.

As noted in the latest Schwab Market Perspective: The Big Picture Heading into 2018, uncertainty is elevated as the Fed faces several changes in 2018 but recent comments from incoming Fed Chief Jerome Powell suggest continuity and transparency are priorities. However, if inflation should flare up, or growth start to lag, the Fed may be challenged early in the new regime.

The Fed's decision will be followed by tomorrow's fully-loaded economic calendar, expected to show jobless claims remain at low levels, import prices nudged higher, business activity continued to grow solidly per Markit, business inventories dipped, and retail sales accelerated as the holiday season rolls on. The retail sales data will likely carry the most weight, given heavy impact of the U.S. consumer on economic output as we head into 2018.

The Consumer Price Index (CPI) (chart) rose 0.4% month-over-month (m/m) in November, matching the Bloomberg estimate, while October's 0.1% rise was unrevised. The core rate, which strips out food and energy, was 0.1% higher m/m, compared to expectations to match October's unrevised 0.2% increase. Y/Y, prices were 2.2% higher for the headline rate, in line with forecasts and following October's unrevised 2.0% rise. The core rate was up 1.7% y/y, versus projections to match October's unadjusted 1.8% increase.

The MBA Mortgage Application Index decreased 2.3% last week, following the prior week's 4.7% gain. The decline came as a 2.5% drop in the Refinance Index accompanied a 1.1% decrease in the Purchase Index. The average 30-year mortgage rate ticked 1 basis point (bp) higher to 4.20%.

Treasuries finished higher, with the yields on the 2-year note and the 30-year bond dipping 5 bps to 1.77% and 2.73%, respectively, and the yield on the 10-year note decreasing 6 bps to 2.35%. The yield on the 10-year note retreated after reaching the high end of its recent range and the U.S. dollar dipped after a run as of late following the inflation report, while the stock markets continue to notch record highs.

In her video, What Could Fixed Income Investors Expect in 2018?, Schwab's Chief Fixed Income Strategist Kathy Jones offers three reasons we think investors might want to be a bit more cautious about where they look for yield in 2018. As noted in our 2018 Schwab Market Outlook: Executive Summary, we anticipate solid growth and don't see a recession on the horizon. However, with markets priced for ongoing moderate growth and low volatility, the risks we’re monitoring include the potential for higher inflation and more central bank tightening than expected.

As the tax reform reconciliation process continues, recent headlines suggest that the House and Senate negotiators have reached a tentative deal on a final tax bill. Schwab's Director of Tax and Financial Planning, Hayden Adams, CPA, offers analysis of this process and what investors should be paying attention to, in his article, Tax Reform: What Investors Should Know, while also addressing questions regarding how the potential tax overhaul may affect you as an investor in his article, Tax Reform: Frequently Asked Questions. Moreover, as you conduct your year-end tax planning, check out our latest article, Tax Reform: 11 Questions to Ask Your Advisor.

Europe declines and Asia mixed ahead of Fed decision

European equity markets finished mostly lower, with the markets treading cautiously ahead of today's Fed monetary policy decision, which will be followed by tomorrow's decisions from the European Central Bank and Bank of England. Also, some key Chinese economic data loomed on the horizon, while tax reform and the Alabama Senate election results in the U.S. garnered attention. The euro and British pound traded higher versus the U.S. dollar and bond yields in the region were mixed. In economic news, German consumer price inflation rose in line with expectations, eurozone industrial production unexpectedly increased, and U.K. employment change declined more than expected.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his, 2018 Global Market Outlook: Three Actions to Take for the Year Ahead, in which he says stay invested: with 2018 global stock market gains potentially being in the double-digits and go global: as international stocks may outperform U.S. stocks in 2018. Jeff also urges investors to rebalance: with rebalancing back to target allocations important as 2018 gains in stocks may result in a higher risk asset allocation ahead of a potential recession and bear market.

Stocks in Asia finished mixed, with tax reform reconciliation and the Alabama Senate election results in the U.S. garnering attention, while the markets awaited today's Fed monetary policy decision. Japanese equities declined, with the yen gaining solid ground and despite a stronger-than-expected rebound in machine orders—a gauge of capital investment—for October. Stocks trading in mainland China and Hong Kong advanced, led by strength in the banking sector and ahead of some key economic data due out tonight. Australian securities ticked higher and South Korean shares increased, while Indian equities declined amid some weakness in the financial sector. Schwab's Jeffrey Kleintop, CFA, offers a look at the global markets, which have rallied this year due to the broadest economic growth in a decade, in his article, 5 Reasons Investors Should Give Thanks.

In addition to the aforementioned central bank decisions, tomorrow's stacked international economic docket will yield industrial production and capacity utilization from Japan, retail sales and industrial production from China, consumer inflation expectations and employment data from Australia and wholesale prices from India. Releases from across the pond will include Markit Manufacturing and Services PMIs from the U.K., Germany, France and the eurozone, while the U.K. will also report retail sales.

Financial Review

Carving a Turkey

Sinclair Noe — November 8, 2017

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

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DOW + 6 = 23,563 (Record)
SPX + 3 = 2594 (Record)
NAS + 21 = 6789 (Record)
RUT + 2 = 1481
10 Y + .02 = 2.33%
OIL – .38 = 56.82
GOLD + 6.00 = 1281.80

Cryptocurrency

• Number of Currencies: 903
• Total Market Cap: $205,794,764,215
• 24H Volume: $9,066,047,752

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	7,356.5	$122.81B	$4.59B	50.65%	1	-1.22%	+8.30%
	Ethereum	ETH	310.87	$29.81B	$994.05M	10.96%	0.0425565	+1.13%	+7.00%
	Bitcoin Cash	BCH	636.99	$10.66B	$889.93M	9.82%	0.0867183	+2.43%	+20.78%
	Ripple	XRP	0.21847	$8.40B	$161.55M	1.78%	0.00002976	+1.12%	+12.71%
	Litecoin	LTC	62.660	$3.36B	$321.17M	3.54%	0.00853435	+0.30%	+17.37%
	Dash	DASH	313.43	$2.40B	$102.65M	1.13%	0.0427506	-0.50%	+16.34%
	NEO	NEO	31.589	$2.04B	$126.94M	1.40%	0.00428639	+3.81%	+21.15%
	Monero	XMR	116.60	$1.78B	$87.91M	0.97%	0.0158386	+3.74%	+37.89%
	NEM	XEM	0.19280	$1.71B	$6.41M	0.07%	0.00002599	+0.33%	+12.06%
	Ethereum Classic	ETC	14.0500	$1.37B	$123.11M	1.36%	0.0019165	+2.09%	+36.30%

The Dow Industrial Average carved out yet another record high close – not a big gain at all but any gain adds to the record. The S&P 500 also closed at a record high. And a record high for the Nasdaq – All three at records. In hockey parlance that’s a hat trick; bowlers might call it a turkey.

On the one-year anniversary of Trump’s win in the presidential race, the Dow Jones Industrial Average is showing its biggest post-Election Day gain in more than 70 years. The Dow has advanced 28.50% since Nov. 8, 2016. That represents its best performance after a White House contest since 1945, when the blue-chip gauge was up 29.83% in a year following the election of Franklin D. Roosevelt.

The S&P 500 is up 21% over the past 12 months. Trump has taken full credit for the equities rally, offering this assessment this week: “The reason our stock market is so successful is because of me.”

There may have been a few other factors involved: strong corporate earnings, historically low interest rates, solid job growth, a surging global economy, and an established bull market that saw the S&P nearly quadruple since its financial crisis low in March 2009. You can place credit wherever you wish, just remember the market can be a fickle mistress.

The gains in the past 12 months have been primarily concentrated within two sectors: technology stocks, up 42.2% over the past 12 months, and financials, up 37.5%. You can narrow it down even further, and look at the crazy good performance of the FAANG stocks.

Maybe the real credit should go to Tim Cook. Last week, Apple earnings crushed Wall Street estimates with Chief Executive Tim Cook saying he expected this to be “the best holiday season yet.” Apple share are up more than 52% year to date.

Today, Apple closed up 0.8% at a record $176.21 today, its fourth consecutive record close, passing the $175.29 mark needed to hit $900 billion in market capitalization based on 5,134,312,000 shares outstanding. At the close, Apple is now valued at just over $904 billion. For Apple to reach the $1 trillion mark, shares need to trade above $194.77

Democrats claimed big gains in Virginia’s statehouse and flipped Republican-held seats in other local races across the United States on Tuesday, in the party’s first big wave of victories since Republican Donald Trump’s surprise White House win a year ago.

A ticket filled with candidates making their first bids for elected office propelled the party to a 16-seat gain in the Virginia House of Delegates, the state party said, its largest pickup in at least a century. There are still 5 seats where the race is tight enough to trigger recounts.

In the governor’s race, Democratic Lieutenant Governor Ralph Northam defeated Republican Ed Gillespie. Voters also replaced a Republican governor in New Jersey with a Democrat and increased the party’s majorities in the state legislature. In Georgia, Democrats picked up three seats in special state legislative elections. Republicans still hold majorities in the legislature.

In Washington state, one race was enough to flip the state Senate blue, giving Democrats full control over state government. Further down the ballot, Democrats captured the mayor’s office in New Hampshire’s largest city, Manchester, while the Democratic mayor of St. Petersburg, Florida, beat a former Republican mayor.

Democrats also notched a win in Maine, where voters approved a referendum to expand Medicaid coverage for the poor and disabled under the Affordable Care Act, rebuking Republican Governor Paul LePage, who had vetoed similar measures.

House Speaker Paul Ryan left the door open to a possible delay in implementing a huge corporate tax cut, following a media report that his fellow Republicans in the Senate are exploring the option. Republicans in Congress are working on separate tax plans.

The latest version of the House Republicans’ tax bill would add $1.7 trillion to the federal budget deficit over 10 years, more than the $1.5 trillion they initially announced, according to the nonpartisan Congressional Budget Office. The threshold for the process known as reconciliation is $1.5 trillion. The CBO’s assessment gives more impetus to the Senate’s bill.

The Senate could include a one-year delay in its version of the bill to make it easier to comply with the chamber’s rules that aim to limit any legislation’s impact on the deficit. Ryan said both chambers of Congress would work on their own tax cut package and iron out the differences in a conference committee. But for now – based on the CBO assessment – lawmakers will need to significantly scale back their tax plan.

Also today, analysis from the Urban Institute and Brookings Institution’s Tax Policy Center found that the Tax Cuts and Jobs Act (TCJA) would result in higher taxes for around 7% of Americans in 2018 and 25% of people in 2027.

The Tax Policy Center found that much of the TCJA’s benefits would go toward wealthier Americans; 76% of people would get a tax cut, 7% would see a tax increase, and 13% would see little change. A cut of $700 for the average American, increasing after-tax income by an average of 0.7%.

A $10 cut for people in the lowest quintile, increasing average incomes by less than 0.1%. A $320 cut for people in the middle quintile, increasing average incomes by 0.4%. An average $52,780 cut for people in the top 1%, increasing average incomes by 2.2%. Nearly 50% of the bill’s total benefits would go to the 1% in 2027.

The findings are similar to those from the nonpartisan Joint Committee on Taxation, a nonpartisan congressional committee, that found roughly 20% of people would pay more in 2027.

The Saudi purge continues. Saudi Arabian authorities have made further arrests and frozen more bank accounts in an expanding anti-corruption crackdown on the kingdom’s political and business elite. Saudi Arabian authorities have made further arrests and frozen more bank accounts in an expanding anti-corruption crackdown on the kingdom’s political and business elite.

Today, there were even more arrests. The number of people targeted by the crackdown was expected eventually to rise into the hundreds. The number of domestic bank accounts frozen because of  the purge is over 1,700 and rising, up from 1,200 reported on Tuesday.

Marriott International reported a 43% increase in third quarter revenue. Net income rose to from $392 million, or $1.04 per share, in the quarter, from $70 million, or 26 cents per share. Marriott became the world’s largest hotel company after it completed the acquisition of Starwood Hotels & Resorts in September last year.

Take-Two Interactive Software jumped 10.8 percent after the videogame maker offered a stronger-than-expected revenue forecast for the holiday quarter. That sparked a rally among its competitors, with Activision Blizzard surging 5.80 percent and Electronic Arts adding 1.9 percent.

Snapchat-owner Snap fell 16.6 percent a day after reporting much-slower-than expected advertising revenue and user growth. Snap said China’s Tencent bought a 12-percent stake in the company.

The fast food chain Wendy’s shares fell 1.6% after the fast-food chain reported third-quarter earnings and revenue that came in weaker than consensus.

Shares in peer-to-peer lending company LendingClub tumbled 19% after reporting a disappointing full-year earnings outlook late Tuesday.

Fossil Group shares tumbled 15% after the accessories seller gave a disappointing outlook.

Health insurer Humana said third-quarter revenue fell 3.0, missing estimates. Shares of health-care company were down 5%.

Regeneron Pharmaceuticals rose 2.6% after the biotechnology company reported third-quarter profit and revenue that rose above expectations.

MGM Resorts added 5% even as the company reported third-quarter profit that was below Wall Street expectations.

iHeartMedia, the biggest operator of radio stations in the U.S., reiterated doubts about its ability to remain a “going concern” in its latest filing with the Securities and Exchange Commission. Its shares were down 2.3%.

The Department of Justice is pushing AT&T to sell Turner Broadcasting, parent of CNN cable network, or its DirecTV satellite television unit to satisfy antitrust concerns over its purchase of Time Warner. AT&T is reportedly prepared to fight any divestitures required to win regulatory approval of the $85 billion deal.

The development was a surprise to investors. Shares of Time Warner fell 6.5 percent, while AT&T shares were down 0.2 percent.

Stocks off Lows, but Mostly Flat on Close

Charles Schwab: On the Market

Posted: 10/19/2017 4:15 PM EDT

Stocks off Lows, but Mostly Flat on Close

 

U.S. stocks finished the regular trading session mostly unchanged, but well off the lows of the day as separate reports on Dow member Apple weighed on the tech sector. Risk aversion flared amid a host of mixed global earnings and economic data, along with political and monetary policy uncertainties. Treasuries and gold advanced, while the U.S. dollar and crude oil prices moved lower. In economic news, weekly jobless claims declined and regional manufacturing activity rose, but the Leading Index unexpectedly dipped.

The Dow Jones Industrial Average (DJIA) ticked 5 points higher to 23,163, the S&P 500 Index inched nearly 1 point higher to 2,562, and the Nasdaq Composite declined 19 points (0.3%) to 6,605. In moderate volume, 706 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil traded $0.75 lower to $51.51 per barrel and wholesale gasoline was unchanged at $1.64 per gallon. Elsewhere, the Bloomberg gold spot price added $7.08 to $1,288.15 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.1% lower at 93.27.

Dow member Verizon Communications Inc. (VZ $49) reported Q3 earnings-per-share (EPS) of $0.89, or $0.98 ex-items, versus the FactSet estimate of $0.97, with revenues rising 2.5% year-over-year (y/y) to $31.7 billion, above the projected $31.4 billion. The highly-coveted postpaid retail net subscriber additions easily topped forecasts, more than offsetting a decline in FiOS TV subscribers. VZ reaffirmed its full-year guidance. Shares traded nicely higher.

Dow component Apple Inc. (AAPL $156) saw solid pressure to weigh on the tech sector, amid a report by the Economic Daily News that the company is cutting supplier orders for its iPhone8 and a separate report by the Wall Street Journal that its watch is no longer able to make cell service connection in China. AAPL did not comment on the reports.

Dow component Travelers Companies Inc. (TRV $133) posted Q3 earnings of $1.05 per share, or $0.91 ex-items, versus expectations of $0.42, as net written premiums grew 4.0% y/y to $6.7 billion, compared to the forecasted $6.6 billion. The company said in a quarter of unprecedented hurricane activity, its disciplined coastal underwriting stood up to the storms. Shares were higher in choppy trading.

Dow member American Express Co. (AXP $92) achieved Q3 EPS of $1.50, compared to the projected $1.48, with revenues increasing 9.0% y/y to $8.4 billion, above the expected $8.3 billion. The company said loan growth continued to be strong and credit metrics were again in line with its expectations. AXP raised its full-year EPS outlook. Separately, the company announced that Chief Executive Officer (CEO) and Chairman Kenneth Chenault will retire after 37 years with the company and be replaced by Stephen Squeri, effective February 1, 2018. Shares declined.

eBay Inc. (EBAY $37) reported Q3 profits of $0.48 per share, matching estimates, with revenues rising 9.0% y/y to $2.4 billion, roughly in line with forecasts. The company said its saw the fastest volume growth in over three years. EBAY issued Q4 guidance that missed expectations and shares finished down.

United Continental Holdings Inc. (UAL $60) posted Q3 EPS of $2.12, or $2.22 ex-items, compared to the projected $2.16, as revenues were roughly flat y/y at $9.9 billion, matching forecasts. Shares fell following the company's Q4 guidance, which seemed to foster analyst concerns about the airline's pricing power in a firming fare industry environment.

Jobless claims fall, regional manufacturing activity rises, and Leading Index declines

Weekly initial jobless claims (chart) fell by 22,000 to 222,000 last week, below forecasts of a decline to 240,000, with the prior week’s figure being revised higher by 1,000 to 244,000. The four-week moving average dropped by 9,500 to 248,250, while continuing claims declined 16,000 to 1,888,000, south of estimates of 1,890,000.

The Philly Fed Manufacturing Index (chart) in October unexpectedly rose to 27.9 from 23.8 in September, with a reading above zero indicating expansionary activity, and compared to estimates of a decline to 22.0.

The Conference Board's Index of Leading Economic Indicators (LEI) (chart) for September declined 0.2% month-over-month (m/m), missing projections of a 0.1% gain, and versus August's unrevised 0.4% rise. This snapped a 12-straight month winning streak for the index, as jobless claims, average workweek, and building permits weighed, more than offsetting positive contributions from ISM new orders, the yield curve, and stock prices.

The impacts of the hurricanes continue to skew economic data, and tomorrow we will get a look at another report that likely will be noisy due the storms, in the form of September existing home sales, projected to decline 0.9% m/m to an annual rate of 5.3 million units. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his latest article, Fires, Hurricanes, and Earthquakes: What Disasters Mean For Markets, 2017 is likely to rank as the most costly year ever for natural disasters. From a purely economic perspective—where analysis replaces emotion—disasters tend to spur economic growth over the short and long-term despite the widespread destruction they leave behind. Stock market losses associated with past major disasters were typically short-lived.

Treasuries traded higher, with the yields on the 2-year note and the 30-year bond declining 2 basis points (bps) to 1.54% and 2.83%, respectively, and the yield on the 10-year note dropping 3 bps to 2.32%. The U.S. dollar saw some pressure as the markets grapple with continued global economic optimism, Fed leadership uncertainty, and world political uncertainty, including whether U.S. tax reform can successfully navigate the long road.

Schwab's Chief Fixed Income Strategist, Kathy Jones offers a look at the Fed's path to normalization, notably the start of shrinking its balance sheet, as well as the potential leadership changes at the Central Bank in her article, Understanding the Federal Reserve's Shrinking Balance Sheet, and the video with Vice President of Trading and Derivatives, Randy Frederick, Should a Change in Fed Leadership Matter to Investors?. Tax reform continues to garner attention, with the Senate expected to vote this week on its budget resolution, as discussed by Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend in the article, Tax Reform Framework Released, But The Road Ahead Is Long.

Check out these articles and video on the Market Commentary page at www.schwab.com and follow Kathy, Randy and Schwab on Twitter: @kathyjones, @randyafrederick and @schwabresearch.

Europe lower on data and politics, Asia mixed on China data

European equity markets traded lower, with some mixed global earnings and economic data appearing to stymie conviction, joining festering political concerns in the region. U.K. retail sales fell more than expected and U.S. leading indicators snapped a string of gains, while China's industrial production missed, retail sales beat and Q3 GDP growth slowed. Spain's government announced that it plans to suspend Catalonia's autonomy after it failed to renounce its independence push. Deadlocked Brexit negotiations remained in focus as the European Union's summit in Brussels began today. For analysis of the uncertain political front in the region, see Schwab's Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond?, and our article, Brexit Begins: What's Next for the U.K?, on the Market Commentary page at www.schwab.com. The euro gained ground and the British pound was little changed versus the U.S. dollar, while bond yields in the region finished mixed.

Stocks in Asia finished mixed following the record highs in the U.S. and amid a host of Chinese economic data, while Japanese markets extended a winning streak that has taken its markets to highs not seen since 1996. China's Q3 GDP growth came in at 6.8% y/y, matching estimates and down from the 6.9% expansion seen in Q2. Also, China's retail sales rose slightly more than expected in September, while the nation's industrial production and fixed asset investment modestly missed expectations. Stocks trading in mainland China and in Hong Kong declined. Japanese equities advanced with yesterday's weakness in the yen helping shares post 13-straight session of gains. South Korean stocks declined and Australian securities ticked higher, while Indian markets were closed for a holiday. Amid the global market rally, Schwab's Chief Investment Strategist Liz Ann Sonders talks with Schwab's Randy Frederick in the video, Tracking Sentiment: Are Investors Too Optimistic About Stocks?, on the Market Commentary page at www.schwab.com. Follow Liz Ann on Twitter: @lizannsonders.

The international economic docket for tomorrow will be light, offering PPI from Germany, the Current Account for the Eurozone and public sector borrowing from the U.K.

Financial Review

Falling Leaves

Sinclair Noe — September 25, 2017

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

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DOW – 53 = 22,296
SPX – 5 = 2496
NAS – 56 = 6370
RUT + 1 = 1451
10 Y – .04 = 2.22%
OIL + 1.43 = 52.09
GOLD + 13.20 = 1311.30

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	3,946.1	$65.48B	$1.37B	42.06%	1	+0.41%	-0.96%
	Ethereum	ETH	295.46	$27.84B	$461.77M	14.14%	0.0743875	+0.09%	2.49%
	Bitcoin Cash	BCH	463.90	$7.59B	$319.61M	9.79%	0.115731	+2.79%	-2.86%
	Ripple	XRP	0.18620	$7.02B	$35.87M	1.10%	0.00004642	+1.30%	-1.61%
	Litecoin	LTC	52.580	$2.77B	$214.73M	6.58%	0.013211	+0.75%	-3.52%
	Dash	DASH	343.33	$2.60B	$60.08M	1.84%	0.0870719	-1.12%	5.57%
	NEM	XEM	0.23614	$2.09B	$2.84M	0.09%	0.00005895	+1.14%	-3.66%
	IOTA	MIOTA	0.54778	$1.53B	$10.26M	0.31%	0.00013932	-1.48%	-6.10%
	Monero	XMR	94.33	$1.41B	$28.15M	0.86%	0.0236862	+0.26%	-4.71%
	NEO	NEO	26.999	$1.33B	$91.78M	2.81%	0.00675399	+3.88%	32.73%

North Korea’s foreign minister said Trump has “declared war” on his country and threatened to shoot down US jets in international airspace. Ri Yong Ho said the “declaration of war” meant North Korea could target US bombers. He said: “The question of who won’t be around much longer will be answered then.”

That was a reference to Trump’s recent tweet that the North Korean foreign minister, and leader Kim Jong-un “won’t be around much longer”.

Maybe the North Koreans are good market timers and they timed their rhetoric for maximum market impact. So far, no weapons have been fired but it offers a good excuse for selling stocks, if you were looking for an excuse.  A better justification is that stocks have been on a record-setting run and we are now heading into the end of the month and the end of the quarter, so it’s a good time to make the ledger look pretty.

Yet another justification is that the bull market is getting long in the tooth. This can’t go on forever, can it? And the answer is no, it can’t last forever, but that doesn’t mean the bull can’t keep running a bit longer.

One of the more nettlesome concerns is that the bull market is not very broad – mostly wrapped up in the fortunes of the FAANG stocks. And even if you suppose the FAANGs will continue to dominate, they are getting a bit too big to expect exponential growth rates, and that means valuations ranging around 18-time forward earnings are a bit on the rich side. It just doesn’t seem realistic to expect the next 5 years to be as strong as the last 5.

Today’s case in point – Apple, flirting with correction territory as Digitimes reported that Apple suppliers were shipping just 40 percent of the components originally ordered for the premium phone, which goes on sale in early November. Apple is still going to sell a whole bunch of phones but maybe not the phenomenal growth we’ve come to anticipate.

Meanwhile, Facebook dropped 4.6% today – that’s $20 billion market cap evaporating. Facebook dropped its plans to issue a new class of non-voting shares. A special committee of the company’s board previously approved the plan to issue the shares, but a class action lawsuit was filed to block the share issuance.

Facebook is also dealing with investigatory pressure from US lawmakers. The company announced it would cooperate with regulators as they investigate Facebook’s role in the 2016 election.  Of course, Apple and Facebook aren’t going away anytime soon, so maybe you buy the dips.

Toss in a Federal Reserve that seems intent on tightening accommodation and the growth story looks even more implausible. The Federal Reserve is on track to sell some of its bond holding and gradually raise interest rates. We know this from last week’s FOMC statement.

New York Fed President William Dudley said today that he expects inflation will pick up, citing the soft dollar and strong overseas growth among the reasons he expects slightly above-average U.S. economic activity and a long-sought rise in wages.

Dudley said: “With a firmer import price trend and the fading of effects from a number of temporary, idiosyncratic factors, I expect inflation will rise and stabilize around the 2 percent objective over the medium term,” adding, “In response, the Federal Reserve will likely continue to remove monetary policy accommodation gradually.”

Meanwhile, Chicago Fed President Charles Evans delivered a speech today entitled: “the puzzle of low inflation”. Whatever the Fed does, it will be slow and incremental. Imagine the Fed’s balance sheet as a lawn full of autumn leaves. Dudley wants to use a rake. Evans wants to pick up each leaf individually. Nobody is even thinking about using the leaf blower.

Still the Fed is in tightening mode. Federal Reserve economists worry that the central bank may have a hard time lowering interest rates when future economic crises arise. The reason is simple: Demographics. San Francisco Fed economists believe that the aging population in the U.S. is putting long-term downward pressure on rates, a phenomenon that won’t allow a lot of room to provide stimulus through rate cuts.

Sen. Rand Paul reiterated his opposition to the Graham-Cassidy health care bill, despite revisions. Sen. John McCain of Arizona has opposed the bill’s initial version and Texas Republican Sen. Ted Cruz said Sunday he was against it. Maine Republican Sen. Susan Collins seems likely to do the same.

Alaska Sen. Lisa Murkowski is undecided but had opposed earlier GOP bills to repeal Obamacare that the Senate rejected in July. Republican leadership is using a tried-and-true method to get wavering colleagues to vote yes: money. Lots of it. An extra $14 billion in aid for Maine, Texas, Kentucky, Arizona, and Alaska. So, Senate Majority Leader Mitch McConnell believes he knows who he’s dealing with, now he’s just negotiating the price.

Germans voted over the weekend. Chancellor Angela Merkel’s party remained the biggest parliamentary bloc, but only pulled about 33% of the vote, meaning Merkel will have to build a coalition. Voters flocked to the anti-immigration Alternative for Germany (AfD); the first far-right party to enter the German parliament in more than half a century pulled about 13% of the vote.

Japan’s Prime Minister Shinzo Abe said he will dissolve the Lower House for a snap election when the Diet convenes for an extraordinary session Thursday, in a high-stakes political gamble that observers say could determine whether he survives as Japan’s leader. There are several issues at stake, including a 2019 planned tax hike needed to fund education and social security; also, Abe’s authority to act in the event of North Korean aggression by amending Japan’s pacifist Constitution.

Voting stations set up for the referendum on Kurdish independence from Iraq have closed their doors and counting of ballots has begun. Turnout was near 80%. The referendum is opposed by the Iraqi central government in Baghdad as well as the neighboring countries of Turkey and Iran, besides major international powers.

The Kurds are likely to approve the referendum, but they are not expected to result in any immediate declaration of independence. While the result is non-binding for the Iraqi government, it is binding for the Kurdish leadership to follow the will of the people.

Brent crude surged to its highest in more than two years as Turkey threatened to shut down Kurdish oil shipments through its territory. Crude has risen more than 9 percent this month in New York, as U.S. refiners recovered from Hurricane Harvey and both OPEC and the International Energy Agency sweetened their worldwide demand forecasts. Oil should start to level off near these levels, unless the bulls get greedy.

One of the world’s “big four” accountancy firms – Deloitte – has been hacked. The hackers compromised confidential emails and plans of some blue-chip clients. In addition to emails, the hackers had potential access to usernames, passwords, IP addresses, architectural diagrams for businesses and health information.

Some emails had attachments with sensitive security and design details. The breach is believed to have been US-focused and was regarded as so sensitive that only a handful of Deloitte’s most senior partners and lawyers were informed. It is possible the hack compromised data for 6 months or more.

Deloitte says only a small number of its clients had been “impacted”. Deloitte provides auditing, tax consultancy and high-end cyber-security advice to some of the world’s biggest banks, multinational companies, media enterprises, pharmaceutical firms and government agencies. Another day, another hack. I think we are seeing a trend here.

Intel unveiled its latest Core desktop processors today, proclaiming up to 25 percent frame-rate improvements for PC gaming versus the previous models. The processors will be available for sale on Oct. 5. It wasn’t enough to lift Intel shares today, but it did help push competitors AMD and Nvidia sharply lower.

Target is raising the minimum hourly wage for its workers to $11 starting next month and then increasing it to $15 by the end of 2020. The retailer said the move will help it better recruit and retain top-quality staff and provide a better shopping experience for its customers. Target quietly raised entry-level hourly wages to $10 last year, from $9 from the previous year, following initiatives by Wal-Mart and others to hike wages.

But Target’s hike to $15 per hour far exceeds not only the federal minimum of $7.25 per hour but the hourly base pay at Wal-Mart and plenty of its other retail peers whose minimum hourly pay now hovers around $10. Target said the pay hike will affect thousands of its more than 300,000 workers, but it declined to quantify the percentage of its workforce. It said the increase to $11 per hour will apply to the more than 100,000 hourly workers that Target will be hiring for the holiday season.

Brown University has initiated a $120 million campaign to drop all loans from financial aid packages awarded to their undergraduates. Student debt is at an all-time high — the average outstanding balance is $34,144, up 62 percent over the last 10 years — and Brown will become the sixteenth U.S. institution, and the sixth in the Ivy League (excluding Cornell and Dartmouth), to offer all its undergraduates a loan-free education.

In 2016, the average Brown student graduated with a debt of $23,810, compared with $8,908 for Princeton, which adopted the no-loans policy in 2001. The plan aims to replace financial aid packages with grants that do not have to be repaid.

Financial Review

Monday, Maybe

Sinclair Noe — September 22, 2017

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

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SPX + 1 = 2502
NAS + 4 = 6426
RUT + 6 = 1450
10 Y – .02 = 2.26%
OIL + .11 = 50.66
GOLD + 6.50 = 1298.10

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	3,625.6	$60.47B	$1.18B	42.84%	1	+0.75%	-1.90%
	Ethereum	ETH	263.70	$25.09B	$405.81M	14.78%	0.0730023	+0.58%	3.57%
	Bitcoin Cash	BCH	410.63	$6.85B	$226.51M	8.25%	0.113792	+0.40%	-3.41%
	Ripple	XRP	0.17235	$6.61B	$34.62M	1.26%	0.00004755	-0.35%	-6.26%
	Dash	DASH	345.00	$2.61B	$69.79M	2.54%	0.0951904	+1.07%	17.61%
	Litecoin	LTC	47.230	$2.52B	$216.55M	7.89%	0.0130959	-1.21%	-5.23%
	NEM	XEM	0.20813	$1.89B	$2.88M	0.10%	0.00005792	+1.80%	-3.43%
	IOTA	MIOTA	0.51489	$1.43B	$8.98M	0.33%	0.00014143	+1.96%	3.79%
	Monero	XMR	87.75	$1.33B	$27.17M	0.99%	0.0242851	+0.29%	-13.39%
	Ethereum Classic	ETC	10.2433	$981.34M	$29.54M	1.08%	0.00282523	+0.42%	-3.95%

Is that true? Is it possible that the Dow Industrial Average went down for two consecutive sessions? It has been about a month since we have had back to back loses on the Dow. For the week, the Dow rose 0.4%, the S&P rose 0.1%, and the Nasdaq fell 0.3%.

Sen. John McCain announced today in a statement that he cannot “in good conscience” vote for the GOP’s latest plan to overhaul Obamacare, likely ending Republicans’ latest effort to repeal and replace the Affordable Care Act.

McCain wrote: “I believe we could do better working together, Republicans and Democrats, and have not yet really tried. Nor could I support it without knowing how much it will cost, how it will (affect) insurance premiums, and how many people will be helped or hurt by it. Without a full CBO score, which won’t be available by the end of the month, we won’t have reliable answers to any of those questions.”

McCain’s “no” vote means it is likely Republicans won’t be able to repeal and replace Obamacare before September 30, as Sen. Rand Paul of Kentucky said he would not back Graham-Cassidy and Sen. Susan Collins of Maine has said she is leaning “no” on the proposal. But there are still questions as to where Alaska Sen. Lisa Murkowski now.

Bottom line, 3 no votes kills the Graham-Cassidy bill but it won’t really die – not yet. Republicans can now write and pass another budget for fiscal 2018 that uses the same reconciliation procedure for health care legislation.

The trick would be combining it with a major tax overhaul, since the GOP is aiming to use reconciliation for that as well. Senate Finance Committee Chairman Orrin Hatch said today there’s “a chance” of combining the two efforts in a 2018 budget resolution.

McCain torpedoed the last GOP bill in July, returning to the Senate after being diagnosed with brain cancer only to cast a surprising and dramatic 50th vote against a limited-repeal of Obamacare offered by Majority Leader Mitch McConnell. But until today, he was officially undecided on the Graham-Cassidy proposal, apparently torn between his disgust for the party’s rushed, partisan legislative process and his famously close friendship with Graham, its most vocal salesman.

McCain acknowledged that his friendship with Graham put him in a difficult spot. “I take no pleasure in announcing my opposition. Far from it,” he said. “The bill’s authors are my dear friends, and I think the world of them. I know they are acting consistently with their beliefs and sense of what is best for the country. So am I.”

After the announcement, Graham tweeted: “My friendship with @SenJohnMcCain is not based on how he votes but respect for how he’s lived his life and the person he is.” Absolutely correct.

The latest repeal and replace defeat deepens doubt surrounding the GOP’s ability to get healthy on tax reform. The Senate’s late-July rejection of the initial push to repeal and replace Obamacare gave Republicans a chance to cut their losses. Congress could have begun a limited bipartisan effort to stabilize insurance marketplaces – which have grown in popularity during this year’s repeal battle — while the GOP moved on to the tax debate that unites the party more.

The much-anticipated tax plan crafted by the Trump administration and Republican congressional leadership is expected to be unveiled Wednesday, and that could provide positive momentum for stocks in the final week of the quarter. The S&P 500 is up 3.3 percent for the quarter so far. The Dow is up more than 4.6 percent for the quarter. The Nasdaq is up 4.7 percent for the quarter.

From what we have learned about the Graham-Cassidy bill, it wasn’t any better than earlier repeal efforts, and maybe worse. The ACA has plenty of problems but those problems would not be corrected by Graham-Cassidy. It probably didn’t help that all 50 Medicaid directors – that is every state – opposed the GOP’s latest health care bill, and a Brookings report indicated at least 21 million would lose insurance.

Have you heard that the world will end tomorrow? I am not making this up, someone else is. The Armageddon rumors sparked when a Christian numerologist called David Meade suggested Nibiru would plough into our planet on September 23. It’s all over the inter-webs.

Meade says Arizona is a good place to survive the collision. I don’t really know why that is. But I think, if there was a mystery planet headed for a collision with Earth, we might have seen it by now. So, will the world end tomorrow? Computer says… no.

But the People’s Democratic Republic of Korea might just blow up a hydrogen bomb in the Pacific Ocean. On Tuesday, during his speech at the United Nations, President Trump said his government would “totally destroy North Korea” if necessary to defend the United States or its allies.

On Friday, Kim Jong Un responded, saying North Korea “will consider with seriousness exercising of a corresponding, highest level of hard-line countermeasure in history.” The North Korean leader didn’t elaborate on the nature of this countermeasure, but his foreign minister provided a hint: North Korea might test a hydrogen bomb in the Pacific Ocean.

Atomic weapons are typically tested underground. An explosion on or above water would have nasty repercussions. More than 60 years after the United States tested a series of atomic bombs near Bikini Atoll in the Marshall Islands, the island remains “unlivable”.

There are signs that Mexico and Canada are increasingly less worried by the idea of the North American Free Trade Agreement (NAFTA) falling apart. Mexico’s foreign minister Luis Videgaray says “Mexico is much bigger than NAFTA,” arguing that an average 3% increase in tariffs that he thinks would come if NAFTA ended wouldn’t stop trade with the US. With negotiations among the US, Mexico, and Canada due to resume this weekend, he went further: “If NAFTA goes away…it’s not the end of the world.”

Shares of Sprint gained about 6% and T-Mobile gained about 1%, after Reuters said the companies are close to agreeing to tentative terms on a merger. Japan’s Softbank Group, Sprint’s majority shareholder, will own 40% to 50% of the combined entity. T-Mobile parent Deutsche Telekom will own a majority stake.

Apple launched its new line of smartphones and watches, and turned in their worst weekly performance for the week of a major product launch since the original iPhone was released back in 2007, following less-than-stellar product reviews.

There has been a tendency for Apple to slip after a product launch – buy the hype and sell the reality – but this week was particularly bad as Apple dropped 5%. That’s a loss of $50 billion dollars in market cap – Still, many investors are looking at it as a chance to buy.

On Tuesday, shares barely managed a gain after ho-hum iPhone 8 reviews. On Wednesday, shares dropped 1.7% after a few prominent Apple Watch Series 3 reviews complained about spotty connectivity, an issue Apple acknowledged it was seeking to solve. Thursday’s 1.7% decline followed an announcement that Google is spending $1.1 billion on a cooperation agreement with smartphone manufacturer HTC to produce the Pixel smartphone.

The FAANG companies – Facebook, Apple, Amazon.com, Netflix and Google holding company Alphabet have been able to put up stellar growth numbers for quite some time, without competing very much with each other. That’s starting to change.

Consider the case of Oracle, which announced fairly solid growth in its cloud business but offered up weak guidance – shares were slammed. It looks like Oracle might not have a big slice of the Cloud Pie. That leaves Amazon and Google, and maybe Microsoft to slug it out.

Google is investing in smartphones to battle it out with Apple. Facebook has been vying with Google over ad clicks. Amazon and Google are fighting over which device will power your home – Alexa or Google assistant. And how will you watch TV in the future? On YouTube, Apple TV, Amazon Instant video, or Netflix, which now comes complimentary with a subscription on T-Mobile.

The most amazing thing of all is that it has taken us the better part of two decades to arrive at a moment when tech companies actually see themselves as competitors. It will be very interesting to see how this new-found competition plays out because the future of the FAANGs is going to tell us a lot about the future of Wall Street, considering the FAANGs represent over $3 trillion in market capitalization — roughly 13% of the entire S&P 500.

London is one of Uber’s largest and most lucrative markets, with 40,000 drivers and 3.5 million people who use the app once every 90 days. But that number may soon be reduced to zero. The city’s regulator, Transport for London, said it denied the license because Uber’s “approach and conduct demonstrate a lack of corporate responsibility.”

Its license will expire on Sept. 30, although the company has 21 days to appeal—which it intends to do—and can carry on operating during the appeal process. The move is a win for taxis, but maybe not so much for customers.

The federal government told election officials in 21 states, including Arizona, that hackers targeted their systems last year, although in most cases the systems were not breached.

The government told The Associated Press last year that more than 20 states were targeted by hackers believed to be Russian agents before the 2016 elections. But for many states, the calls Friday from the Department of Homeland Security were the first official confirmation of whether their states were on the list.