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

Roll a Grenade onto the Dance Floor

Sinclair Noe — November 15, 2017

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

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DOW – 138 = 23,271
SPX – 14 = 2564
NAS – 31 = 6706
RUT – 7 = 1464
10 Y – .05 = 2.34%
OIL – .41 = 55.29
GOLD – 2.20 = 1278.60

Cryptocurrency

• Number of Currencies: 903
• Total Market Cap: $217,644,126,481
• 24H Volume: $8,010,823,675

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	7,213.1	$121.02B	$3.82B	47.72%	1	-0.83%	-1.47%
	Ethereum	ETH	327.51	$31.52B	$646.25M	8.07%	0.0455803	-1.02%	+5.52%
	Bitcoin Cash	BCH	1,082.90	$18.53B	$1.32B	16.49%	0.152684	-8.53%	+75.34%
	Ripple	XRP	0.20900	$8.18B	$128.81M	1.61%	0.00002934	+0.10%	-3.20%
	Litecoin	LTC	63.660	$3.44B	$191.03M	2.38%	0.00883695	+0.57%	+1.18%
	Dash	DASH	423.00	$3.26B	$99.83M	1.25%	0.0587124	+0.48%	+31.52%
	IOTA	MIOTA	0.76800	$2.13B	$96.90M	1.21%	0.00010624	-2.41%	+52.56%
	NEO	NEO	29.497	$1.91B	$41.67M	0.52%	0.00407884	+0.70%	-6.79%
	Monero	XMR	123.76	$1.90B	$53.22M	0.66%	0.0171033	+2.29%	+7.67%
	NEM	XEM	0.20218	$1.75B	$6.76M	0.08%	0.00002697	-0.06%	-1.63%

The Dow industrials are now down for the month of November. The S&P and Nasdaq are also in the red for the month. Oil prices fell for a fourth session after data showed an increase in crude and gasoline stockpiles. The S&P 500 energy sector notched a four-day decline of 4 percent, its weakest such period in 14 months.

Since the third-quarter reporting season began a month ago, companies saying earnings will beat analyst estimates have outnumbered those predicting they will miss by a ratio of 1.2-to-1. That’s the highest for any similar stretch since 2010. And the S&P 500 is down about 1.5% from its record high on Nov. 7. Even with the pullback, the S&P 500 is up a healthy 14.5 percent this year.

Unlike October’s broad market rally, fewer stocks and sectors have been notching gains this month, and the latest market decline reflects that. Equity bulls says there’s more to come if you can ride out the current storm. Bears say this could be an early indicator of an even bigger drop. The truth is probably somewhere in between.

The gap between two- and 10-year Treasury yields shrunk to a new low for the year on Wednesday at 64 basis points, which is down from 136 basis points at the end of last year and the smallest difference since 2007. This move is important because a narrowing yield curve is typically associated with slower economic growth, and a full-on inversion is a sign that a recession is on the horizon.

The other big concern in markets right is junk bonds. The market has also suffered a swift and sharp selloff in the last week. Investors are now demanding an extra 4.06 percentage points in yield to own U.S. dollar-denominated corporate debt rather than Treasuries.

The tax bill working its way through Congress just gets worse and worse. We keep hearing that this is a tax cuts for middle class America but that’s just temporary. Tax cuts for individuals would expire in a few years under the Senate plan, which means tax cuts today would end up being tax hikes tomorrow. Cuts in business taxes, however, would remain permanent.

The tweaks by Senate Finance Committee Chairman Orrin Hatch on Tuesday largely move to make the bill comply with Senate budget rules. Major analyses so far have estimated that versions of the Senate bill would cut the tax burden on most Americans. However, millions of middle-income people could end up seeing a tax increase, due to the plan’s elimination of provisions like state and local tax deductions.

Also, yesterday, the Senate tossed in the idea of repealing the individual mandate in the Affordable Care Act, eliminating the requirement that people have insurance coverage. They tried this with the skinny repeal over the summer, and it did not pass. Now they are bringing back the failed idea, and they still don’t have anything to replace Obamacare, just sort of repeal it, or kill it off. Obamacare has many moving parts that interact with each other. The individual mandate has a particularly strong tie to the law’s protections for people with pre-existing conditions.

The rationale is that if the government is going to force insurance companies to cover everyone, then it must deliver a big insurance pool with a lot of healthy people in it. About 70% of people support the idea of having protections for pre-existing conditions. The individual mandate is a little less popular; about 50% supported that piece of the puzzle and 47% oppose – call it an even split.

In August 2017, pollsters framed the issue in terms of “President Trump taking actions to make the law (Obamacare) fail.” Put that way, only one-third, 31 percent, said they wanted Trump to stop enforcing the mandate, and two-thirds said it should be enforced.

The idea behind eliminating the individual mandate in tax legislation is that it would save the federal government about $338 billion over 10 years – and the tax cut writers need to find some more money because the tax plan as written blows a “too big” hole in the deficit – even if 13 million people would lose insurance coverage, and premiums for insurance coverage go up 10% for those remaining.

Just a side note – this is Obamacare open enrollment season and Americans enrolled in almost 1.5 million Affordable Care Act health plans on healthcare.gov in the first 11 days of the open enrollment period, a 47 percent increase over a similar period last year.

Then today, they toss in the idea of making individual taxpayers cuts temporary. Federal debt as a percentage of GDP is only going up, and at some point, Congress will no longer be able to keep putting off the day of reckoning. Meanwhile, hardly any taxpayers are going to put money aside in anticipation of higher taxes in 2026, setting the stage for a national financial shock.

In a word, this idea is just stupid. If tax cuts aren’t permanent, they shouldn’t be there.

White House economic advisor Gary Cohn was a guest speaker at the Wall Street Journal’s CEO Council. Republicans and the Trump administration have argued that tax cuts for businesses would lead companies to investment more and raise wages for workers. The moderator then asked those in attendance whether they were planning to increase their business investment if the tax bill became law. A few hands were raised, but most – the clear majority –  stayed down.

Today, Senator Ron Johnson of Wisconsin said he won’t vote for the current tax plan. Johnson, a businessman before he became senator, contends the current plan helps big corporations more than smaller companies. He said he’s also frustrated by the rushed process to pass tax legislation.

Johnson is a Republican. There are 52 Republican senators. If 2 more oppose the legislation – it is dead on the vine. A final vote on the House’s version of the tax-overhaul is expected on Thursday. The senate plans to vote before Thanksgiving – if they can whip the votes.

Retail sales slowed in October after a sharp gain in the prior month. Sales rose 0.2% in October. Sales rose a revised 1.9% in September, up from the prior estimate of a 1.6% gain, boosted by post-hurricane spending.

Excluding autos, sales rose 0.1% after a 1.2% gain in September. Economists were expecting a 0.2% gain. Sales excluding autos and gasoline climbed 0.3%. Growth in consumer spending has been healthy, with retail sales up 4.6% over the past year. Today’s retail numbers, although down from the previous month, still look positive for the economy heading into the holiday shopping season.

The consumer price index, or prices at the retail level, rose 0.1% in October, held down by falling energy prices, the Labor Department said. This was in line with forecasts. If food and energy are stripped out, core CPI rose a slightly larger 0.2%.

The drop in energy prices in the CPI pushed the yearly rate of inflation down to 2% from 2.2% in September. Yet the more closely followed core rate rose at a 1.8% annual rate, up from 1.7% in September and the fastest pace since April.

Adjusted for inflation, hourly wages fell 0.1%. Over the past year “real” wages have risen just 0.4%. The producer price index, a measure of inflation at the wholesale level, increased 0.4 percent last month after a similar gain in September. That lifted the year-on-year increase in the PPI to 2.8 percent, the largest rise since February 2012.

Inflation by the Fed’s preferred measure, core personal consumption expenditures (PCE), was just 1.6 percent in September. Wages are rising slightly, American consumers are spending their money and prices are following suit in signs that a continued economic recovery sets the stage for a Federal Reserve rate rise in December and the cycle beyond that, despite concerns over low levels of inflation.

Cisco Systems reported a 3.1 percent rise in quarterly profit, driven by growth in its newer areas, such as security, and lower expenses. Net income rose to $2.39 billion, or 48 cents per share, in the first quarter ended Oct. 28, from $2.32 billion, or 46 cents per share, a year earlier. Total revenue fell to $12.14 billion from $12.35 billion.

Mattel has rebuffed Hasbro’s latest takeover approach. Mattel has informed Hasbro its proposal undervalues the company and does not take sufficiently into account the potential for regulators to reject the deal based on antitrust concerns. The terms of any possible deal have not been revealed and it is not clear whether negotiations between the two companies will continue.

Target earned a profit of 91 cents per share in the third quarter, beating the average estimate of 86 cents. Sales rose 1.4 percent to $16.67 billion, topping the average estimate $16.61 billion. Third-quarter same-store sales topped estimates, rising 0.9 percent in the quarter, and price cuts drove a 24 percent jump in comparable online sales. Shares dropped about 10% today.

Target’s holiday-quarter profit forecast fell short of analyst expectations. Target has missed Wall Street’s fourth-quarter profit expectations for the past two years. It is gearing up for the holidays by cutting prices and introducing delivery options to compete with Wal-Mart and online sellers, moves that can lure customers but crimp margins.

Wal-Mart reports earnings tomorrow.

Equities take a Ride on the Global Stock Slide

Charles Schwab: On the Market

Posted: 11/15/2017 4:15 PM EST

Equities take a Ride on the Global Stock Slide

 

Domestic stocks traded lower, joining a global equity slump as global market participants remain uncertain about the prospect of a successful overhaul of U.S. tax policy. Treasury yields were lower and the U.S. dollar was mostly flat after recovering from some early pressure. In equity news, tech stocks led the decline and a cautious outlook from Target weighed on consumer discretionary listings. Crude oil prices added to a recent selloff and gold reversed to the downside. 

The Dow Jones Industrial Average (DJIA) fell 138 points (0.6%) to 23,271, the S&P 500 Index lost 14 points (0.6%) at 2,565, and the Nasdaq Composite declined 32 points (0.5%) to 6,706. In moderate volume, 844 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.37 to $55.33 per barrel and wholesale gasoline was $0.02 lower at $1.74 per gallon. Elsewhere, the Bloomberg gold spot price ticked $1.79 lower to $1,278.46 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 93.79.

Target Corp. (TGT $54) reported Q3 earnings-per-share (EPS) of $0.87, or $0.91 ex-items, versus the $0.86 FactSet estimate, as revenues increased 1.4% year-over-year (y/y) to $16.7 billion, above the projected $16.6 billion. Q3 same-store sales rose 0.9% y/y, topping the expected 0.4% gain. TGT said it was pleased with its Q3 performance, including traffic and sales growth that demonstrate it is building on the progress it saw in the first half of the year. The retailer issued Q4 EPS guidance with a midpoint below estimates, while its same-store sales outlook had a midpoint above expectations, as it added that it expects the Q4 environment to be highly competitive but it is confident in its holiday season plans. TGT raised its full-year guidance. Shares traded sharply lower.

Shares of Acorda Therapeutics Inc. (ACOR $17) tumbled after the company announced that some patients had developed a severe blood infection called sepsis and some died during a late-stage trial of its treatment for Parkinson's disease.

Retail sales and consumer price inflation roughly match expectations

Advance retail sales (chart) for October rose 0.2% month-over-month (m/m), compared to the Bloomberg forecast of a flat reading and compared to September's upwardly revised 1.9% increase. Last month's sales ex-autos were up by 0.1% m/m, versus expectations of a 0.2% gain, and following the favorably revised 1.2% increase seen in the previous month. Sales ex-autos and gas gained 0.3% m/m, in line with estimates, and versus September's upwardly revised 0.6% gain. The retail sales control group, a figure used to help calculate GDP, increased 0.3%, matching projections, and versus the prior month's favorably revised 0.5% gain.

Sales gains were widespread, led by activity at sporting goods, hobby, book and music stores, food services and drinking places, clothing stores, and auto dealers. However, sales declined at gasoline stations, building material and garden equipment stores, and at nonstore retailers, which includes on line shopping.

Today's report, highlighted by the positive upward revisions to September's figures, suggests the consumer remains relatively healthy heading into the key holiday shopping season. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest, Schwab Sector Views: 'Tis the Season…Almost, much of the U.S. economy arguably comes down to how the consumer is faring. Brad adds that it would be difficult to view the status of the consumer as anything less than mostly positive with unemployment historically low, wages trending higher and still low interest rates conspiring to boost consumer confidence. He concludes that this holiday season could shape up to be a solid one but offers some headwinds facing retailers that lead us to maintain our marketperform rating for the consumer discretionary sector.

The Consumer Price Index (CPI) (chart) ticked 0.1% higher m/m in October, matching estimates, while September's 0.5% rise was unrevised. The core rate, which strips out food and energy, was up 0.2% m/m, in line with expectations and compared to September's unrevised 0.1% rise. Y/Y, prices were 2.0% higher for the headline rate, matching forecasts, while the core rate was up 1.8%, above of projections of a 1.7% increase. September's y/y figures showed unrevised 2.2% and 1.7% rises for the headline and core rates, respectively.

The Empire Manufacturing Index showed output from the New York region slowed but remained solidly at a level depicting expansion (a reading above zero) for November. The index decreased to 19.4 from October's unrevised 30.2 level—which was the highest since 2014—with forecasts calling for a decline to 25.1.

The MBA Mortgage Application Index rose 3.1% last week, following the prior week's flat reading. The increase came as a 6.3% jump in the Refinance Index was accompanied by a 0.4% gain in the Purchase Index. The average 30-year mortgage rate remained at 4.18%.

Business inventories (chart) were flat m/m in September, matching forecasts, and versus August's downwardly revised 0.8% increase.

Treasuries finished mostly higher, with the yield on the 2-year note little changed at 1.68%, while the yield on the 10-year note declined 5 basis points (bps) to 2.32% and the 30-year bond rate decreased 6 bps to 2.77%.

Treasury yields and the U.S. dollar remain under pressure as risk aversion appears to be continuing, with the global stock markets pulling back from the recent rally. Fiscal and monetary policy uncertainties are countering a relatively positive economic landscape, though caution has ramped up following soft Chinese economic data as of late. As such, check out our article, Does Low Market Volatility Portend a Market Tumble?, as well as Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's latest commentary, Tax Reform: Key Differences Between the Senate and House Plans.

Tomorrow, the U.S. economic calendar will offer the Import Price Index for October, expected to have increased 0.4% m/m, after rising 0.7% in September and weekly initial jobless claims, forecasted to have dipped to 235,000 from the previous week's level of 239,000. Additionally, we'll receive the Fed's October industrial production and capacity utilization report, forecasted to show production advanced 0.5% m/m and utilization ticked higher to 76.3%. The housing market will also garner attention with tomorrow's release of the NAHB Housing Market Index, with economists anticipating November's reading to inch lower to 67 from the 68 posted in October, where the 50 mark represents the point of separation for good versus poor conditions.

Europe sees pressure and Asia falls as global markets turn cautious

Most European equity markets traded to the downside, with energy and commodity-related issues seeing pressure amid the continued risk aversion in the markets, exacerbated by festering U.S. tax reform skepticism, recent disappointing Chinese economic data and the pullback in crude oil prices. However, Spanish stocks bucked the trend, bolstered by solid gains in the country's banking sector, which helped the European financial sector overcome early losses. The euro and the British pound were little changed versus the U.S. dollar, while bond yields in the region finished mixed. In economic news, the September eurozone trade surplus widened more than expected, while U.K. employment unexpectedly declined. As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, momentum favors the bulls for the foreseeable future, but elevated valuations and growing investor complacency pose risks that could lead to a long-awaited pullback and/or a pickup in volatility from today’s extremely low base.

Stocks in Asia finished broadly lower as the global markets appear to be skittish following the recent rally as U.S. tax reform uncertainty lingers and Chinese economic data has been softer than expected as of late. Japanese equities fell, with the yen gaining ground, while the nation reported Q3 GDP growth of 1.4% on a quarter-over-quarter annualized basis, missing the 1.5% projection and compared to the upwardly revised 2.6% expansion posted in Q2. Shares trading in mainland China and Hong Kong dropped, while stocks in Australia and South Korea also traded lower. Indian securities moved to the downside, on the heels of late-yesterday's disappointing October trade report.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his latest article, 5 Reasons Investors Should Give Thanks, the record breaking streak of gains in the global stock market this year has been supported by the broadest global economic growth in a decade. Stocks appear to closely track earnings growth, even where risks are most intense. Broad economic and earnings growth is expected to continue in 2018.

The international economic docket for tomorrow will include housing loans and machine tool orders from Japan, inflation expectations and employment data from Australia, the unemployment rate from France and retail sales from the U.K.

Financial Review

Pottery Barn Rules

Sinclair Noe — October 13, 2017

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

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DOW + 30 = 22,871
SPX + 2 = 2553
NAS + 14 = 6605 (Record)
RUT – 2 = 1502
10 Y – .04 = 2.28%
OIL + .80 = 51.40
GOLD + 10.20 = 1304.30

Cryptocurrency

• Number of Currencies: 878
• Total Market Cap: $174,223,159,809
• 24H Volume: $6,182,297,096

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	5,691.3	$94.45B	$2.96B	47.93%	1	+0.97%	+30.33%
	Ethereum	ETH	339.63	$32.22B	$1.21B	19.62%	0.059464	+0.64%	+9.88%
	Ripple	XRP	0.26146	$10.11B	$349.29M	5.65%	0.00004604	+0.43%	+11.40%
	Bitcoin Cash	BCH	325.94	$5.45B	$264.35M	4.28%	0.057233	+1.68%	-10.28%
	Litecoin	LTC	59.220	$3.17B	$249.71M	4.04%	0.0104192	+0.54%	+14.35%
	Dash	DASH	311.77	$2.37B	$67.24M	1.09%	0.0546181	+1.06%	+1.04%
	NEM	XEM	0.20990	$1.88B	$5.16M	0.08%	0.00003664	-1.15%	-0.03%
	NEO	NEO	29.105	$1.46B	$67.41M	1.09%	0.00513938	-1.00%	-13.10%
	Monero	XMR	94.67	$1.43B	$59.07M	0.96%	0.0165036	-0.19%	+3.51%
	BitConnect	BCC	198.286	$1.42B	$17.34M	0.28%	0.0348017	-0.24%	+40.39%

The Dow Industrials hit an intraday high but then faded to close just below Wednesday record closing high. The Nasdaq closed at a record high.

For the week, the Dow was up 0.4 percent and the S&P 500 was up 0.2 percent, pushing the Dow and the S&P 500 to a fifth straight week of gains. The Nasdaq rose 0.2 percent for the week, registering a third week of gains.

The consumer price index rose 0.5% in September, the second big increase in a row and the largest in eight months. Three-fourths of the increase in the cost of living stemmed from higher prices at the gas pump as Hurricane Harvey knocked refineries off line. If food and energy are stripped out, core CPI rose a much smaller 0.1%.

The recent energy-driven rise in CPI pushed the yearly rate of inflation to 2.2% from 1.9% to match a six-month high. Yet the more closely followed core rate was unchanged at 1.7% for the fifth month in a row. Adjusted for inflation, hourly wages fell 0.1%. Over the past year “real” wages have risen just 0.7%.

The Social Security Administration announced today that more than 65 million recipients will get a 2% cost-of-living adjustment (COLA) in 2018, after receiving a measly 0.3% boost in 2017 and no increase for inflation in 2016. That means the average benefit for a retired worker will rise by $27 a month to $1,404 in 2018 while the average benefit per retired couple will grow $46 a month to $2,340.

But many recipients will find most or all of that increase eaten up by a jump in the Medicare Part B premiums deducted from their monthly Social Security checks. The COLA affects benefits for more than 70 million U.S. residents, including Social Security recipients, disabled veterans and federal retirees. That’s about one in five Americans.

Retail sales in the U.S. leapt 1.6% in September—the largest increase in 2½ years. The boost came from new autos and trucks. Excluding autos, sales rose 1%. And sales excluding autos and gasoline climbed a smaller but still robust 0.5%. Sales of cars and trucks surged last month after a disappointing August.

Part of the rebound reflected the purchase of replacement vehicles after many were damaged by hurricane-related flooding in Texas and Florida. Home-supply stores also got a bump in the cleanup that followed the storms. Higher gasoline prices lifted sales at gas stations dealers as well. We weren’t buying more gas, just paying more.

The University of Michigan said its consumer sentiment index climbed to a 13-year high of 101.1 in October from 95.1 in September. There were big gains in both the index for current economic conditions, which rose to 116.4 from 111.7, and expectations, which rose to 91.3 from 84.4.

Yesterday we told you that Trump had signed an executive order that makes it easier for individuals and small businesses to buy alternative types of health insurance with lower prices, fewer benefits and weaker government protections.

Yes, the policies would cost less, but they are basically don’t get sick plans. Still, these junk plans sold through associations could siphon young and healthy patients out of the ACA’s exchanges and create an individual-market death spiral. But the order is vague and subject to likely legal challenges.

The administration announced late last night that Trump will immediately halt cost-sharing reductions. These $7 billion in annual subsidies to health insurers allow around 7 million low-income Americans to afford coverage. The ACA requires that insurers subsidize the out-of-pocket health-care costs of some low-income patients, and the government reimburses them — until now. You might think that ending the subsidies to insurers would cut costs, but no.

The move could force the government to dole out almost $200 billion more on health insurance over the next decade. Here’s why: The insurer payouts Trump cut off aren’t the only government funds financing the program. Consumers also can get help with their insurance premiums.

When the insurer subsidies are discontinued, those premiums are pushed higher — and because the consumer subsidies are far bigger than those given to insurers, that’s a costly trade. More than eight in ten individuals who buy Obamacare plans get help paying their premiums directly from the federal government. Those subsidies effectively cap how much people must pay for insurance as a percentage of their income.

Even if premiums climb, people who receive those benefits won’t pay more out of their own pockets. The subsidies are available to people making as much as four times the federal poverty level, or just over $97,000 for a family of four. That means that those most likely to be hurt by the president’s action aren’t low-income people who will still get help with their costs.

Instead, consumers who make too much money to qualify for subsidies will now have to pay a much higher price for their health plans. It all adds up to a hefty bill for taxpayers for as long as the Affordable Care Act is the law of the land. The Congressional Budget Office estimated that ending the cost-sharing payments would increase the U.S. fiscal shortfall by $194 billion over the next decade as subsidy outlays jump.

The uncertainty about what Trump would do has already driven premium prices higher for 2018. Now it’s going to get worse. The fifth year’s open-enrollment season for consumers to buy coverage through ACA exchanges will start in less than three weeks, and insurers have said that stopping the cost-sharing payments would be the single greatest step the Trump administration could take to damage the marketplaces.

Ending the payments is grounds for any insurer to back out of its federal contract to sell health plans for 2018. After the failure to repeal and replace Obamacare, there was some talk about trying to find ways to make the ACA better, but instead, this is intentionally destroying the marketplace. Obamacare had its problems but it was working and he had a chance to fix those problems. Yes, this is a bargaining tactic to try to revive repeal and replace – the problem is the GOP has not been able to come up with a better replacement.

And as a bargaining position, it might not work. The Congressional Budget Office ran projections for just such a possibility. They figure about one million people could lose insurance coverage and the price hikes will be passed along to the federal government. But they also calculate that individual states will figure out schemes to overcome the loss of subsidies.

An unusually broad alliance of interests has urged Congress to appropriate the money, signaling just how disruptive their loss could be. Or Congress could decide to just pay the subsidies. Trump tried to shift blame, tweeting that the Democrats Obamacare is imploding. Not true. Remember the Pottery Barn rules: Yes, the plate you just shattered had some cracks in it. But if you throw it on the ground, the store is going to blame you. You break it, you own it.

Meanwhile, Trump’s campaign against the Iran nuclear deal came to a head today, when he refused to certify that Iran was in compliance with the agreement. Trump stopped short of withdrawing from the deal or of reimposing sanctions on Iran himself, instead sending the deal back to Congress, which will have 60 days to decide whether to re-implement sanctions or alter legislation that covers US participation in the accord.

Bank of America picked up where JPMorgan Chase and Citigroup left off on Thursday when it reported strong core banking numbers and lackluster trading revenue. Bank of America reported earnings per share of 48 cents on revenue of $22.07 billion.

Both numbers topped consensus analyst estimates of 45 cents and $21.97 billion, respectively. BAC also reported a 22 percent decline in fixed-income trading revenue, which dropped to $2.152 billion. Bank trading revenues have suffered in 2017 thanks to historically low volatility in global financial markets.

Wells Fargo reported third quarter revenue that missed expectations Friday. The bank reported: Earnings per share of $1.04, ex-items, vs. the $1.03 a share expected by analysts. Revenue of $21.93 billion, vs. $22.4 billion expected. Revenue fell 2 percent from the same quarter last year. Shares fell more than 3 percent in trading Friday.

The adjusted earnings per share excludes 20 cents of charges related to litigation for a mortgage-related regulatory case from before the financial crisis – not related to the fake account schedule. The litigation cost of $1 billion contributed to an operating loss of $1.3 billion in the third quarter.

BASF has agreed to buy seed and herbicide businesses from Bayer for $7 billion in cash, as Bayer tries to convince competition authorities to approve its planned acquisition of Monsanto. BASF, the world’s third-largest maker of crop chemicals, has so far avoided seed assets and instead pursued research into plant characteristics such as drought tolerance, which it sells or licenses out to seed developers. But Bayer’s $66 billion deal to buy Monsanto, announced in September 2016, has created opportunities for rivals to snatch up assets that need to be sold to satisfy competition authorities.

And finally, for triskaidekaphobics, we finish with a story from Finland, where FinnAir – the airline of Finland – has been routinely flying for several years from Copenhagen Denmark to Helsinki Finland. The one-hour flight had somehow been assigned the Flight number 666. The airport code for Helsinki is HEL.

Well, that left a more than a few travelers nervous, and so FinnAir is changing the Flight number to AY954. Today, Friday the 13^th was the last time to catch flight 666 to HEL

Markets Rebound from Three-Day Skid

Charles Schwab: On the Market

Posted: 8/11/2017 4:15 PM ET

Markets Rebound from Three-Day Skid

U.S. equities finished the week on a high note following a three-day slide that has come courtesy of escalating tensions between North Korea and the U.S. Treasury yields were mixed and the U.S. dollar was nearly flat, as another lackluster inflation report appeared to have dampened expectations of another Fed rate hike this year. Crude oil inched higher gold extended a recent rally. Meanwhile, J.C. Penney and Snap posted larger-than-expected losses and NVIDIA's quarterly results faced some scrutiny.

The Dow Jones Industrial Average (DJIA) advanced 14 points (0.1%) to 21,858, the S&P 500 Index was 3 points (0.1%) higher at 2,441, and the Nasdaq Composite rose 40 points (0.6%) to 6,257. In moderate volume, 790 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.23 higher to $48.82 per barrel and wholesale gasoline was up $0.01 at $1.61 per gallon. Elsewhere, the Bloomberg gold spot price gained $4.45 to $1,290.98 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 93.06. Markets were lower for the week, as the DJIA decreased 1.1%, the S&P 500 Index fell 1.4% and the Nasdaq Composite was 1.5% lower.

J.C. Penney Co. Inc. (JCP $4) reported a Q2 loss of $0.20 per share, or $0.09 ex-items, versus the FactSet estimate of a $0.04 per share shortfall, as revenues increased 1.5% year-over-year (y/y) to $3.0 billion, topping the projected $2.8 billion. Q2 same-store sales declined 1.3% y/y, versus the expected 1.2% decrease. JCP said it liquidated inventory in 127 off its closing stores which had a negative impact on gross margin and earnings-per-share (EPS). The company added that while broader retail remains challenged, nearly all categories delivered improved sales results, and it is encouraged by the improved performance in its total apparel business. JCP reaffirmed its full-year guidance. Shares tumbled.

NVIDIA Corp. (NVDA $155) posted Q2 EPS of $0.92, or $1.01 ex-items, versus the projected $0.70, as revenues rose 56.0% y/y, or up 15.0% quarter-over-quarter, to $2.2 billion, north of the expected $2.0 billion. The graphics chipmaker's gaming revenue topped expectations, but its data center sales missed forecasts and its gross margin came in a bit shy of estimates. NVDA issued Q3 revenue guidance with a midpoint above forecasts. Shares fell as the Street scrutinized the data center and margin results.

Snap Inc. (SNAP $12) announced a Q2 loss of $0.36 per share, wider than the forecasted $0.30 shortfall, as revenues rose 153.0% y/y to $182 million, south of the estimated $186 million. The social media company's daily active users missed expectations and shares saw heavy pressure.

Consumer price inflation misses forecasts

The Consumer Price Index (CPI) (chart) ticked 0.1% higher month-over-month (m/m) in July, versus the Bloomberg estimate calling for a 0.2% gain, while June's flat reading was unrevised. The core rate, which strips out food and energy, also nudged 0.1% to the upside m/m, compared to expectations of a 0.2% increase and matching June's unrevised rise. Y/Y, prices were 1.7% higher for the headline rate, below forecasts of a 1.8% rise, while the core rate was up 1.7%, in line with projections. June y/y figures showed an unrevised 1.6% rise and an unadjusted 1.7% increase for the headline and core rates respectively.

Prices for shelter, medical care, recreation and apparel all rose, slightly more than offsetting declines for autos, communication and household furnishing. The core rate remained below the Fed's 2.0% target for the third-straight month, causing uncertainty regarding if the Central Bank has one more rate hike in it this year as it also aims to start to shrink its behemoth $4.5 trillion balance sheet.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her article, Fed Keeps it on the QT, the period of weak inflation continues, which Fed chair Janet Yellen has suggested is somewhat due to temporary factors. However, to date, the Fed has raised rates four times; yet over that same period, financial conditions have actually loosened. This is why the Fed feels it can continue to tighten policy in the face of lower inflation. Liz Ann adds that the Fed has signaled that September is likely the start point to balance sheet shrinkage, but eyes will be on the Jackson Hole annual conference and a potential debt ceiling stand-off for opportunities to further steer consensus around that timing. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Treasuries finished mixed, as the yield on the 2-year note declined 3 basis points (bps) to 1.29%, while the yield on the 10-year note dipped 1 bp to 2.19% and the 30-year bond rate ticked 1 bp higher to 2.79%.

Treasury yields and the U.S. Dollar Index have seen pressure in choppy action as this week's subdued inflation data is meeting continued global market skittishness amid the flare-up geopolitical tensions. For analysis of the bond markets and the greenback see Schwab's Chief Fixed Income Strategist Kathy Jones' articles, Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer' on the Fixed Income page at www.schwab.com and Dollar Decline: Time to Shift to International Bonds? Maybe Not, on the Markets & Economy page. Follow Kathy on Twitter: @kathyjones.

Europe and Asia continue to see pressure 

Most European equities extended a weekly slide, with all major market sectors seeing pressure. Global sentiment remained hampered by escalating tensions between North Korea and the U.S., which continued to foster risk aversion. The euro rose and British pound was little changed versus the U.S. dollar, while bond yields in the region lost ground. In economic news, inflation data out of Germany and France matched expectation for July. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, points out in his article, What are fund flows telling us about trends and risks in the global stock market?, that the money coming into ETFs is flowing into a broad range of stock markets featuring a preference for international stocks and revealing a surprising disconnect with the performance and geopolitical risk of the underlying markets. Read more as well as his commentary, An important benefit to global investors is back after 20 years on the Markets & Economy page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop. However, healthcare issues gained solid ground to help German markets stabilize.

Stocks in Asia fell broadly after yesterday's solid drops in the U.S. and Europe as the global markets continue to rein in risk appetites amid ramped-up tensions between the U.S. and North Korea as rhetoric from both sides escalate. The Japanese yen rallied but markets in Japan were closed for a holiday. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors are best served when grim headlines are in the news by remembering that geopolitical risks are a regular part of investing and that a long history of geopolitical developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are most often the result. Investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. Read more on the International Investing page at www.schwab.com.

Stocks in South Korea fell sharply, as did those traded in mainland China and Hong Kong, with the global uneasiness being met with reports that Chinese regulators are investigating the nation's internet companies for cyber-security violations. After the closing bell, Hong Kong reported stronger-than-expected Q2 GDP growth. Australian securities traded noticeably to the downside and India's markets were lower. After the markets closed, India reported an unexpected dip in industrial production for June.

Stocks Fall as volatility sparks up

U.S. stocks fell on the week as volatility showed signs of life on ramped-up geopolitical concerns, with the U.S. and North Korea lobbing threats and warnings at each other. The earnings and economic fronts delivered mixed results to further dampen conviction. The Street cheered Michael Kors Holdings Ltd's (KORS $45) and Ralph Lauren Corp's (RL $84) better-than-expected earnings despite declining sales but jeered similar results from Macy's Inc. (M $21) and Kohl's Corp. (KSS $39). Dow member Walt Disney Co. (DIS $102) came under pressure after its topline and bottomline results diverged and analysts' scrutinized its new streaming service deal and plans. Of the 454 companies in the S&P 500 that have reported earnings so far, about 68% have topped revenue forecasts and roughly 78% have exceeded earnings projections, per data compiled by Bloomberg.

While inflation figures were cooler than expected, the Labor Department's Job Openings jumped to a record high and small business optimism improved to the highest since February. The U.S. dollar, Treasury yields and crude oil prices all finished lower on the week, along with most major market sectors, though consumer staples issues eked out a weekly advance.

Next week, the retail sector will remain in focus as Dow members Wal-Mart Stores Inc. (WMT $81) and Home Depot Inc. (HD $155), along with Target Corp. (TGT $56), will put the finishing touches on earnings season, while we will get the release of July retail sales. The housing market will also garner attention amid the releases of the NAHB Housing Market Index, as well as housing starts and building permits (economic calendar). Rounding out the busy week, the Fed will deliver its industrial production and capacity utilization report and the minutes from its July meeting, while we will get our first look at the consumer for August, in the form of the preliminary University of Michigan Consumer Sentiment Index.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers timely analysis of the retail and housing sectors, as well as our latest commentary on the consumer in his Schwab Sector Views: Time to "Energize" Your Portfolio? As noted in the latest Schwab Market Perspective: Things are Looking Good … But are They Too Good?, the bull market should continue but the risk of a "melt-up" appears to be rising. The U.S. economy is growing modestly and the Federal Reserve is maintaining its slow pace of policy normalization—both supports for further equity market gains, but geopolitical risk remains elevated. While the weaker U.S. dollar is a benefit for U.S. companies, there is a downside internationally … but it may not be where you think. Read these articles on the Markets & Economy page at www.schwab.com and follow us on Twitter: @schwabresearch.

International reports due out next week that deserve a mention include: Australia—employment change. China—lending statistics, retail sales, industrial production and property prices. India—trade balance and inflation statistics. Japan—Q2 GDP and trade balance. Eurozone—industrial production, Q2 GDP, trade balance, CPI, and the minutes from its July monetary policy meeting. U.K.—inflation statistics, employment change and retail sales.

Financial Review

Complacency Abounds

Sinclair Noe — July 14, 2017

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

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DOW + 84 = 21,637 (record)
SPX + 11 = 2459 (record)
NAS + 38 = 6312
RUT + 3 = 1428 (record)
10 Y – .03 = 2.32%
OIL + .52 = 46.60
GOLD + 11.10 = 1229.40
BITCOIN – 3.39% = 2156.96 USD
ETHEREUM – 5.51% = 187.69

Washington is in gridlock and the White House faces scrutiny. Valuations are at the highest levels since the financial crisis. There’s been straight months of outflows from the biggest exchange-traded fund tracking the S&P 500.

So, what happened today? Record highs for the Dow, S&P 500, and Russell 2000. The Nasdaq is within 10 points of a record. The CBOE Volatility Index ended at 9.51, a 24-year low, falling 15 percent.

We start with economic data. The Commerce Department said retail sales fell 0.2 percent in June as Americans curtailed spending at restaurants, department stores and gasoline stations. That followed a 0.1 percent drop in May. Most retail segments posted weaker results in June.

Sales at gas stations posted the biggest drop, down 1.3%, reflecting lower prices at the pump. Sales also fell at grocers, restaurants, book stores, sporting-goods stores and department stores. Auto dealers reported a small increase in sales, but they are not moving new cars off the lots as quickly as they were a year ago.

Meanwhile, the Labor Department said consumer prices were flat in June, the latest evidence that inflation remains muted. All told, inflation has climbed just 1.6 percent from a year ago. In June, energy prices sank 1.6%. Americans paid less for gasoline, natural gas and electricity. The cost of food leveled off in June after five straight increases.

The core rate of inflation that excludes the volatile food and energy categories rose 0.1% in June. Grocery prices have declined in the past year, but the cost of takeout and eating out has risen sharply. Over the past 12 months the core CPI is up 1.7%, unchanged from the prior month.

The University of Michigan’s sentiment index slipped to 93.1 in July from 95.1 in June. The index has fallen from a 13-year high of 98.5 in January. Americans feel plenty confident in the economy right now, but seem convinced we’re all headed for hell in a handbasket.

An index that measures current conditions rose to 113.2 to set a 10-year high, but a gauge that looks out six months fell to 80.2 from 83.9. The outlook of consumers is now back to where it was before the November election.

Industrial production rose 0.4% in June, a touch ahead of expectations and the fifth straight month of increases, as mining output surged 1.6%; mining includes the oil and gas sector. The Federal Reserve reported utilities output as flat and manufacturing output edged up 0.2%.

Economic forecasts are revising estimates for second quarter GDP lower, to the range of 1.9% to 2.5%. At the start of the second quarter estimates topped 3% growth. The economic data confirms a lack of inflation and a sluggish economy that fits with dovish statements from the Federal Reserve policymakers this week.

At this rate, we may have seen the last rate hike from the Fed for this year. The Fed still wants to trim its balance sheet, but 1.6% inflation and weak retail sales is hardly justification to hike rates.

The dollar dropped lower and treasuries rallied. Oil gained 1% today and 5% for the week.

Earnings season kicked off in earnest, with JPMorgan Chase, Citigroup and Wells Fargo all posting better-than-expected profits. Even though the bottom line was solid, they still faced challenges.

JPMorgan Chase reported a better-than-expected quarterly profit on Friday due to strong loan growth and higher interest rates, but said net interest income for the year would be lower than expected, sending its shares down about 2 percent.

JPMorgan earned $26.5 billion in profit over the past 12 months, the most ever by any major U.S. bank.

While trading results were worse than analysts’ estimated, second-quarter earnings set a record. The bank said that net interest income will probably climb $4 billion this year, less than the $4.5 billion it previously projected.

One area of weakness is mortgages, where the market may shrink and competition is stiff. JPMorgan said its markets revenue fell 14 percent in the second quarter. At Citigroup, trading revenue was down 7.2 percent.

On a conference call, JPMorgan CEO Jamie Dimon had a few choice words about Washington politics, choice as in four letter words we can’t repeat in print. Dimon also had trepidation about the Fed’s plans to unwind its balance sheet, saying: “We’ve never had QE like this before, and we’ve never had unwinding like this before.Obviously, that should say something to you about the risk that might mean, because we’ve never lived with it before.”

The Fed will likely announce the kick-off this year, possibly at its September meeting. The Fed’s plan calls for a phase-in period. It will unload $10  billion the first month and raise that to $50 billion over the next 12 months. Then it will continue at that pace to achieve its “balance sheet normalization.”

Just like the Fed “created” this money during QE to buy these assets, it will “destroy” this money at a rate of $50 billion a month, or $600 billion a year. It’s the reverse of QE, with reverse effects. QE had the intended effect: inflating asset prices. Unwinding QE, once it starts in earnest, is likely to pull asset prices in the opposite direction.

But given of how leveraged assets are, and to the enormous extent they have been used as collateral, Dimon – the banker who is concerned about collateral values – hit the nail on the head. It’ll be “a very different world.”

Citigroup posted earnings per share of $1.28 on revenue of $17.9 billion, topping analyst expectations on the top and bottom lines. That’s compared to earnings of $1.24 per share on $17.5 billion in revenue in the year-ago period.

Wells Fargo beat earnings expectations, as it benefited from higher interest rates, though revenue was lower than expected at $22.1 billion. At Wells Fargo, new car loans dropped by almost half in the second quarter, while its automotive portfolio fell to the lowest level in two years after the bank tightened underwriting standards.

Another cause for celebration earlier this week: court approval of a $142 million settlement of a class-action lawsuit between the bank and victims of its fake account scandal of 2016. The fiasco, you might remember, included claims that Wells Fargo employees opened up to 2 million bank and credit-card accounts without customers’ permission to boost sales numbers. Multiple class action suits followed, and the bank expects them to all fold into this settlement.

However, the bank’s first response was to veto the class action and send it to mandatory arbitration, which is an alternate form of resolving a dispute using an appointed independent party instead of the court system. It’s an option banks and financial institutions have written into contracts with consumers, and they use it to prevent consumers from joining together to pursue relief. Only after public pressure did the San Francisco bank agree to face the suit.

The big 3 banks all beat on the bottom line. There was a bit of disappointment on the guidance but overall, it’s been a good start to the earnings season.

Look for S&P 500 earnings in the range of 7%. Analysts have high hopes for earnings. Companies in the S&P 500 will earn $130 per share at year-end, compared with current trailing 12-month comparable earnings of about $120, according to data compiled by Bloomberg. That $10 spread is the widest between past and future earnings since 2001.

Expectations for tech profits have steadily climbed throughout the year, with analysts now calling for a 15 percent jump in the group’s bottom line.

Senate majority Leader Mitch McConnell has planned for a vote next week on revised healthcare legislation, unveiled yesterday, and he has his work cut out for him in the coming days to get the 50 “yes” votes needed for passage.

Republicans control the Senate by a 52-48 margin and cannot afford to lose more than two from within their ranks because of united Democratic opposition, but two Republican senators already have declared opposition. A dozen more Republican senators have expressed concern or remain noncommittal.

A major test for McConnell’s legislation expected early next week is an analysis by the nonpartisan Congressional Budget Office, which last month forecast that the prior version of the bill would have resulted in 22 million Americans losing insurance over the next decade.