Financial Review

Mind the Gap

Sinclair Noe — January 18, 2017

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DOW – 22 = 19,804
SPX + 4 = 2271
NAS + 16 = 5555
RUT + 6 = 1358
10 Y + .06 = 2.39%
OIL – 1.09 = 51.39
GOLD – 12.70 = 1205.00

The Dow Industrials spent most of the day in slightly negative territory. The S&P 500 traded in a tight range between negative and positive. If it seems like the stock market’s crawl to nowhere over the past month has been particularly strange, that’s because it has been. It turns out the gap between the Dow’s high and low prices over the past month is a tiny 1.4 percent — the narrowest gap in data going back to 1957.

On December 13, the Dow crossed 19,900 and pushed toward 20,000 – getting within a fraction of a point, then falling to a low of 19719, or a 1.4 percent range. So, something has to give – the question is whether we will see a break out or a break down. The long-term trend is still higher, but we really must wait and let the market show us.

Consumer prices rose in December as households paid more for gasoline and rent.  Consumer Price Index rose 0.3 percent last month after gaining 0.2 percent in November. In the 12 months through December, the CPI increased 2.1 percent, the biggest year-on-year gain since June 2014.

The so-called core CPI, which strips out food and energy costs, rose 0.2 percent last month after the same increase in November. As a result, the core CPI was up 2.2 percent in the 12 months through December. Rents rose 4% compared to a year ago, in December, the Labor Department said Wednesday.

That’s the strongest yearly gain since December 2007, the month the Great Recession began. Rising inflation comes against the backdrop of a strengthening economy and tightening labor market, which raises the prospects for more, and faster interest rate hikes from the Federal Reserve.

Fed Chair Janet Yellen delivered a speech today and said the economy is close to the Fed’s objective of full employment and stable prices and she’s confident it will continue to improve. That, in turn, means “it makes sense to gradually reduce the level of monetary policy support,” although Yellen said the timing of the next interest-rate increase “will depend on how the economy actually evolves over coming months.” Yellen said, “Right now our foot is still pressing on the gas pedal.”

Meanwhile, Fed Governor Lael Brainard said fiscal policies that boost demand when the economy is already around full employment and 2 percent inflation are “relatively more likely to be accompanied by increases in interest rates.”

Meanwhile, Minneapolis Fed President Neel Kashkari is launching a research institute to generate ideas elected officials might use to help more Americans benefit from a growing economy and address issues such as racial disparity and income inequality.

Meanwhile, the Fed published its Beige Book, reports from all 12 Fed districts which is released 2 weeks before FOMC policy meetings. Manufacturers in “most” of the Federal Reserve System’s 12 regions reported increased sales.

Companies reported uncertainty surrounding the change of administrations in Washington but remained generally optimistic about growth prospects for 2017. Labor markets were reported to be tight or tightening and pricing pressure intensified.

Central bank policy might have a problem, according to the central banks’ bank. A working paper by the Bank for International Settlements found cuts in interest rates and asset purchase programs can help reduce volatility in stocks and bonds, but it also found lower rates, or lower term-premium, doesn’t appear to spark economic growth.

Industrial production rebounded in December due to the biggest jump in utilities since 1989 as temperatures cooled across the country. The Federal Reserve said industrial output rose 0.8 percent last month. The bulk of December’s increase was due to the 6.6 percent rise in the utilities index. Overall industrial production, however, fell at an annual rate of 0.6 percent in the fourth quarter.

The oil market got a stark reminder that rising oil production in the U.S. could upend efforts by major producers to bring global supply and demand for crude back in to balance. The Energy Information Administration released a report on drilling productivity—forecasting a monthly rise of 41,000 barrels a day in February oil production to 4.75 million barrels a day.

Citigroup reported a 7 percent rise in quarterly profit, beating estimates. However, adjusted revenue fell 9 percent to $17 billion due to divestitures and missed the average estimate.

Goldman Sachs Group reported net income of $2.2 billion, a nearly fourfold rise in quarterly profit.  The fifth largest U.S. bank by assets, which relies more on revenue from trading stocks and bonds than other Wall Street companies, posted a 25 percent jump in trading in the fourth quarter compared with the prior year. Goldman beat on the top and bottom lines.

HSBC became the first major bank to detail plans to move jobs out of London after Brexit, saying it will relocate staff responsible for generating around a fifth of its UK-based trading revenue to Paris after Britain leaves the EU.

The United States sued JPMorgan Chase, accusing the bank of discriminating against minority borrowers by charging them higher rates and fees on home mortgage loans between 2006 and at least 2009. Separately, the Labor Department claimed the bank “systematically discriminated” against 93 women technology workers in its investment bank by paying them lower wages since at least 2012.

The Labor Department asked an internal administrative judge to cancel all government contracts and prevent JPMorgan from entering future federal contracts if it fails to provide relief.

United Continental’s fourth quarter profit tumbled. The airline announced fourth-quarter earnings of $1.78 a share on revenue of $9.1 billion but said its profit fell 51% to $397 million because of its tax bill.

American Airlines is introducing its Basic Economy fares, because Economy fares weren’t basic enough. The new fares, also known as Sub-Cattle Class, mean you can’t store carry-ons in the overhead compartments, no assigned seating, last to board, and no changes at all, no upgrades, and no soup for you.

Meanwhile, American’s flight attendants have a problem with their new uniforms – they claim it is causing skin rashes, itchy eyes, sore throat and blisters. The airline spent $1 million on tests and still don’t know what is wrong.

Target cut its quarterly earnings forecast after sales for the holiday season came in lower than expected due to weak demand for electronics, food and other products. Sales at Target stores open at least a year declined 1.3 percent in the November-December period, while total sales fell 4.9 percent. Target follows rivals Macy’s and Kohl’s, which also cut their profit forecasts after reporting disappointing holiday sales.

J.C. Penney shares sank about 2% after announcing a new partnership with Nike to add Nike shops in 600 of its stores. I’m not sure why that would be bad news.

After the closing bell, Netflix report earnings of 15-cents per share, beating estimates by 2-cents. The company said it added 7.05 million subscribers during the quarter, well above its own expectations of 5.2 million. Its stock has risen by a dazzling 35% in the past six months and is tacking on 8% in after-hours trade.

Essilor of France said it would merge with Luxottica Group of Italy, owner of the Ray-Ban and Oakley brands in a $49 billion deal. The combined company would be known as EssilorLuxottica, and would be the largest player in the eyewear market. The new company would have more than 140,000 employees in 150 countries with 2016 revenue of $16 billion.

Navient, the nation’s largest student loan servicer was hit with a Consumer Financial Protection Bureau lawsuit over allegations that it has “systematically and illegally” failed borrowers. Navient, formerly part of Sallie Mae, created repayment obstacles for tens of thousands of student borrowers by providing incorrect payment information, processing payments incorrectly and failing to act when borrowers complained.

British bookies will bet on almost anything, including specific words or phrases Donald Trump might say in his inaugural address on Friday. Ladbrokes, for example, is offering odds of 1/50 for “Make American Great Again”, indicating there’s a good chance Trump will repeat his campaign slogan in Friday’s speech.

That means a $1 bet would only yield 2 cents in case of a win. With slightly longer odds, “Reagan” comes in at 1/5, followed by “tremendous”, “ISIS” and “China” at 1/2. Further down the list sit “fake news” at 3/1 and “totally false” at 5/1. Aside from the buzzword betting, gamblers can also try their luck with Trump’s tie color and speech length.

It’s official, according to the National Oceanic and Atmospheric Administration (NOAA) 2016 was the hottest year on record, again. The planet sizzled to its third straight record warm year in 2016, and 16 of the 17 warmest years have occurred since 2001. The average temperature across the Earth’s land and ocean surfaces in 2016 was 58.69 degrees, a whopping 1.69 degrees above average.

It was the largest margin by which an annual global temperature record has ever been broken. Record high temperatures were set in 2016 on nearly every continent. No land areas were cooler than average for the year. Eight straight months (January through August) were also each the warmest since records began 15 years after the Civil War ended.

Financial Review

The Other Shoe

Sinclair Noe — April 19, 2016

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DOW + 49 = 18,053
SPX + 6 = 2100
NAS – 19 = 4940
10 Y + .01 = 1.78%
OIL + 1.30 = 41.08
GOLD + 17.80 = 1251.30

The Dow Industrial Average closed above 18,000 yesterday for the first time since last July and the rally continued today, although the Dow lost about half its early gains. The S&P 500 topped the psychologically key 2,100 level this morning. We’re not far from the record highs of last May; a couple of strong days and we’re there.

China looks stable, at least today. The Eurozone is preparing for more stimulus from the ECB in its battle against deflation. Oil prices are rising. Analysts are predicting earnings for the first quarter will decline anywhere from 8% to 10% and it appears that weak first quarter corporate earnings are almost fully discounted. Share prices are going up. This is when you should get nervous.

After the close Monday, IBM posted results that beat on both the top and bottom line. However, they did not raise full-year guidance. Netflix also disappointed with lower-than-expected subscriber growth for the second quarter. IBM was down 5% today, and Netflix lost almost 13%, which was a major drag on the Nasdaq.

Early morning reports include Goldman Sachs posting first-quarter earnings dropped 60 percent from a year ago, the fourth-straight quarter of profit declines. Still, earnings beat lowered expectations. Revenue dropped about 40 percent from the year ago period, missing estimates. Johnson & Johnson, which posted quarterly earnings that beat, while revenue matched forecasts. The firm raised its full-year forecast. UnitedHealth reported earnings that beat on both the top and bottom line, and raised its full-year forecast.

After the closing bell, Intel said it would cut 12,000 jobs globally, or 11 percent of its workforce.  The cuts will include “voluntary and involuntary departures” from its operations around the world. Most of the affected workers will be notified in the next 60 days. Intel said it had net income of $2 billion, or 42 cents a share, and revenue of $13.7 billion; a miss on both the top and bottom lines. PC sales are down; you knew that. Intel is trying to get into chips for smartphones, sensors, and cloud computing but they aren’t quite there yet.

 A strike by oil workers in Kuwait has reduced output to 1.1 million barrels per day from 2.8 million. However, the gains may be short-lived. Russia’s Deputy Energy Minister said the country is considering raising its production this year. A deal to freeze oil output by OPEC and non-OPEC producers fell apart after Saudi Arabia demanded that Iran join in production cuts. Iran has repeatedly said it would prioritize regaining pre-sanctions crude output levels over discussing an output freeze.

New-home construction in the U.S. slumped more than projected in March. Residential starts decreased 8.8 percent to a 1.09 million annualized rate. Permits decreased 7.7 percent to a 1.09 million annualized rate, the fewest in a year. Construction of single-family houses dropped 9.2 percent to a 764,000 rate from 841,000 the previous month that was the strongest since October 2007.

Work on multifamily homes, such as townhouses and apartment buildings, declined 7.9 percent to an annual rate of 325,000, the fewest since February 2015. First-quarter gross domestic product growth estimates are currently as low as a 0.2 percent annualized rate. The economy grew at a 1.4 percent rate in the fourth quarter.

The Federal Reserve is set to hike interest rates more rapidly than investors currently expect, so says Boston Fed President Eric Rosengren, again pushing back on what he said was investors’ too pessimistic view of the U.S. economy and monetary policy. It was the second time in as many weeks that Rosengren warned that futures markets, which see only one modest rate hike in each of the next few years, are off the mark.

He said U.S. inflation was now “much closer” to the Fed’s goal, downplayed weak growth in the first quarter, and said the economy is “fundamentally sound.” The Fed’s policy-setting committee meets on April 26-27. The probability that the FOMC will increase the fed funds rate by 25 basis points at the June 14-15 policy meeting is 18%, which compares to 11% yesterday.

Argentina has officially returned to the global bond markets following a 15-year hiatus, unveiling the biggest sovereign issuance by an emerging-market nation in two decades. The country is raising up to $15 billion, but demand for the bond issue (which will pay an interest rate of between 6.4% and 8%) was strong and attracted orders worth $65 billion. Most of the cash raised will go toward paying off a small number of holdout creditors, led by US hedge funds Elliott Management and Aurelius Capital.

The International Monetary Fund and the World Bank are joining forces with other international organizations to cooperate on tax issues and develop new tools and standards for taxing multinational enterprises. The decision by the organizations to formally cooperate predates the release of the Panama Papers, but an IMF official said the groups welcomed the heightened attention on tax issues that the controversy has stoked.

I know the news cycle moves fast, and since there were almost no Americans named in the massive document dump, coverage of the Panama Papers has faded quickly. But wait, there’s more. US officials have taken part in two global meetings about the Panama Papers. The IRS acknowledged participating in a “special project meeting” of the Joint International Tax Shelter Information and Collaboration network, about the papers in Paris last week.

The IRS also encouraged any U.S. citizens and companies that may have money in offshore accounts to contact the agency now before any possible illegal activity on their part is identified. It is now believed the documents contain information on potentially thousands of US citizens and firms that have at least an indirect connection to offshore accounts affiliated with Mossack Fonseca. Waiting for the other shoe… to drop.

Anheuser-Busch InBev has accepted Asahi Group Holdings’ offer to buy the Peroni, Grolsch and Meantime beer brands for $2.9 billion, clearing another hurdle in its efforts to win regulatory approval for its $100 billion-plus takeover of SABMiller. The purchase is conditional on the SABMiller deal going through.

A consortium backed by sovereign fund China Investment Corp. has expressed interest in buying a majority stake in Yum! Brands’ China business, which runs more than 7,100 KFC and Pizza Hut eateries across the nation. The investor group includes KKR and Baring Private Equity Asia. A deal could value Yum! China at $7 billion to $8 billion.

Privately held outdoors retailer Bass Pro Shops has partnered with Goldman Sachs Group’s private equity arm to make an offer for hunting and fishing store chain Cabela’s. The move gives Bass Pro the equity financing necessary to pursue Cabela’s. In December, Cabela’s said it was working with investment bank Guggenheim Securities to explore strategic alternatives including a sale, following pressure from activist hedge fund Elliott Management.

Who wants Yahoo? The deadline to bid for Yahoo has passed with YP Holdings (formerly Yellowpages.com) the latest name in the fray, although Verizon is still considered the front-runner. Yahoo posted earnings today; adjusted earnings came in at $0.08 per share on $1.09 billion in revenue, both down significantly from the same quarter a year ago, but both the top and bottom line were slightly better than estimates.

UBS is going to trial over $2.1 billion in losses that investors incurred on mortgage-backed securities, the latest in a series of lawsuits over the shoddy financial products at the heart of the financial crisis. The non-jury trial in Manhattan stems from a lawsuit being pursued by U.S. Bancorp on behalf of three trusts, who claim UBS refused to buy back the MBSs when pervasive defects emerged.

Federal prosecutors from the U.S. Attorney’s office and the SEC are investigating Theranos over whether it misled investors. Walgreens Boots Alliance and the NY State Department of Health have received subpoenas in recent weeks seeking documents and testimony about representations made to them by the blood-testing startup.

The National Oceanic and Atmospheric Administration has released data showing the first three months of this year, so far, the hottest year ever. March was also the 11th consecutive month to see a new record for temperatures since agencies started tracking them in the 1800s. The new data confirms similar but separate reports from NASA and the Japan Meteorological Association.

Both 2014 and 2015 were record setting years as well.  The Arctic is seeing some of the most abnormal weather on earth, with temperatures about 6 degrees warmer than average overall. These highs could lead to record melting of Arctic sea ice this summer, where the ice cover is already at its lowest since measurements began in the late 1970s.

After a relaxing four-day weekend, you might find that you’re more productive at work than usual. And now there is research to prove it. According to a new study by researchers at the University of Melbourne, for employees over the age of 40, the sweet spot for the best productivity is around three days of work per week. That’s when workers showed the highest level of brain functioning.

Their brain functions were scored based on the results of three tests: a memory test; a reading test; and an attention, visual comprehension, and motor skills test. In all three tests, participants who worked part-time, around 25 to 30 hours a week, showed the sharpest cognitive skills.

Cognitive abilities were lowest among those who worked 50 to 60 hours per work and in those didn’t work at all. The findings suggest that some work is good for your brain, but too much can be damaging, at least for older and middle-aged workers.

Financial Review

Fluctuating Between Ugly and Ugly

Sinclair Noe — August 20, 2015

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DOW – 358 = 16,990
SPX – 43 = 2035
NAS – 141 = 4877
10 YR YLD – .05 = 2.08%
OIL + .34 = 41.14
GOLD + 19.00 = 1154.10
SILV + .27 = 15.68

Well, it was just ugly.

Yesterday, the Federal Reserve released the minutes of the July FOMC meeting. Many investors and traders interpreted the policymakers’ discussions as dovish, with the probability of a rate boost next month sliding to 36 percent from about 50 percent earlier in the day. The matter is still open to debate, and the bottom line is that we have to wait about 4 weeks to find out what the Fed will do.

Today, stocks closed near session lows, off about 2%; and it smacks of a rate tantrum, traders expressing their dis-satisfaction to let the Fed know they are opposed to rate hikes. The other reading is that a dovish Fed might mean that the global economy really is weak; the drop in commodities is hurting emerging markets; the strength of the dollar is hurting US exporters; we are now facing currency wars; and global growth (or the lack thereof) will weigh on the US economy. If the Fed doesn’t raise rates, it’s because the market is too fragile.

The S&P 500 fell into negative territory for the year, with consumer discretionary the greatest decliner on the day. Energy is the greatest laggard for the year, down 17 percent. The Dow Industrial Average is now down about 4.5% for the year, and down 7.2% from its peak. After today’s stock market selloff: Russell 2000 off 9.5% from peak; Nasdaq off 6.5%; S&P 500 -4.5%.

Bearish sentiment toward stocks is getting worse, at least according to the options market. Based on the number of puts trading compared with calls on single stocks, pessimism is higher now than any time since 2012. It’s mostly the result of a decrease in bullish calls, whose volume has declined 36 percent since January. Investor skepticism is growing as the Standard & Poor’s 500 Index meanders in its tightest range in nine decades. In August, speculators have neglected calls, which give holders the right to buy shares at a certain price. They’ve instead focused more on puts, which convey the right to sell shares at a specific level.

Of course markets tend to fluctuate; that is the only thing we can say with certainty. Mohammed El-Erian described it as “a classic overshoot that starts in the emerging markets world and it starts spreading. What that causes is heightened risk aversion.”  The outflows of funds hits emerging markets the hardest first, with the capacity to send shock waves to other markets “and at the end is the equity market in the U.S.” The fundamentals of the economy are a bit weak, but risk assets have not adjusted to reflect that weakness, and the difference is central banks boosting the financial markets. If the central banks, or specifically the Fed, steps away from supporting the markets, the valuations could come down to fundamentals. Makes sense.

China’s stocks slumped to a two-week low. The Shanghai Composite Index dropped 3.4 percent, the lowest level since Aug. 6. About 17 percent of mainland-listed shares remain halted. The Hang Seng China Enterprises Index sank 2.3 percent to a 10-month low.

We are seeing waves of currency devaluations. Kazakhstan’s currency plunged a record 23% at the start of trading today, following a surprise announcement the government would allow the currency to float freely. Kazakhstan is central Asia’s biggest oil exporter. The move continues a currency war being fought in the emerging markets. Vietnam devalued its currency on Wednesday for the third time this year after a similar move in China, while Russia is allowing the ruble to track the drop in crude, which has tumbled 58% over the past year.

Perfect timing. Greece has made a €3.2 billion-euro payment to the ECB, shortly after receiving the initial disbursement of funds from its new bailout. The first tranche amounts to €13 billion-euro, of which about €12 billion-euro will be used to pay down debt. Meanwhile, Greek PM Alexis Tsipras has called for the European Parliament to join the so-called quartet of creditor institutions overseeing the country’s new rescue. Now, if you look at the numbers you see that the bailout is not so much for the Greek government or even the Greek people; the creditors offer the bailout with one hand and then take the money right back with the other hand. And so this afternoon, Tsipras, faced with a revolt in his party over his acceptance of unpopular bailout measures, said he will resign and call early elections in September. Tsipras said on national television that his ruling mandate has “exhausted its limit and now people must decide anew.”

And just to add a little violence into the mix, North and South Korea exchanged fire today across the demilitarized zone between the two countries. The incident started when North Korea fired a rocket at a South Korean border area, prompting Seoul’s forces to reply with an artillery barrage. So far, no reports of casualties. Tensions have flared in recent weeks across the DMZ that bisects the Korean peninsula.

Two South Korean soldiers were maimed on Aug. 4 by land mines that the Seoul government says were recently laid by North Korea. Relations deteriorated further when South Korea started blaring propaganda at the North through loudspeakers along the DMZ. After today’s exchange, North Korea threatened to “start a military action” unless South Korea stops all propaganda broadcasts and withdraws the loudspeakers within 48 hours.

Purchases of previously owned homes unexpectedly rose in July to the highest level since February 2007. The National Association of Realtors reports contract closings increased 2 percent to a 5.59 million annualized rate from the prior month’s revised 5.48 million pace. The median price of an existing home climbed 5.6 percent from July 2014 to reach $234,000.

The number of Americans filing for unemployment benefits last week remained historically low. Jobless claims increased by 4,000 to 277,000 in the week ended Aug. 15. Applications have been lower than 300,000, a level typically associated with an improving job market, since early March.

The leading economic index fell 0.2% in July after four straight strong gains, largely because of a decline in permits to build new homes. The Conference Board says the LEI is still pointing to moderate economic growth through the remainder of the year.

The Philadelphia Fed’s index of business conditions increased to a reading of 8.3 in August, above the 5.7 reading in July.

Valeant Pharmaceuticals is nearing a deal to pay $1 billion for Sprout Pharmaceuticals, just a day after the company won approval to sell the first drug which boosts libido in women. Under the terms, Valeant would pay all cash, one $500M installment upfront and one next year, for privately-held Sprout and its pink pills that will be sold under the brand name Addyi.

McDonald’s has announced plans to launch all-day breakfast nationwide as soon as October. According to an internal corporate estimate, McDonald’s could see a 2.5% lift in sales at stores that introduce all-day Egg McMuffins. Breakfast is a hot commodity not only at McDonald’s but also at many restaurants nationwide. Breakfast sales rose over 5% to $27.4 billion in 2013 at quick-service and fast casual restaurants.

Yesterday was the 11th anniversary since Google’s initial public offering, and there’s no doubt the company has had a remarkable run (Class A shares +1,277%). Although the online advertising giant has given a massive return to investors, there are still 13 stocks that outperformed Google since 8/19/2004: Alexion Pharmaceuticals; Amazon; Apple; Celgene; Gilead Sciences; Intuitive Surgical; Keurig Green Mountain; Monster Beverage; Netflix; Priceline; Regeneron Pharmaceuticals; salesforce.com; Vertex Pharmaceuticals. Or, if you want to keep it simple, you could limit it to the FANGs: Facebook, Apple, Netflix, and Google – by the way, they were some of the biggest losers today.

A new report from NASA shows California is sinking; specifically the Central Valley. The prolonged drought means domestic wells have run dry and growers are drawing down portions of the valley’s vast aquifer to historic lows. As the aquifers shrink the land drops. Some areas have seen the land sink by 10 to 14 inches since the start of the year. The sinking is so subtle that it is imperceptible on the ground, save for the effect on infrastructure. Aqueducts and irrigation canals buckle. Roads crack, causing millions of dollars in damage.

Another month, another record high for global temperatures. The National Oceanic and Atmospheric Administration reports that July was the hottest month since meteorologists began keeping track way back in 1880. Earth’s average surface temperature for the month of July was 61.86 degrees Fahrenheit (or 16.61 degrees Celsius). July’s average temperature was 1.46 degrees F higher than the average for the 20th century and 0.14 degrees F above the previously hottest month, which occurred in 1998.

The new record was fueled by the oceans. Across the globe, the average sea surface temperature in July was 62.85 degrees F, 0.13 degrees higher than the previous monthly record (set in July 2014) and 1.35 degrees higher than the average for the 20th century. All 10 of the hottest months for sea surface temperatures have occurred since April 2014. Temperatures on land contributed too, coming in 1.73 degrees F above the 20th century average. The report bolstered predictions from NOAA’s Climate Prediction Center that an El Niño is likely later this year.

Financial Review

Into the Ditch

Sinclair Noe — July 21, 2015

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DOW -181 = 17,919
SPX – 9 = 2119
NAS -10 = 5208
10 YR YLD – 3 = 2.34%
OIL + .21 = 50.36
GOLD + 3.30 = 1102.00
SILV + .18 = 14.95

Earnings reporting season continues with about one-quarter of S&P 500 companies scheduled to report this week. Among the gainers: Harley Davidson posted second quarter earnings and revenue that topped expectations, Travelers posted a second-quarter profit that was better than expected, due to fewer losses from catastrophes. Among the decliners: United Technologies issued a profit warning and announced that its aerospace and elevator units will be below expectations due to a strong dollar and China’s economic slump, IBM’s second quarter earnings fell 17% and revenue dropped 13%, Verizon posted better than expected earnings but revenue missed estimates, Lexmark swung to a loss and announced it will cut 500 jobs.

The big news in earnings came from some of the biggest names:
Apple and Microsoft. Apple sold 47.5 million iPhones, a 35 percent gain, in the period that ended in June. Analysts had anticipated 48.8 million shipments. Net income in the fiscal third quarter, which ended in June, was $10.7 billion, or $1.85 a share, while revenue rose 33 percent to $49.6 billion. Analysts on average had forecast third-quarter profit of $1.81 a share on sales of $49.4 billion. The gross margin was 39.7 percent, topping the company’s outlook for 38.5 percent to 39.5 percent. Apple shares down about 8 percent in after-hours trading. It probably won’t make a difference for Apple, but I hear Lindsey Graham is in the market for a new phone.

Even before the earnings report, Apple was having problems. Users experienced a problem with multiple iCloud services, including Apple Music, Beats 1 and the App Store, where outages knocked out service for up to 4 hours earlier today. Noe report on the cause of the outage.

Every day we hear about a new cyber-attack but this may be one of the scariest stories yet. Security experts are urging owners of Fiat Chrysler vehicles to update their onboard software after hackers took control of a Jeep over the internet and disabled the engine and brakes and crashed it into a ditch. A security hole in FCA’s Uconnect internet-enabled software allows hackers to remotely access the car’s systems and take control. Unlike some other cyberattacks on cars where only the entertainment system is vulnerable, the Uconnect hack affects driving systems from the GPS and windscreen wipers to the steering, brakes and engine control. The Uconnect system is installed in hundreds of thousands of cars made by the FCA group since late 2013.

Microsoft reported its largest-ever quarterly net loss, due a $7.5 billion writedown after the purchase of Nokia’s handset unit. Excluding the Nokia charge and costs related to job cuts, Microsoft said profit in the fourth quarter, which ended June 30, was 62 cents a share. Sales were $22.2 billion. Analysts on average projected profit of 58 cents on sales of $22 billion.

Yahoo reported second quarter revenue, excluding sales shared with partner websites, was little changed to $1.04 billion in the second quarter, the company said Tuesday in a statement. Profit, excluding items such as stock-based compensation, was 16 cents a share. Analysts projected, on average, sales of $1.03 billion and profit of 19 cents. And then Yahoo lowered third quarter revenue guidance.

The Federal Reserve has finalized the capital surcharge amounts for the nation’s largest financial firms, or systemically important financial institutions (SIFIs). For example, the surcharges range from 4.5% for JPMorgan to 1% for BNY Mellon. Taken together, the group’s capital cushion will be more than $200 billion larger than if the surcharge was not implemented. Note: The Fed offered a reprieve to GE Capital from more-intensive regulation, after the company promised to cut its assets by more than half.

The financial industry worries that when the Fed’s tightening plans take hold, a sell-off in the massive U.S. bond market could ensue, and be exacerbated by a lack of bank buyers willing to jump in. Banks, including primary dealers who act as market makers for US Treasuries, have cut their bond inventories in the past few years in response to tougher capital requirements, reducing a liquidity buffer for the fixed income market.

Private and public comments by Fed officials show that they do not share Wall Street’s degree of concern about liquidity, and do not believe that capital rules are solely to blame for the bond market’s growing tendency to seize up. Effectively, regulators are telling the industry it is the responsibility of banks, funds and other market players to protect themselves. The Fed’s assertive stance is setting the stage for more volatile fixed income markets, where liquidity droughts could be the price of doing business in bond markets. The message – in public addresses, reports to Congress, and even an investigation into market turmoil last October – is that less liquidity is a necessary consequence of regulatory reform and fitting for an economy that is getting ready for tighter monetary policy.

The Dodd Frank Act is 5 years old. Half a decade later, the debate around the law continues. Regulators are pushing to finalize still lingering projects. New government powers have yet to be tested. And lawmakers in both parties continue to question whether the law’s central goal, ensuring “too big to fail” is a thing of the past, was actually achieved. There are undoubtedly major parts of Dodd-Frank that are fully up and running. Perhaps most notable is the Consumer Financial Protection Bureau. Elsewhere, regulators have put in place new checks on financial derivatives, begun implementing new rules in the mortgage market and taken steps aimed at predicting and preventing broad new threats to the overall financial system. It is estimated that just 63 percent of Dodd-Frank rules have been finalized, with 21 percent of the required rules not yet even proposed. And the nation’s biggest banks still need to prove to regulators that they can safely be wound down in bankruptcy should disaster hit.

Citigroup’s consumer bank has been ordered to pay $700 million in relief to borrowers for illegal credit card practices. The Consumer Financial Protection Bureau said that about 7 million customer accounts were affected by Citibank’s “deceptive marketing” practices, which included misrepresenting costs and fees and charging customers for services they did not receive. Citibank told telemarketers to entice customers with a “free 30-day trial period,” but the bank would sometimes charge during the first 30 days anyway. Or customers were left with the impression that the “free” service would go away after 30 days if they did nothing. Instead, after a month, they started being charged regular fees. Citi charged some customers for services it wasn’t providing, such as credit monitoring. And while Citi was caught, that doesn’t mean they are the only company pulling these shenanigans on customers.

The Securities and Exchange Commission has opened an investigation into the companies with business links to FIFA. Reuters said that Nike is probably one of the companies being scrutinized by the SEC even though it has not been named or charged with any wrongdoing. That’s because the indictment of FIFA officials by U.S. prosecutors described a “$160 million, 10-year deal signed by “Sportswear Company A” that “matched exactly” the details of Nike’s 1996 deal in Brazil to become the footwear and apparel supplier and sponsor of the Brazilian national soccer team.

New York Department of Financial Services officials have subpoenaed several of the executives of Promontory Financial Group, a financial-services consultancy, including an executive who testified before Congress two years ago. It’s part of a long investigation into potential conflicts of interest at the firm related to its work for the British bank Standard Chartered, which was suspected of processing billions of dollars on behalf of Iran. The regulator is looking at whether Promontory, under pressure from the bank and its lawyers, sanitized a report to NYDFS to minimize the volume of allegedly illegal transactions.

Toshiba’s CEO is out after an accounting scandal. Toshiba’s president and CEO, Hisao Tanaka, has resigned after an internal investigation found the company has been cooking its books for several years. The company overstated its profit by $1.2 billion over several years, almost triple its initial profit.

Qualcomm is expected to conduct a strategic review that may result in the breakup of the company. The chipmaker is expected to announce plans to lay off more than 10% of its 30,000 employees. The expected layoffs are part of what is likely to be a strategic review of the company, which could lead to the eventual spin-off of its chip business from the highly profitable patent-licensing business

The National Oceanic and Atmospheric Administration (NOAA) reports global land and sea surface temperatures from January through June were 1.53 degrees Fahrenheit above the 20th century average, the highest since recordings started in 1880. June was the fourth month this year to break its monthly temperature record, along with February, March and May. And it marks the hottest six months on record. One side effect is that warming ocean waters are expected to result in a strong El Nino weather pattern in the second half of the year; this could bring some much needed rain to California and the southwest. While the state is in need of moisture, too much weather could lead to rain-related destruction. On Friday, heavy rains pounded the bone-dry Southern California region, washing out an elevated section of Interstate 10 near Desert Center, one of the major highways connecting California and Arizona. The Pacific is also expected to see more hurricanes and typhoons this season.  So far in 2015, there have been four hurricanes compared to just two by this time last year.