Financial Review

Time Waits for No One

Sinclair Noe — May 8, 2017

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DOW + 5 = 21,012
SPX + 0.09 = 2399 (record)
NAS + 1 = 6102 (record)
RUT – 5 = 1391
10 Y + .02 = 2.38%
OIL + .28 = 46.50
GOLD – 1.90 = 1227.00

Emmanuel Macron defeated Marine Le Pen in France’s presidential election. The euro fell from six-month highs against the dollar in what looks like a “sell the news” reaction.

The dollar rose with Treasury yields on confirmation of Macron’s widely expected victory. The CBOE Volatility Index dropped to 9.77, marking its lowest close since 1993. The S&P 500 and the Nasdaq Composite traded at new intraday record highs. Macron won by a margin of 66 percent to 34 percent.

The rise of Le Pen’s National Front and France’s persistent economic and industrial problems made this campaign a referendum on Europe and globalization. Macron repeated that the big divide was between those who see an open economy as an opportunity and those who, like Le Pen, seem to fear the challenges it offers.

Macron’s decisive triumph over the anti-euro Marine Le Pen will likely strengthen the EU and deal a blow to the populist wave that has roiled western democracies for the past year.

On assuming office next Sunday as France’s youngest leader since Napoleon, the 39-year-old Macron faces the immediate challenge of securing a majority in next month’s parliamentary election to have a realistic chance of implementing his plans for lower state spending, higher investment and reform of the tax, labor and pension systems.

With the two mainstream parties – the conservative Republicans and the left-wing Socialists – both failing to reach the presidential runoff, his chances of winning a majority that supports his election pledges will depend on him widening his centrist base. Macro’s toughest task may be keeping the Euro Union intact.

The largest global banks in London plan to move about 9,000 jobs to the continent in the next two years. Thirteen major banks including Goldman Sachs, UBS, and Citigroup have given an indication of how they would bulk up their operations in Europe to secure market access to the European Union’s single market when Britain leaves the bloc.

Last week Standard Chartered and JPMorgan were the latest banks to outline plans for their European operations after Brexit. Talks with financial authorities in Europe have been underway for several months, but banks are increasingly firming up plans to move staff and operations.

Demand for bank loans from commercial and industrial firms was weaker in the first quarter. The Federal Reserve survey of senior loan officers showed standards for loans were basically unchanged. The officers said that they continued to tighten standards for commercial real estate, a process that economists said started in late 2015. Many officers cited regulatory reasons for tightening commercial real estate standards. There was also weaker demand for auto loans and credit cards.

The Arizona Regional Multiple Listing Service (ARMLS) reports that overall sales in in the Phoenix market April were up 4.5% year-over-year.  Cash Sales (frequently investors) were down to 22.5% of total sales. Active inventory is now down 11.0% year-over-year.  This is the sixth consecutive month with a YoY decrease in inventory following eight months with YoY increases. Supply and demand formulas would indicate higher prices.

Black Knight Financial Services reported that in the fourth quarter of 2016, 44% of refinances were cash-outs. The housing ATM is now back in working order. This percentage was the highest level of cash-outs in the last eight years.  What was happening eight years ago?

Straight Path surged more than 30 percent after an unnamed telecommunications company (possibly Verizon) raised its offer to buy the wireless spectrum holder for about $3.1 billion, topping a bid by AT&T.

Tyson Foods was the biggest S&P loser, down nearly 6 percent after the meat processor reported a slump in quarterly profit.

Sinclair Broadcast Group said it would buy Tribune Media, one of the largest U.S. television station operators, for about $3.9 billion cash and stock, and assume about $2.7 billion in debt. The $43.50 per share offer represents a nearly 8 percent premium to Tribune’s Friday close. Tribune operates 42 television stations in 33 markets.

Handbag maker Coach said it would buy Kate Spade for $2.4 billion as it looks to tap the popularity of its smaller rival’s quirky satchels and totes among millennials. The $18.50 per share offer in cash represents a premium of 9 percent to Kate Spade’s Friday close.

Amazon has a knack for making simple hardware popular. First, it was the humble e-reader. Now, it’s the voice-controlled speaker. Amazon holds a 70% market share in the new category, which it invented with the Amazon Echo in 2014, according to research from eMarketer.

The report says Google holds a 23% market share but may be poised to take more of the market in 2017. Researchers say 60 million Americans will use Amazon’s Alexa, Google Now, Microsoft’s Cortana, or Apple’s Siri at least once per month in 2017. For Amazon, this is great news.

The company has recently begun a campaign to make Alexa synonymous with voice assistants: Other developers can now use Alexa in their own applications, and the virtual personal assistant was shoe-horned into dozens of products on display at this year’s Consumer Electronics Show.

Amazon’s market share in voice-controlled speakers mirrors its success in another business, e-books. After killing off the competition from physical book stores like Borders, Amazon now enjoys a 74% share of the e-book market.

The Ira Sohn Conference is different things to different people. For young hedge-fund strivers, it’s high-priced networking. For the old guard, it’s a good show for a good cause. And for the hedge-fund presenters, the annual confab serves as a sort of debutante’s ball for new investment theses, a highly orchestrated and ritualized setting in which to trot out your most darling idea, primped and permed for the admiring gaze of the investing public.

Bill Ackman, Pershing Square, dragged one of his oldest investments out of the basement, threw a shiny new bow on top and presented it as if it were fresh goods. Ackman pimped Howard Hughes Corporation, a position he has held since its 2010 split from General Growth Properties. And it worked to the tune of a 4.5% gain today.

Meanwhile, Doubleline Capital’s Jeff Gundlach’s Sohn 2017 investment these: long emerging markets, short the S&P 500 (an actively managed index, Gundlach reminded us), and leverage it all once over. So, Jeff Gundlach wins Sohn 2017.

This weekend also marked a slightly more bourgeois shindig, the 2017 edition of the Berkshire Hathaway annual shareholder meeting. Much of the discussion centered around the advanced ages of Warren Buffett and Charlie Munger; Warren is 86 and Charlie is 93. Both seemed to acknowledge that time waits for no one.

Buffet said he would continue to run Berkshire until he is buried in the ground. Charlie looks more and more like Yoda with each passing year. Charlie Munger said the Chinese stock market is cheaper than the American stock market. Charlie also says that single-payer healthcare is the answer to fix the nation’s healthcare system woes.

Mr. Buffett said, “The tax system is not crippling our business around the world.” A specter much more sinister than corporate taxes is looming over American businesses: health care costs. And chief executives who have been maniacally focused on seeking relief from their tax bills would be smart to shift their attention to these costs, which are swelling and swallowing their profits.

Warren riffed on his misses as much as his hits. The investing legends twice talked about their failure to invest in Amazon despite having high praise for CEO Jeff Bezos. The Berkshire executives issued a mea culpa on missing out on Walmart and Google. Buffett called missing out on the two growth stories his “worst mistake” and told the nearly 40,000 assembled that he “blew it.” Buffet admitted he was disappointed with IBM, and he has dumped about one-third of his position recently.

Buffett has defended the Brazilian buyout house with which he attempted to take over Unilever, by saying 3G was only following a “standard capitalist” stance to doing business by slashing costs and cutting staff. He also acknowledged, though, that cutting jobs can be a “painful process”.

It wasn’t all bad news. Berkshire’s net worth increased by $27 billion last year, and the conglomerate has $86 billion of cash on hand. Berkshire Hathaway disclosed it more than doubled its stake in Apple during the first quarter. The stock hit an all-time intraday high and Apple’s market capitalization topped $800 billion.

The good news for Americans: life expectancy in the US increased more than five years from 1980 to 2014, up to 79.1 years. The bad news for Americans: your actual life expectancy could vary by more than 20 years depending on where in the US you happened to be born.

University of Washington researchers reported in a study published  today that the life expectancy from birth in the US varies from 67 years in Oglala Lakota County, South Dakota to 87 years in Summit County, Colorado. Counties with lower life expectancies tended to have higher rates of health conditions like obesity and diabetes, higher poverty rates, and higher proportions of minority residents.

In 13 counties across the U.S., Americans can now expect to die younger than their parents did. And the eight counties with the largest declines in life expectancy since 1980 are all in the state of Kentucky.

Globally, the US ranks 42nd in average life expectancy; Monaco has the longest, at 89.5 years, and Japan and Singapore tied for second with an average longevity of 85 years.

Thirsty for Direction

Charles Schwab: On the Market

Posted: 5/8/2017 4:15 PM ET

Thirsty for Direction

U.S. equities finished the first trading day of the week nearly where they began in the continued search for any sort of catalyst to move in one direction or the other amid sustained low volatility. The markets shrugged off the results to the highly-anticipated French Presidential election, softer-than-expected Chinese trade data and some large M&A deals. Meanwhile, Treasury yields were higher, while gold, crude oil prices and the U.S. dollar were little changed.

The Dow Jones Industrial Average (DJIA) rose 5 points to 21,012, the S&P 500 Index was unchanged at 2,399, and the Nasdaq Composite edged 2 points higher to 6,103. In moderate volume, 836 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.21 higher to $46.43 per barrel and wholesale gasoline increased $0.02 to $1.52 per gallon. Elsewhere, the Bloomberg gold spot price ticked $0.24 lower to $1,227.77 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat at 99.09.

Tyson Foods Inc. (TSN $60) reported fiscal Q2 earnings-per-share (EPS) of $0.92, or $1.01 ex-items, versus the $1.02 FactSet estimate, as revenues declined 0.9% year-over-year (y/y) to $9.1 billion, roughly in line with forecasts. TSN reaffirmed its full-year profit outlook. Shares were solidly lower.

Coach Inc. (COH $45) announced an agreement to acquire Kate Spade & Co. (KATE $18) for $18.50 per share in cash for a total transaction value of $2.4 billion. COH said the deal is expected to be accretive in earnings in fiscal 2018 and reach double-digit accretion by fiscal 2019. Shares of both companies were nicely higher.

Newell Brands Inc. (NWL $52) posted Q1 EPS of $1.31, or $0.34 ex-items, versus the expected $0.29, as core sales—excluding acquisitions and divestitures—grew 2.5% y/y and total revenues came in at $3.3 billion, topping the forecasted $3.2 billion. The consumer goods company raised its full-year earnings outlook and reaffirmed its revenue guidance. NWL rallied over 10%.

Sysco Corp. (SYY $55) reported fiscal Q3 EPS of $0.44, or $0.50 excluding the impact of its Brakes Group acquisition, compared to the expected $0.51, as revenues excluding the Brakes acquisition rose 2.3% y/y to $12.3 billion, but may be incomparable to the forecasted $13.1 billion. Shares finished lower.

Comcast Corp. (CMCSA $39) and Charter Communications Inc. (CHTR $323) announced an agreement for a wireless partnership. CMCSA was little changed, while CHTR was lower.

Sinclair Broadcast Group Inc. (SBGI $36) announced an agreement to acquire Tribune Media Co. (TRCO $42) for $43.50 per share in cash and stock, or about $3.9 billion, plus the assumption of approximately $2.7 billion in debt. SBGI was lower, while TRCO gained ground.

Consumer comes into focus this week

Treasuries fell amid a U.S. economic calendar that was void of any major releases today. The yield on the 2-year note gained 2 basis points (bps) to 1.33%, while the yield on the 10-year note rose 3 bps to 2.38%, and the 30-year bond rate advanced 4 bps to 3.02%.

For analysis of the interest rate environment, see our article, Mixed Signals: What Does Recent Economic Data Mean for Bonds?, on the Insights & Ideas page at www.schwab.com, where you can also find our latest commentary, Cash: What to Consider in the New Rate Environment. Follow Schwab on Twitter: @schwabresearch.

With earnings season well past the apex, the economic front will likely garner more attention this week, delivering April inflations readings such as the Import Price Index, Producer Price Index (PPI) and Consumer Price Index (CPI). However, the focus this week will likely be on the all-important U.S. consumer, courtesy of the releases of April retail sales and the preliminary May University of Michigan Consumer Sentiment Index.

However, the domestic economic calendar will get moving tomorrow with the release of the National Federation of Independent Business (NFIB) Small Business Optimism Index, forecasted to tick lower during April to a level of 104.0 from March's 104.7 level, followed by the Job Openings and Labor Turnover Survey (JOLTS), with economists expecting the measure of unmet demand for labor to show 5.74 million jobs were available to be filled in March, matching the prior month's reading.

Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, view in his latest Schwab Sector Views: Is Retail Really Dead?, that in our view, the status of the U.S. consumer looks to us to be quite solid and is showing signs of improving, with increasing wages, low unemployment and high confidence. There is no doubt that the retail landscape is changing, but that doesn't mean traditional retailers are dead. There will be winners and losers, as we've already seen, but the idea that retail is dying seems a bit far-fetched to us. Read more on the Markets & Economy page at www.schwab.com.

Finally, the political front remains in focus in the wake of last week's passage in the House of an Affordable Care Act replacement bill, which now faces the Senate. For commentary on the political front, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses What the Coming Tax Cuts Mean for the Stock Market on the Markets & Economy page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop. Moreover, see the video from Schwab's Vice President of Trading and Derivatives, Randy Frederick and Vice President of Legislative and Regulatory Affairs, Michael T. Townsend titled, Washington Overview: Budget Deals, Tax Reform, and Trump's 100-Day Mark, on the Insights & Ideas page at www.schwab.com. Follow Randy on Twitter: @randyafrederick.

Europe mostly lower following French election results, Asia mostly higher to begin week 

European equities finished mostly lower, with the markets reacting to the expected results from the final round of the French Presidential election over the weekend that delivered a victory for pro-Europe, mainstream candidate Emmanuel Macron over anti-EU Marine Le Pen. However, political uncertainty remained as U.K. Brexit negotiations continue and a vote looms in June for the nation, while Germany is slated to hold an election later this year, along with Italy. For analysis of the political uncertainty see Schwab's Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com, where you can also find our article, Brexit Begins: What's Next for the U.K?, while Director of International Research, Michelle Gibley CFA, offers her article, Europe Votes: Could More Countries Reject the EU? on the International Investing page at www.schwab.com. Oil & gas issues rebounded, despite choppy action for crude oil prices, while basic materials issues led to the downside following some relatively soft Chinese trade data. The markets shrugged off upbeat reports on German factory orders and eurozone consumer sentiment. The euro and British pound traded lower versus the U.S. dollar, while bond yields in the region were mixed.

Stocks in Asia finished higher to kick off the week, aided by Friday's stronger-than-expected U.S. labor report and final French Presidential election vote that offered no surprise to keep concerns cooled about the status of the eurozone. Basic materials and oil & gas issues rebounded from recent pressure, despite some softer-than-expected Chinese trade data. Stocks in both Japan and South Korea rallied in their return to action following holiday breaks, with continued weakness in the yen giving the former an additional push. Meanwhile, markets in China were mixed amid lingering concerns about regulatory crackdowns and following trade figures showing April exports and imports rose at smaller-than-expected y/y rates. Shares in mainland China declined and those trading in Hong Kong advanced. The strength in commodity issues gave Australia's markets a boost, while Indian equities posted a modest increase. For analysis of the global front amid the backdrop of trade and geopolitical uncertainty, see Schwab's Jeffrey Kleintop's, CFA, articles, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com, as well as, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com.

Tomorrow's international economic calendar will hold business confidence and retail sales from Australia, industrial production and trade data from Germany, and retail sales from Italy.

Rally Continues Courtesy of Profit Reports

Charles Schwab: On the Market

Posted: 4/25/2017 4:15 PM ET

Rally Continues Courtesy of Profit Reports

A number of upbeat earnings reports from Dow members gave the U.S. equity markets additional sustenance to add to yesterday's rally that was fueled by the results from the French Presidential election. Treasury yields added to their recent uptick, again benefitting financials, and crude oil ticked higher, while gold and the U.S. dollar were lower. On the economic front, Consumer Confidence slipped from a multi-year high, while new home sales surprisingly rose.

The Dow Jones Industrial Average (DJIA) soared 232 points (1.1%) to 20,996, the S&P 500 Index increased 14 points (0.6%) to 2,387, and the Nasdaq Composite broke above the 6,000 mark for the first time ever, rising 42 points (0.7%) to 6,025. In moderately-heavy volume, 930 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.33 higher to $49.56 per barrel and wholesale gasoline was unchanged at $1.63 per gallon. Elsewhere, the Bloomberg gold spot price fell $12.38 to $1,263.93 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 98.83.

Dow component Caterpillar Inc. (CAT $104) posted 1Q earnings-per-share (EPS) of $0.32 per share, or $1.28 ex-items, versus the forecasted $0.63, as revenues increased 3.8% year-over-year (y/y) to $9.8 billion, north of the expected $9.3 billion. CAT raised its full-year outlook. The company noted encouraging signs but pointed out that there continues to be uncertainty across the globe, potential for volatility in commodity prices and weakness in key markets. Shares rallied.

Dow member McDonald's Corp. (MCD $142) posted 1Q earnings of $1.47 per share, topping the expected $1.34, as revenues decreased 4.0% y/y to $5.7 billion, exceeding the forecasted $5.5 billion. Global same-store sales rose 4.0% y/y, above the expected 1.0% gain. The company said it saw a strong start to 2017, with positive same-store sales across all segments, higher global guest counts and enhanced profitability. MCD traded nicely higher.

Dow member 3M Co. (MMM $195) reported 1Q EPS of $2.16, above the FactSet estimate of $2.07, with revenues rising 3.7% y/y to $7.7 billion, topping the projected $7.5 billion. MMM raised its full-year guidance and shares were higher.

Dow member DuPont (DD $82) announced 1Q earnings of $1.52 per share, or $1.64 ex-items, compared to the projected $1.38, as revenues rose 5.0% y/y to $7.7 billion, above the estimated $7.5 billion. DD issued 2Q guidance that came in just shy of expectations. Shares were nicely higher.

Dow component Coca-Cola Co. (KO $43) reported 1Q EPS of $0.27, or $0.43 ex-items, versus the forecasted $0.44, with revenues declining 11.0% y/y to $9.1 billion, above the estimated $8.9 billion. KO raised the lower end of its full-year earnings outlook. Shares dipped.

Shares of Express Scripts Holding Co. (ESRX $60) fell after the pharmacy benefit management company announced that it will lose its biggest customer Anthem Inc. (ANTM $172) when their current contract expires in 2019. The two companies have been in a legal dispute regarding what ESRX has been charging ANTM for drugs. The news is overshadowing ESRX's earnings report and increased guidance.

Consumer Confidence dips from multi-year high, housing data remains upbeat

The Consumer Confidence Index (chart) declined to 120.3 in April from 124.9 in March, which was the highest level since December 2000, and compared to the Bloomberg estimate of a dip to 122.5. Sentiment toward the present situation and expectations of business conditions for the next six months both decreased from elevated levels. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—dipped to 11.7 from the 12.8 level posted in March.

New home sales (chart) rose 5.8% month-over-month (m/m) in March to an annual rate of 621,000, the highest since July 2016, above forecasts of 584,000 units, and compared to the downwardly revised 587,000 unit pace in February. The median home price was up 1.2% y/y at $315,100. New home inventory dipped to 5.2 months of supply at the current sales pace. Sales were up m/m in all regions, except the Midwest, but all are higher y/y. New home sales are based on contract signings instead of closings.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.9% gain in home prices y/y in February, versus expectations of a 5.8% increase. Month-over-month (m/m), home prices were up 0.7% on a seasonally adjusted basis for February, in line with forecasts.

The Richmond Fed Manufacturing Activity Index slipped but remained solidly in expansion territory (a reading above zero), after declining to 20 for April from the 22 posted in March, which was the highest since April 2010, and versus expectations of a 16 reading.

For a look at the housing market and its impact on the sectors, check out Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Housing—Building Bubble or Growing Trouble?, on the Markets & Economy page at www.schwab.com. Follow Schwab on Twitter: @schwabresearch.

Treasuries added to yesterday's decline that came in the wake of the reaction to the French Presidential election that appeared to ease political risk concerns. The yield on the 2-year note gained 4 basis points (bps) to 1.27%, while the yield on the 10-year note increased 3 bps to 2.31%, and the 30-year bond rate rose 5 bps to 2.98%. For a look at the bond markets, see Schwab's Chief Fixed Income Strategist, Kathy Jones' article, Three Reasons to Own Bonds When the Fed is Raising Interest Rates on the Markets & Economy page at www.schwab.com. Follow Kathy on Twitter: @kathyjones.

The markets remain optimistic regarding progress made on President Trump's tax-reform plans, of which we are expected to get some details tomorrow. However, political uncertainty remains elevated as discussed by Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend in his latest article, Congress Facing Possible Government Shutdown—Again, on the Insights & Ideas page at www.schwab.com.

Finally, ahead of this week's first look at Q1 GDP, which is expected to show growth slowed from Q4, see Schwab’s Chief Investment Strategist Liz Ann Sonders' latest article, ½ Full: Seeing Through a Weak Q1 on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Tomorrow's economic calendar will be light, with the only item of note being MBA Mortgage Applications.

Europe builds on yesterday's strong gains, Asia joins global rally on French election

European equities modestly extended yesterday's sharp rally that came courtesy of eased political risk after the first round of the French Presidential election suggested pro-Europe, mainstream candidate Emmanuel Macron is poised to defeat anti-EU Marine Le Pen in the final vote on May 7th. For analysis of the European political front, which includes a recently approved U.K. vote and a German election later this year, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's videos, "Brexit" Underway: How Can Investors Prep Now That Article 50 Has Been Triggered? and Why Should the French Presidential Election Be Important to Investors? on the Insights & Ideas page at www.schwab.com. Also, check out Director of International Research, Michelle Gibley's CFA, article, Europe Votes: Could More Countries Reject the EU? on the International Investing page at www.schwab.com. The markets also found support from some upbeat earnings reports on the both sides of the pond. Healthcare stocks led to the upside, aided by earnings results from Novartis AG (NVS $76), while technology issues also strengthened, even as SAP SE (SAP $102) gave up early gains that followed the German software company's sales that topped estimates for the fourth-straight quarter, per Bloomberg. The euro and British pound finished higher versus the U.S. dollar and bond yields gained ground.

Stocks in Asia finished higher after jumps in the U.S. and Europe yesterday as the global markets appeared to breathe a sigh of relief after the first round of the French Presidential election eased concerns about the country's future as a member of the European Union. Stocks are shrugging off heightened geopolitical concerns focused on North Korea, and Schwab's Jeffrey Kleintop, CFA, offers timely commentary in his article, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com, while he also delivers a look at the global landscape in his article, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com. Continued weakness in the yen helped Japanese equities to extend yesterday's rally, while stocks in mainland China advanced, showing some modest resiliency in the face of heightened regulatory crackdown uneasiness, and those traded in Hong Kong jumped amid the cooled political concerns and ahead of some trade data. After the closing bell, Hong Kong's import and export growth exceeded estimates for March. Meanwhile, securities in India and South Korea finished higher as well. Markets in Australia were closed for a holiday.

Like the U.S., tomorrow's international economic calendar will be sparse, with CPI from Australia and Japan's All-Industry Index the major reports slated for release.

Financial Review

C’est l’économie stupide

Sinclair Noe — April 21, 2017

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DOW – 30 = 20,547
SPX – 7 = 2348
NAS – 6 = 5910
RUT – 4 = 1379
10 Y – .01 = 2.24%
OIL – 1.17 = 49.54
GOLD + 2.20 = 1284.90

For the week, the Dow Industrials were down 3 days and up 2, but the 2 gainers were big. The S&P 500 managed to notch its first weekly gain in three. For the week, the Dow rose 0.5 percent, the S&P gained 0.8 percent and the Nasdaq advanced 1.8 percent, notching a record high along the way. Small caps in the Russell 2000 provided out-sized gains of 2.6% on the week.

Oil prices dropped more than 2 percent today, notching the biggest weekly decline in more than a month on mounting evidence that US production and inventory growth were offsetting OPEC’s attempts to reduce the global crude glut. WTI crude lost 6.7 percent for the week.

The U.S. Commodities Future Trading Commission showed total long positions in U.S. crude rose in the week to April 18 to their highest in more than a month at 355,077 contracts. But oil has sagged in recent days, much as it did in March. Many in the market still expect OPEC to renew its production cuts for another six months. Still, shipment data shows more oil transiting world oceans than when cuts were put in place.

According to AAA, 43 states have seen prices at the pump increase over the past week. The national average is $2.42 a gallon, which reflects an increase of 13 cents in the last month, and 30 cents (or around 14%) compared to last year. A bump in gas prices is typical around this time of year, as oil refineries switch over from their winter blend to the summer blend.

The United States currently has an oversupply of gas, and as the weather warms up, demand will likely rise in June, sapping up supply and pushing prices up. AAA expects the national average for gas to peak at around $2.70 a gallon in June. In 2016, summer gas prices peaked at an average of $2.38 a gallon.

Johnson says that a handful of states will even see gas prices over $3 a gallon this summer, especially on the West Coast. In fact, two states already hit that benchmark this week: Hawaii ($3.06) and California ($3.01). The cheapest gas in the nation can currently be found in South Carolina ($2.13).

Of the 95 companies in the S&P 500 that have reported earnings through Friday morning, about 75 percent have topped expectations, according to Thomson Reuters data, above the 71-percent average for the past four quarters. Overall, profits of S&P 500 companies are estimated to have risen 11.2 percent in the quarter, the most since 2011.

Markets were hesitant today, in advance of Sunday’s French elections; this is just the first round of elections, winnowing a field of 11 candidates down to 2, who will face off in 3 weeks. Still, a lot is at stake. We’ll dive into details in just a bit.

President Trump told the Associated Press he’ll unveil a tax-reform package next week and promised a “massive tax cut” for individuals and businesses. He said it would be released “Wednesday or shortly thereafter” but declined to give details. He said the cuts will be “bigger I believe than any tax cut ever.”

The Tax Policy Center in Washington says, “The plan would cut taxes at every income level, but high-income taxpayers would receive the biggest cuts, both in dollar terms and as a percentage of income.”

Treasury Secretary Steven Mnuchin reiterated the administration is planning to unveil its tax reform plan in the near future. He said the administration is “very close” to releasing a proposal. Mnuchin said corporate inversions will be part of an overall review of tax regulations. Inversions involve US firms that move their legal address abroad to cut their tax bills through mergers with foreign companies.

President Trump’s budget director Mick Mulvaney said the administration plans to include $200 billion for new infrastructure spending in its full fiscal year 2018 budget. In a moderated discussion at the Institute of International Finance conference, Mulvaney said this is all the money needed to fund $1 trillion in projects, if leveraged properly. Mulvaney said there will not be any specific votes on infrastructure spending until the fall.

The White House ordered federal agencies to begin preparations for a potential partial government shutdown; it shouldn’t come to that but they need to be prepared. The White House said it wants to see money for Trump’s border wall included in the spending bill Congress must pass next week.

Democrats are opposed to the wall and consider including it in the budget bill to be something of a poison pill. The Senate needs 60 votes to pass the budget. Look for a possible short-term extension while they work it out. The push to reach an agreement on spending is complicated by White House efforts to try again for a House vote on replacing Obamacare next week.

If ongoing congressional budget battles force a government shutdown next week, home-buyers and sellers could be subject to more headaches than usual before their deals close.  That’s because buyers looking for mortgage approval could hit paperwork roadblocks if the shutdown furloughs workers at the IRS or Social Security Administration.

That’s what happened in October 2013, the last time budget gridlock forced a 16-day shutdown that sent millions of government workers on furlough and gummed up the works of the U.S. housing market.

The National Association of Realtors says existing-home sales ran at a seasonally adjusted annual rate of 5.71 million, a 4.4% monthly increase. That was the strongest selling pace since February 2007 and was 5.9% higher than a year ago.

Tight inventory is still the biggest factor in the marketplace: supply was 6.6% lower compared to a year ago. That nudged the national median sales price to $236,400 – a 6.8% gain compared to a year ago. March’s price increase marks the 61^st consecutive month of year-over-year gains.

Unemployment rates were lower in March in 17 states and stable in 33 states.  Colorado had the lowest unemployment rate in March, 2.6 percent. New Mexico, at 6.7%, had the highest state unemployment rate. Arizona’s seasonally adjusted unemployment rate decreased from 5.1% in February to 5.0% in March.

The U.S. seasonally adjusted unemployment rate decreased from 4.7% in February to 4.5% in March. A year ago, the Arizona seasonally adjusted rate was 5.4% and the U.S. rate was 5.0%. The Private Sector gained 11,200 jobs; government cut 2,400 jobs, for a net gain of 8,800. The sector with the strongest growth was Leisure and hospitality.

Federal Reserve Vice Chairman Stanley Fischer isn’t worried about the economy. In an interview today, Fischer said weak growth in the US economy in the first quarter will likely be temporary and interest-rate hikes should be able to proceed as planned. The Fed has penciled in two more rate hikes this year and Fischer said this remains his forecast, depending on data, of course.

In the past few years, the economy has shown weakness in the first quarter, followed by stronger growth in the second and third quarters. First quarter growth was probably running at 1%. The government will release an advance estimate of first-quarter GDP April 28. Economists expect a rebound to a 2.7% rate in the second quarter.

The United States will not make an exception for American companies, including Exxon Mobil, seeking to drill in areas prohibited by U.S. sanctions on Russia. The United States and European Union imposed economic sanctions on Russia over its annexation of the Crimea region in 2014 and its role in the conflict in eastern Ukraine.

The sanctions forced Exxon to wind down drilling in Russia’s Arctic in 2014. Exxon had asked for and received in 2015 and 2016 waivers to operate a joint venture with Russian oil producer Rosneft in Russia. European Union sanctions do not keep European oil companies from operating in Russia, a point of annoyance for Exxon.

In recent months, Exxon applied for a Treasury Department waiver to drill with Rosneft – and today the waiver request was denied.

A federal judge in Detroit sentenced Volkswagen to three years’ probation for the German automaker’s diesel emissions scandal as part of a $4.3 billion settlement announced in January. The plea agreement called for “organization probation” in which the company would be overseen by an independent monitor.

General Electric reported quarterly sales and adjusted earnings results that beat analysts’ estimates, but its shares fell on concerns about some of its industrial businesses and its $1.6 billion in negative cash outflow. Adjusted earnings of 21 cents a share were unchanged from a year ago and beat analyst estimates of 17 cents. Revenue fell 1 percent to $27.66 billion. GE down 2.4%.

Subway Restaurants closed 359 U.S. locations in 2016, the first time that Subway had a net reduction. The store count dropped 1.3 percent to 26,744, but Subway remains the nation’s most ubiquitous eatery. Subway is coping with sub-par sales in the U.S., made worse by the emergence of newer fast-casual rivals and the industry’s heavy reliance on discounts and promotions.

Subway also has lost some of its luster as a healthier-food option. Sales fell 1.7 percent last year to about $11.3 billion. Subway is still growing internationally, though. Last year, sales outside the U.S. rose 3.7 percent to $5.8 billion as it continued to open locations.