Financial Review

Let’s All Go to the Movies

Sinclair Noe — January 24, 2017

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DOW + 112 = 19,912
SPX + 14 = 2280
NAS + 48 = 5600
RUT + 21 = 1369
10Y + .07 = 2.47%
OIL + .31 = 53.06
GOLD – 8.90 = 1209.80

The S&P 500 and Nasdaq set record highs.

It was a busy first day for President Trump. Here are some of the highlights: Withdrew from TPP, promised to renegotiate NAFTA, placed a hiring freeze on federal employees, discussed slashing business regulations by 75%, reinstated the Mexico City policy on banning foreign aid groups from providing abortion counseling and vowed to stop the seizure of South China Sea islands. Trump had breakfast today with the heads of GM, Ford and Fiat Chrysler, as he pressures the Big Three car-makers to boost U.S. employment.

Australia has called for the Trans-Pacific Partnership to go ahead without the U.S. following President Trump’s withdrawal from the 12-nation trade agreement. China’s foreign ministry declined to say whether Beijing would consider any invitation to join the TPP, but a spokesperson instead cited rival trade pacts.

President Trump signed two orders today to move forward with construction of the Keystone XL and Dakota Access pipelines. Trump campaigned on promises to increase domestic energy industry production and before taking office indicated he supported completion of the Dakota pipeline and revival of the Keystone XL project.

Environmental activists broadly opposed the Keystone XL pipeline and campaigned against it for more than seven years. Shares of ETP, the company building the 450,000 barrel-a-day Dakota line, rose 3.5 percent. Trump owned ETP stock through at least mid-2016, per financial disclosure forms, and ETP’s chief executive, Kelcy Warren, donated $100,000 to his campaign. U.S. Energy Secretary nominee Rick Perry was until recently on ETP’s board.

Coincidentally, the Canadian government today reported a pipeline spill in the western Canadian province of Saskatchewan has leaked about 52,000 gallons of oil. The spill came seven months after another major incident in Saskatchewan, in which a Husky Energy Inc pipeline leaked 60,000 gallons into a major river and cut off the drinking water supply for two cities.

Trump’s administration has also asked the Environmental Protection Agency to temporarily halt all contracts, grants and interagency agreements pending a review.

Rex Tillerson has been cleared by the Foreign Relations Committee. President Trump’s pick for secretary of state received backing with an 11-10 vote along party lines that “all but assures Senate confirmation,” according to the Associated Press. Meanwhile, the Senate confirmed Representative Mike Pompeo as President Donald Trump’s CIA director.  A U.S. Senate committee swiftly approved Wilbur Ross,Trump’s nominees for commerce, and Elaine Chao for transportation secretary by voice vote, signaling that they will face little resistance to approval by the full Senate.

On Jan. 11, Tillerson said China should not be allowed access to islands it has built in the contested South China Sea. Today, China responded, saying it had “irrefutable” sovereignty over disputed islands in the South China Sea after the White House vowed to defend “international territories” in the strategic waterway.

China claims most of the South China Sea, while Taiwan, Malaysia, Vietnam, the Philippines and Brunei claims parts of the sea that commands strategic sea-lanes and has rich fishing grounds along with oil and gas deposits. China’s Foreign Ministry spokeswoman said “the United States is not a party to the South China Sea dispute”.

White House press secretary Sean Spicer met the press again today, hilarity ensued. Spicer says Trump will announce a pick for the Supreme Court next week. Spicer confirmed that President Trump believes millions of people voted illegally in November’s election, despite a total absence of evidence to support this view.

The dollar slumped to the weakest level in six weeks yesterday after U.S. Treasury Secretary nominee Steven Mnuchin said an “excessively strong dollar” could have a negative short-term effect on the economy. The Dollar Index has reversed those declines this morning, moving back above 100.

The UK government lost its Article 50 case. The decision handed down by the UK’s top court says the government must receive parliamentary approval before it can trigger Article 50, the mechanism that would begin the UK’s exit from the European Union.

The proposed merger of health insurers Aetna and Humana has been blocked on antitrust grounds. A federal judge said the tie up would threaten competition and would’ve resulted in higher prices and reduced services for seniors who buy Medicare Advantage. Aetna will owe Humana a $1 billion breakup fee.

You may recall that Aetna threatened the government last summer with pulling out of 11 of the 15 states where it participated in the Obamacare individual insurance markets, claiming it was a “business decision.” The threat was made while the Department of Justice was investigating the merger but before it filed its antitrust lawsuit. After the lawsuit was filed, Aetna followed through on its threat.

However, in an opinion on the case, the judge wrote that it wasn’t just a “business decision”, there was more to it: “Aetna tried to leverage its participation in the exchanges for favorable treatment from DOJ regarding the proposed merger.” Aetna then tried to cover up that connection between the threat to pull out of those markets and the antitrust investigation to the point where the “repeated efforts to conceal a paper trail about the decision-making process” bordered on “malfeasance,” he wrote.

US District Judge Bates determined that there was “persuasive evidence that when Aetna later withdrew from the 17 counties, it did not do so for business reasons, but instead to follow through on the threat that it made earlier.”

There is still a lot of uncertainty about the impact the Trump administration’s trade and business policies will have on the economy and markets. But all this was backdrop for earnings reports, which were pouring in throughout the session. Earnings are coming in generally better than expected.

Profits of S&P 500 companies are estimated to have risen 6.7 percent in the latest quarter, marking the strongest growth in two years. The S&P 500 is trading at about 17 times forward 12-month earnings, compared with the 10-year median of 14.2.

Powered by strong chip and display panel sales, Samsung Electronics’ operating profit jumped 50% to $7.9 billion in the fourth quarter, helping the company bounce back from its costly Note 7 debacle.

BT Group saw its stock drop as much as 19 percent this morning – wiping out $9 billion in market cap – after the company cut its outlook for the coming years and revealed “inappropriate behavior” in its Italian unit had forced a tripling of provisions for losses there.

DuPont reported fourth quarter earnings beat estimates, while revenue missed estimates. DuPont also said it expected its merger with Dow Chemical to close during the first half of the year.

Verizon missed earnings estimates by 3 cents a share. Revenue beat Street forecasts. Verizon saw year-over-year revenue fall 5.6 percent as it added far fewer wireless subscribers than analysts had expected.

After the closing bell yesterday, Yahoo reported better-than-expected quarterly profit and revenue, and said the sale of its core internet business to Verizon would be delayed but  should be completed in the second quarter.

Travelers insurance company posted earnings well above estimates. Revenue also beat forecasts. Travelers did see underwriting results fall in its auto insurance sector, but that was more than made up for by improvements in other lines.

Johnson & Johnson — J&J reported earnings of $1.58 per share for the fourth quarter, 2 cents a share above estimates. Revenue came in slightly below forecasts. The medical device maker also gave a full-year forecast that falls below analysts’ estimates.

3M reported quarterly profit of $1.88 per share, 1 cent a share above estimates. Revenue was in line with estimates. The company also affirmed its full-year forecast.

Alibaba Group posted a 54 percent rise in third-quarter revenue, beating analyst estimates, helped by higher sales during its Single’s Day shopping event and increased earnings in its cloud and digital media ventures.

Lockheed Martin beat estimates for fourth-quarter revenue and earnings, but last year delivered fewer-than-forecast F-35 jets. The Pentagon’s No. 1 weapons supplier also said internal controls for financial reporting were ineffective at its Sikorsky helicopter business.

D.R. Horton, the largest U.S. home-builder, reported its highest growth in orders in more than a year. Orders rose 14.6 percent to 9,241 homes in the quarter ended Dec. 31. The average selling price for the quarter was $297,000, up 2 percent from a year earlier. Horton reaffirmed its 2017 revenue forecast.

Homebuilders gained after a report showed that U.S. home resales fell more than expected in December as the supply of houses on the market dropped to levels last seen in 1999. The National Association of Realtors reported sales decreased by 2.8% at a seasonally adjusted annual rate of 5.49 million in December.

Lawrence Yun, NAR chief economist, wrote: “Housing affordability for both buying and renting remains a pressing concern because of another year of insufficient home construction… It’ll take more entry-level supply; continued job gains and even stronger wage growth for first-timers to make up a greater share of the market.”

Rio Tinto — The mining company sold its Australian coal unit to Yancoal Australia for up to $2.45 billion in cash. Yancoal is an entity controlled by the Chinese government.

Nominations for the Oscars were announced this morning.  “La La Land” has landed a record-tying 14 Academy Awards nominations, matching it with “Titanic” and “All About Eve” for most nominations ever. The other nominees for best picture are: “Moonlight,” ”Arrival,” ”Manchester by the Sea,” ”Hell or High Water,” ”Lion,” ”Fences,” ‘Hidden Figures” and “Hacksaw Ridge.” Now, that I think about it – it might be good to go to the movies.

Dow Makes Another Run Toward 20,000

Charles Schwab: On the Market

Posted: 1/24/2017 4:15 PM ET

Dow Makes Another Run Toward 20,000

U.S. stocks finished solidly higher, with the Dow again nearing the elusive 20,000 mark, amid a plethora of mixed earnings and economic reports, as well as a number of actions by President Donald Trump, including reviving the Dakota Access and Keystone XL oil pipelines. Treasuries were lower and crude oil prices recovered from yesterday's decline, while the U.S. dollar was slightly higher and gold lost ground.

The Dow Jones Industrial Average (DJIA) rose 113 points (0.6%) to 19,913, the S&P 500 Index was 15 points (0.7%) higher at 2,280 and the Nasdaq Composite jumped 48 points (0.9%) to 5,601. In moderate volume, 865 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.43 to $53.18 per barrel and wholesale gasoline added a penny to $1.60 per gallon. Elsewhere, the Bloomberg gold spot price fell $8.60 to $1,209.63 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—ticked 0.1% higher to 100.29.

Dow member 3M Co. (MMM $176) reported 4Q earnings-per-share (EPS) of $1.88, one penny above the FactSet estimate, as revenues ticked 0.4% higher year-over-year (y/y) to $7.3 billion, roughly in line with projections. MMM reaffirmed its 2017 EPS guidance. Shares lost ground.

Dow component Verizon Communications Inc. (VZ $50) posted adjusted 4Q profits of $0.86 per share, three cents south of forecasts, as revenues declined 5.6% y/y to $32.3 billion, compared to the expected $32.1 billion. VZ said its earnings and revenue for 2017 are expected to be fairly consistent with 2016. The company said in regard to its acquisition of Yahoo Inc. (YHOO $44), it continues to work with the search engine to assess the impact of data breaches. VZ traded solidly lower. Late yesterday, YHOO reported 4Q EPS and revenues that topped forecasts and shares were nicely higher.

Dow member Johnson & Johnson (JNJ $112) announced 4Q EPS ex-items of $1.58, above the estimated $1.56, with revenues rising 1.7% y/y to $18.1 billion, below the projected $18.3 billion. JNJ issued 2017 EPS and revenue guidance that came in just shy of expectations. Separately, JNJ announced that it is evaluating potential strategic options for its diabetes care companies, LifeScan Inc., Animas Corp., and Calibra Medical Inc. JNJ traded lower.

Dow component DuPont (DD $76) achieved 4Q earnings ex-items of $0.51 per share, above the estimated $0.41, with revenues decreasing 2.0% y/y to $5.2 billion, below the projected $5.3 billion. DD issued 1Q EPS guidance that came in south of expectations. DD said it expects to close its merger with Dow Chemical Co. (DOW $60) in the first half of 2017, pending regulatory approval. DD gained solid ground.

Dow member Travelers Companies Inc. (TRV $117) reported 4Q EPS of $3.20, compared to the estimated $2.80, as net written premiums rose 3.0% y/y to $6.1 billion, roughly in line with forecasts. Shares traded lower.

Steel companies based in the U.S., including United States Steel Corp. (X $33) and Nucor Corp. (NUE $61), saw nice gains after President Donald Trump signed executive orders today to restore the controversial Dakota Access and Keystone XL oil pipelines that were shuttered during the Obama administration. During the signing, Mr. Trump said that he is "very insistent that if we're going to build pipelines in the United States, the pipe should be made in the United States."

Housing sales slip, while manufacturing activity accelerates more than expected

Existing-home sales in December fell 2.8% month-over-month (m/m) to a 5.49 million annual rate, compared to the Bloomberg forecast of a 5.52 million pace. November's figure was upwardly revised to a 5.65 million annual rate. Compared to last year, sales were only 0.7% higher, but existing homes sold in 2016 (5.25 million) were the highest since 2006. The median existing-home price was up 4.0% y/y at $232,200. Housing supply came in at a 3.6-month pace at the current sales rate, versus 3.9 months in December 2015, and the inventory of homes for sale fell to the lowest since 1999. Sales in the Northeast, Midwest and West all declined m/m, but were higher y/y, while the South was flat m/m and down y/y.

National Association of Realtors (NAR) Chief Economist Lawrence Yun said solid job creation and exceptionally low mortgage rates translated into a good year for the housing market, but higher mortgage rates and home prices combined with record low inventory levels stunted sales in December. For analysis of the real estate sector, see Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Sectors and Politics at www.schwab.com/marketinsight, and follow Schwab on Twitter: @schwabresearch.

The preliminary Markit U.S. Manufacturing PMI Index for January improved to the best level since March 2015 after rising to 55.1 from December's 54.3 level, and versus forecasts of 54.5. A reading above 50 denotes expansion in activity and Markit said the solid improvement was led by a sharp increase in new work.

The Richmond Fed Manufacturing Activity Index unexpectedly jumped further into expansion territory (a reading above zero), rising to 12 for January from the 8 posted in December, and versus expectations of a 7 reading.

Schwab’s Chief Investment Strategist Liz Ann Sonders notes in her latest article, Not Fade Away: Will High Consumer/Business Confidence Fade or Persist?, measures of both consumer and business confidence have recently surged, with the former resting on fairly strong pillars, but the latter may be on weaker pillars and subject to post-inauguration volatility. Read more at www.schwab.com/marketinsight and be sure to check out our article, The Trump Effect: Can the Post-Election Rally Continue at www.schwab.com/insights for analysis of the late-2016 rally to record highs. Follow Liz Ann on Twitter: @lizannsonders.

Treasuries finished lower, as the yield on the 2-year note rose 4 basis points (bps) to 1.19%, while the yields on the 10-year note and the 30-year bond advanced 6 bps to 2.46% and 3.05%, respectively.

The U.S. dollar and Treasury yields have been volatile but remain elevated amid political uncertainty in the wake of last week's inauguration of President Donald Trump, while economic data continues to be relatively positive. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend and Vice President of Trading and Derivatives, Randy Frederick offer their latest video, How Could the Items on the Republican Agenda Impact Investors?, at www.schwab.com/insights. Follow Schwab on Twitter: @schwabresearch.

Schwab's Chief Fixed Income Strategist, Kathy Jones discusses the bond markets and the recent rally in the greenback in her articles, Anatomy of a Bond Bear Market: What to Look For When Yields Rise and Will the U.S. Dollar Bull Market Continue in 2017?, at www.schwab.com/marketinsight. Follow Kathy on Twitter: @kathyjones.

The only report slated for release on tomorrow's economic calendar is MBA Mortgage Applications.

Europe rebounds slightly, Asia mixed

European equities rebounded modestly, despite some mixed data in the region and as the global markets remained skittish after U.S. President Trump took actions yesterday to withdraw from the Trans-Pacific Partnership (TPP) and renegotiate the North American Free Trade Agreement (NAFTA). The British pound pared solid early losses and finished modestly lower versus the U.S. dollar amid festering "hard" Brexit uncertainty even as the U.K. Supreme Court ruled that the government will need parliamentary approval to start Brexit negotiations. With the global markets remaining jittery to begin 2017, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers Five Reasons to Stay Invested Despite Heightened Uncertainty, at www.schwab.com/oninternational. The euro also dipped versus the greenback and bond yields in the region gained ground.

In economic news, Markit's preliminary Eurozone Composite PMI Index—a gauge of business activity in both the manufacturing and services sectors—dipped to 54.3 in January, from 54.4 in December, and compared to the 54.5 reading that was expected. However, a reading above 50 denotes expansion. Schwab's Jeffrey Kleintop, CFA, offers his article, The CURE for a calm Market: Four risks for 2017, at www.schwab.com/oninternational, where you can also find his commentary, 5 Reasons International Stocks May Underperform In 2017. Follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mixed, with global sentiment remaining jittery amid U.S. President Donald Trump's actions in the first few days following his inauguration that have caused protectionism concerns to flare up, notably yesterday's executive order to withdraw from the Trans-Pacific Partnership (TPP). Japanese equities declined, with the U.S. trade concerns being met with the yen holding onto most of yesterday's rally, overshadowing a report that showed growth in the nation's manufacturing output accelerated slightly in January. For more on Trump's trade policies, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, article, President Trump and Global Trade: How Will Campaign Promises Play Out? at www.schwab.com/oninternational, where you can also find Schwab's Director of International Research, Michelle Gibley's, CFA, latest article, Currency Hedging: 5 Things You Need to Know.

Mainland Chinese stocks and those traded in Hong Kong both rose, with the markets continuing to coast into the long Lunar New Year holiday break beginning at the end of the week. Markets in Australia advanced, buoyed by a rally in basic materials, while Indian securities gained solid ground following some upbeat earnings reports in the region and yesterday's drop for the U.S. dollar. Finally, South Korean stocks finished flat. Schwab's Michelle Gibley, CFA, offers timely analysis of emerging markets in her latest article, Emerging Markets: Why They Deserve a Place in Your Portfolio at www.schwab.com/oninternational, and be sure to check out our release, Why Your Portfolio Needs International Stocks—Despite 2017 Risks at www.schwab.com/insights.

Tomorrow's international economic calendar will hold GDP from South Korea, trade data from Japan, CPI from Australia, confidence figures from France, PPI from Spain, the Ifo Business Climate Survey from Germany, and industrial orders and sales from Italy.

Financial Review

Year of the Rooster

Sinclair Noe — January 23, 2017

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Financial Review by Sinclair Noe for 01-23-2017
DOW – 27 = 19,799
SPX – 6 = 2265
NAS – 2 = 5552
RUT – 4 = 1347
10 Y – .06 = 2.40%
OIL – .35 = 52.87
GOLD + 7.40 = 1217.40

President Trump is expected to sign an executive order as early as today – intended to renegotiate NAFTA, the free trade agreement between the United States, Canada and Mexico. Trump also signed an executive order pulling out of the Trans-Pacific Partnership (TPP).

In one of first Trump administration orders, the Department of Housing & Urban Development suspended reduction of FHA annual mortgage insurance premium rates. That was a quarter of a percent cut in the mortgage insurance premium for FHA loan holders, announced last week by the U.S. Department of Housing and Urban Development and set to go into effect next Friday, January 27. The reduction was estimated to save the average FHA borrower $500 this year.

The new White House rolled out several policy promises on its new website. The position page on jobs and the economy reads: “To get the economy back on track, President Trump has outlined a bold plan to create 25 million new American jobs in the next decade and return to 4 percent annual economic growth.”

So, now we have a baseline, even if it is improbable.

A group including former White House ethics attorneys filed a lawsuit today accusing President Donald Trump of allowing his businesses to accept payments from foreign governments, in violation of the U.S. Constitution. The lawsuit, brought by the Citizens for Responsibility and Ethics in Washington, alleges that the Constitution’s emoluments clause forbids payments to Trump’s businesses. It will seek a court order forbidding Trump from accepting such payments.

President Trump held meetings this morning with business and labor leaders, seeking to work quickly on his campaign promise to boost the American manufacturing sector and deliver more jobs. Trump repeated a campaign promise to cut regulations by at least 75%. He also said there would be advantages to companies to make their products in the US, suggesting there will be a substantial border tax on foreign goods entering the US. This afternoon he meets with labor leaders and U.S. workers.

Foxconn Technology Group is considering building a display-panel manufacturing facility in the United States in a joint venture with Apple that could create up to 50,000 jobs. Terry Gou, Taiwan-based Foxconn’s chairman and CEO, said the facility could cost $7 billion and create between 30,000 and 50,000 new jobs, and could include the production of TV screens in addition to smartphone displays. The U.S. has no TV-display factories, even though it is the world’s second-largest TV market.

Supermarket operator Kroger says it will fill 10,000 permanent positions in its supermarket divisions. Kroger, which had about 431,000 full- and part-time employees as the New Year, also said its total active workforce grew by more than 12,000 in 2016.

On the eve of a summit last month between technology executives and then President-elect Donald Trump, IBM Chief Executive Officer Ginni Rometty publicly pledged to hire about 25,000 U.S. workers and spend $1 billion on training over the next four years.

In late November, IBM
completed at least its third round of firings in 2016, according to former and current employees. They don’t know how many people have lost their jobs but say it’s probably in the thousands, with many of the positions shipped to Asia and Eastern Europe.

Rometty’s hiring pledge prompted current and former IBM workers to vent on message boards and Facebook groups. IBM’s re-organization inevitably meant some workers would lose their jobs. Automation wiped out some positions, and at the same time, IBM has sent thousands of jobs offshore.

This will be another busy week for earnings reports; later in the week we’ll hear from Alphabet and Microsoft. Intel is also set to report, along with telecom and media giants Verizon, AT&T, and Comcast. 3M, Caterpillar, Boeing, and Ford will give us a snapshot of the manufacturing and industrial sectors.

We’ll also see earnings from pharmaceutical companies like Johnson & Johnson and Biogen and oil giant Chevron. The major data release in the week is the advanced reading of fourth-quarter GDP. There is also some housing data, durable goods orders, and a look at consumer sentiment.

Yahoo reported earnings after the closing bell that beat estimates but the earnings are secondary. Verizon has agreed to pay $4.8 billion for Yahoo, and the factor that could change that price is not financial results but hacks – and who knew what and when. Yahoo said today the closing would be delayed until the second quarter, or as soon as practicable.

The SEC is investigating whether two massive data breaches at Yahoo should have been reported sooner to investors. Yahoo faces questions about exactly when it knew about a 2014 cyber-attack it announced in September that exposed the email credentials of half a billion accounts. In December, Yahoo said it had uncovered yet another massive cyber-attack, saying data from more than 1 billion user accounts was compromised in August 2013. Securities industry rules require companies to disclose cyber breaches to investors.

McDonald’s posted better-than-expected global same-store sales in the latest quarter, but its results in the U.S. declined as enthusiasm for its all-day breakfast options leveled off. For the quarter that ended in December, the burger chain’s global comparable sales increased 2.7%, well estimates. In the U.S., comparable sales fell 1.3%; the company blamed a challenging comparison to the prior-year launch of its all-day breakfast service.

Halliburton reported mixed fourth quarter fiscal 2016 earnings results. Despite a miss on the top line, which continue to suffer from weak demand, Halliburton’s overall results point to improvements in North America — its largest revenue region.

OPEC’s production fell by about 221,000 barrels a day to just over 33 million a day in December, per secondary sources data in the group’s monthly report published Jan. 18. The declines still leave output about 1.8 million barrels a day higher than the average of 31.3 million the group is targeting in the first half of the year, underscoring a need to press on with cuts. Saudi Arabia’s Minister of Energy said the first two weeks of January saw “very strong” compliance and most producers are already exceeding their pledged cuts.

The mega-merger between health insurers Aetna and Humana has been blocked by a federal judge. The deal, in which Aetna proposed to buy Humana for $37 billion, has been ruled anti-competitive. Aetna now owes Humana a $1 billion break-up fee, according to Bloomberg. Last summer, Aetna threatened to pull out of the Affordable Care Act exchanges, after the Department of Justice brought a lawsuit to block the merger.

Reuters last week reported that another healthcare tie-up, the Anthem-Cigna mega-merger, would be blocked by a federal judge.  Former Attorney General Loretta Lynch argued in July when the suit was brought that both the Anthem-Cigna and Aetna-Humana mergers would hurt consumer choice and increase prices.

The City of Everett Washington has file suit against Purdue Pharma, alleging the drug manufacturer turned a blind eye to criminal trafficking of its OxyContin painkillers to “reap large and obscene profits” and demanding it foot the bill for widespread opioid addiction in the community.

In a first-of-its-kind lawsuit, city lawyers accused Purdue of gross negligence, creating a public nuisance and other misconduct and said the company should pay costs of handling the opioid crisis — a figure that the mayor said could run tens of millions of dollars — as well as punitive damages.

A computer problem forced United Airlines to ground all domestic flights for about an hour on Sunday evening, causing a cascade of delays and annoying customers throughout the United States. The “ground halt” was lifted after about one hour.

Cyber-attacks against banks have increased in numbers and sophistication in recent years, with criminals finding new ways to target banks. Last February $81 million was taken from the Bangladesh central bank when hackers broke into its system and gained access to the SWIFT international transactions network. The European Union is considering testing banks’ defenses against cyber-attacks, with an EU wide stress test.

Its lead may have narrowed over the past year, but South Korea still reigns supreme on Bloomberg’s Innovation Index, which ranks the world’s economies using metrics such as R&D spending and the concentration of high-tech public companies.

Hong Kong is the most expensive city in the world to live in. That’s according to the 13th Annual Demographia International Housing Affordability Survey, which says that Hong Kong’s housing market is the least affordable in the world.

All around the world, Chinese people are cleaning their houses, shopping for new clothes, and following several traditions leading up to and during the New Year to help usher in good luck and fortune. Roughly a sixth of the world will observe Chinese New Year. Starting January 28, celebrations to welcome in the year of the rooster will continue through February 2. This week also marks the world’s largest annual mass migration as millions of Chinese people travel back to their family homes for reunions ahead of the New Year celebrations.

Today also marks the start of tax filing season. Your taxes aren’t due until April 18^th this year, but you can start filing as of today.

And for those of you still trying to cling to your New Year Resolutions, be warned – today marks the start of Girl Scout Cookie season and it also marks the 100th anniversary of Girl Scout cookie sales. I could tell you to just say no, but that wouldn’t work.

Global Trade Concerns Pressure Markets

Charles Schwab: On the Market

Posted: 1/23/2017 4:15 PM ET

Global Trade Concerns Pressure Markets

U.S. equities finished modestly lower, with global sentiment being hampered by actions by President Donald Trump to make changes to trade agreements, particularly the Trans-Pacific Partnership (TPP). The energy sector saw some pressure as crude oil prices pared a recent run. Meanwhile Treasuries were higher amid a dormant economic calendar, as was gold, while the U.S. dollar fell. On the equity front, Dow member McDonald's declined despite topping earnings forecasts and Qualcomm saw pressure amid news of a patent dispute with Dow member Apple, while a federal judge blocked Aetna's takeover of Humana.

The Dow Jones Industrial Average (DJIA) declined 27 points (0.1%) to 19,827, the S&P 500 Index was 6 points (0.3%) lower at 2,265 and the Nasdaq Composite decreased 2 points to 5,553. In moderate volume, 755 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.47 to $52.75 per barrel and wholesale gasoline was unchanged at $1.57 per gallon. Elsewhere, the Bloomberg gold spot price moved $4.92 higher to $1,215.24 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—fell 0.6% to 100.17.

Dow member McDonald's Corp. (MCD $121) reported 4Q earnings-per-share (EPS) of $1.44, above the $1.41 FactSet estimate, as revenues decreased 5.0% year-over-over (y/y) to $6.0 billion, roughly in line with projections. Worldwide same-store sales rose 2.7% y/y, north of the expected 1.3% gain, though U.S. sales declined 1.3%, reflecting the challenging comparison against the prior year launch of its all-day breakfast, versus the estimated 1.4% decrease. Shares finished lower amid concerns about potential slowing growth from its all-day breakfast campaign.

Halliburton Co. (HAL $55) posted 4Q EPS ex-items of $0.04, two cents above estimates, as revenues fell 20.9% y/y to $4.0 billion, compared to the forecasted $4.1 billion. Shares were noticeably lower.

Qualcomm Inc. (QCOM $55) came under solid pressure amid a host of analyst downgrades and as the mobile phone chipmaker was hit with late-Friday's patent lawsuit from Dow component Apple Inc. (AAPL $120), which QCOM called "baseless."

Aetna Inc. (AET $119) fell after a federal judge blocked its deal to acquire Humana Inc. (HUM $205), ruling that the transaction would violate antitrust laws by reducing competition. An Aetna spokesperson said, "We're reviewing the opinion now and giving serious consideration to an appeal," while HUM has not commented, per Bloomberg. Shares of HUM were higher.

Treasury yields slide as economic calendar remains quiet

Treasuries were higher, with the economic calendar void of any major reports today, as the yields on the 2-year note and the 30-year bond declined 6 basis points (bps) to 1.14% and 2.99%, respectively, while the yield on the 10-year note dropped 7 bps to 2.39%.

The U.S. dollar and Treasury yields moved higher last week, with political uncertainty rising leading up to Friday's inauguration of President Donald Trump, while economic data continued to be relatively positive. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend and Vice President of Trading and Derivatives, Randy Frederick offer their latest video, How Could the Items on the Republican Agenda Impact Investors?, at www.schwab.com/insights. Follow Schwab on Twitter: @schwabresearch.

Schwab's Chief Fixed Income Strategist, Kathy Jones discusses the bond markets and the recent rally in the greenback in her articles, Anatomy of a Bond Bear Market: What to Look For When Yields Rise and Will the U.S. Dollar Bull Market Continue in 2017?, at www.schwab.com/marketinsight. Follow Kathy on Twitter: @kathyjones.

With the stock markets dipping recently from record levels, Schwab’s Chief Investment Strategist Liz Ann Sonders offers her latest article, Not Fade Away: Will High Consumer/Business Confidence Fade or Persist?, at www.schwab.com/marketinsight and be sure to check out our article, The Trump Effect: Can the Post-Election Rally Continue at www.schwab.com/insights. Follow Liz Ann on Twitter: @lizannsonders.

This week, earnings season will accelerate to give us further insight to whether earnings growth can meet lofty expectations, while guidance will likely garner heavy attention as consumer, business and investor confidence has jumped on optimism that President Trump's administration and Republican-controlled Congress can deliver on proposed policies. Also, the U.S. economic calendar will bring key releases of new home sales, the first look (of three) at 4Q GDP, durable goods orders, the Leading Index, and the final University of Michigan Consumer Sentiment Index for January.

Tomorrow, the docket will begin to ramp back up with the release of existing home sales, projected to decline 1.8% to an annual rate of 5.51 million units for December from November's level that was the strongest since February 2007. The report will be accompanied by the releases of Markit's preliminary Manufacturing Index and the Richmond Fed Manufacturing Index, with both expected to show continued growth in the sector for this month.

As noted in the Schwab Market Perspective: A Perfect Mix?, the conditions for a continuation of the long-running equity bull market appear to be intact. The recent digestion of gains since the election is a healthy process as it forestalls a potentially dangerous "melt-up" scenario, at least for now. Economic data and corporate earnings growth are conspiring with a boost in consumer and business confidence to ignite "animal spirits." Add in a Federal Reserve that is slowly normalizing monetary policy, but still remains accommodative, and we see a good mix for further equity gains. Manufacturing has rebounded around the globe, and could continue on a positive trajectory in the first half of 2017. Read more at www.schwab.com/marketinsight.

European stocks see pressure, Asia mixed as U.S. politics continue to garner attention

European equities moved lower, with concerns about global trade relations with the U.S. ramping up as President Donald Trump already took actions to make good on his campaign promise for changes to trade deals known as North American Free Trade Agreement (NAFTA) and Trans-Pacific Partnership (TPP). The euro and British pound gained ground on the U.S. dollar, while bond yields in the region were lower. Financials and technology stocks saw some pressure, along with oil & gas issues as crude oil prices gave back some of a recent run. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his latest article, The CURE for a calm Market: Four risks for 2017, that after a calm post-election climb, developments in China, United Kingdom, Russia, and Europe may bring a return of stock market volatility. However, Jeff points out that better and broader global economic growth should help offset these risks and result in stock market gains for 2017. Read more at www.schwab.com/oninternational, where you can also find Jeff's commentary, 5 Reasons International Stocks May Underperform In 2017. Follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mixed as the global markets appeared jittery in the wake of Friday's inauguration of U.S. President Donald Trump, with concerns about global trade relations flaring up. The yen moved higher to weigh on Japanese equities, while those traded in Australia also dropped. For more on Trump's trade policies, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, article, President Trump and Global Trade: How Will Campaign Promises Play Out? at www.schwab.com/oninternational, where you can also find Schwab's Director of International Research, Michelle Gibley's, CFA, latest article, Currency Hedging: 5 Things You Need to Know. Mainland Chinese stocks rose and listings in Hong Kong ticked higher, with markets calm ahead of the Lunar New Year holiday break at the end of the month. South Korea's markets finished flat, while stocks in India advanced. Schwab's Michelle Gibley, CFA, offers timely analysis of emerging markets in her latest article, Emerging Markets: Why They Deserve a Place in Your Portfolio at www.schwab.com/oninternational, and be sure to check out our release, Why Your Portfolio Needs International Stocks—Despite 2017 Risks at www.schwab.com/insights.

A slew of manufacturing PMIs from across the globe will dominate tomorrow's international economic calendar, while other reports of note include consumer sentiment from South Korea, and public sector net borrowing from the U.K.

Financial Review

Transitioning

Sinclair Noe — November 10, 2016

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

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DOW + 218 = 18,807
SPX + 4 = 2167
NAS – 42 – 5208
10 Y + .04 = 2.12%
OIL – .91 = 44.36
GOLD – 19.20 = 1260.00

The Dow Jones industrial average hit a new all-time intraday high and a record high close. The Dow took out the old high from mid-August. Nearly every major tech stock was down. Apple, Google, Microsoft, and Amazon are all in the red, despite the broader market being up. Banks moved higher.

The Trump Transition website posted a statement: “The Financial Services Policy Implementation team will be working to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation.”

Treasury yields haven’t been this high since the beginning of the year. Aggressive selling on yesterday ran Treasury yields up by more than 20 basis points at the long end of the curve and to their highest levels since January. That selling has carried over into today’s session with the 10-year yield up another 4 basis points at 2.12%. If Trump delivers on his pledge to give the U.S. economy a growth and inflationary shot in the arm from a multi-trillion-dollar package of tax cuts and infrastructure spending, the impact will likely be felt far beyond American borders. Bonds hate inflation.

The rise in the 30-year yield has been remarkable. It is up more than 30 basis points this week, on course for its biggest weekly rise since 2009 and among the biggest of the last three decades. This has led to a so-called “steepening” of the yield curve, where the gap between short and longer-dated yields widens. These shifts across global interest rate markets in response to the changing inflation outlook are being mirrored in commodity and equity markets too. Copper surged more than 5 percent to a 16-month high. Europe’s constructions and materials index hit a nine-year high.

St. Louis Federal Reserve President James Bullard today repeated his call that a single interest rate increase would be adequate for the foreseeable future. Bullard did not mention the U.S. election results or any possible effect on volatility or the economic outlook. In the current environment of low growth and low inflation, Bullard now feels a single rate increase would be appropriate, and the Fed could then remain on hold until growth, inflation, productivity and other aspects of the economy switch to a new “regime.”

The dollar index, which measures the U.S. currency’s performance against a basket of currencies, rose 0.3 percent to 98.8. The Mexican peso plunged 13% to the lowest levels in 2 decades, then pared losses, but officials held back from acting to support the currency. While Mexico’s Foreign Minister reiterated that Mexico will not pay for Trump’s proposed border wall, President Enrique Pena Nieto did call to congratulate him and agreed to meet before he takes office.

The election results sparked protests in several cities; marchers took to the streets in Philadelphia, New York, Chicago, Seattle, Oakland, and even Tempe; a dozen cities in total. More protests are planned.

Nevertheless, the transition has begun. Donald Trump met Barack Obama at the White House this morning to discuss the transition of power. The two men were scheduled to talk for about 10 minutes but ended up speaking, cordially, with each other for an hour and a half.  Both were vague on details about what was discussed.

After the meeting, Obama said, “My number one priority in the coming two months is trying to facilitate a transition that ensures our president-elect is successful.” At the end of the meeting, Trump called Obama a “very good man.” Also, as part of the transition, Pence met with Biden; Melania met with Michelle. Trump also met with Vice President-elect Mike Pence and Speaker Paul Ryan to discuss how they can hit the ground running in a Trump administration. Kris Kobach, the Kansas secretary of state and an ardent opponent of immigration, has been added to Mr. Trump’s transition team.

Republican congressional leaders have confirmed what might seem obvious – Obama’s far-reaching trade agreement with 11 Pacific Rim nations is dead. The Senate majority leader, Senator Mitch McConnell of Kentucky, said flat-out “No” when reporters asked if the pending Trans-Pacific Partnership,  the largest regional trade deal in history, would be considered in the lame duck Congress that convenes next week.

Speaking at a conference in New York, Mark Bertolini, Aetna’s chairman and chief executive said, “We started with a fresh piece of paper yesterday — we had no idea how to approach it.” When Aetna ran through post-election expectations, the idea that Trump would win the presidency and that Republicans would control both chambers of Congress seemed so implausible that it was not even in play. Bertolini says the health care firm is now working on the assumption that Obamacare will be repealed.

Still, he thinks a wipeout of the Affordable Care Act is unlikely. Twenty million people gained health care coverage through the law, and Bertolini said, “You can’t put them out on the street without insurance.” You may remember that this is the same Aetna insurance company that earlier this year sharply reduced its participation in the public marketplaces, pulling out of two-thirds of the counties in which it sold individual insurance. If only there was some way to make the system less reliant on corporations’ natural altruistic tendencies.

Obamacare enrollment had its best day yet on Wednesday with more than 100,000 enrollments. More than half a million people applied for coverage over the first four days, but not all of them followed through and selected a plan. Open enrollment started Nov. 1 and lasts until the end of January, or at least until January 20.

Pfizer is evaluating a potential sale or spinoff of its consumer health division that could value the unit at as much as $14 billion. Reuters reports an exit from the business, which includes Chapstick and Advil, would be one of the company’s biggest corporate moves since abandoning a $160 billion deal to buy Allergan earlier this year.

More spinoffs? Siemens is planning a public listing of its $15 billion healthcare business to refocus on its core strengths of electrification, automation and digitization. The German group announced the move as it reported fourth-quarter profits that comfortably beat expectations, but issued a cautious outlook for the current fiscal year as orders dropped amid geopolitical uncertainty.

ConocoPhillips, the largest U.S. independent oil producer, will sell up to $8 billion in natural gas assets and trim its capital budget by 4 percent next year. Conoco carries a $28.7 billion debt load.

Photoshop software maker Adobe Systems said it would buy advertising company TubeMogul for about $540 million, net of debt and cash, giving it a bigger presence in the rapidly growing online video market. Adobe’s $14 per share cash offer represents an 82.5 percent premium to TubeMogul’s Wednesday close.

Goldman Sachs is considering shifting some of its assets and operations from London to Frankfurt, according to Reuters, as it tries to secure access to the EU market when Britain leaves the bloc. Coming under the European Central Bank’s jurisdiction should allow it to continue selling its services to clients across the Eurozone and wider EU post-Brexit.

Navinder Sarao, the British financial trader accused of causing the 2010 “Flash Crash,” has become the second person convicted of criminally spoofing after pleading guilty in a Chicago court. Spoofing is rapidly placing orders with the intent to cancel them before they trade to trick other investors by creating the illusion of demand.

Shake Shack beats. The burger chain earned $0.15 a share on revenue of $74 million and said it expected full-year same-shack sales growth of 2% to 3%.

Shares of Taser up 13% on shockingly good earnings. Taser reported record revenue — up 43 percent from last year.  Scottsdale based Taser reported net income of $3.8 million, or 7 cents per share, up from $1.5 million or 3 cents in the year ago period.

Mylan whiffs. The maker of the EpiPen announced a net loss of $119 million for the third quarter because of a proposed $465 million settlement with the US Department of Justice and other government agencies.

Some Yahoo employees were aware that a state-sponsored hacker had breached its network shortly after a massive hack in 2014, casting a larger shadow over Verizon’s $4.8 billion deal to acquire the company. Yahoo said in September that an investigation had uncovered the theft of personal information associated with at least a half billion accounts, the largest data breach in history.

The oil market risks running another surplus in 2017 without an output cut from OPEC, according to the IEA’s monthly oil market report, which warned of “another year of relentless global supply growth like that seen in 2016.” Global supply rose by 800,000 barrels per day in October, led by record OPEC production and rising output from non-OPEC members like Russia, Brazil, Canada and Kazakhstan. The IEA also raised its forecast for non-OPEC supply by 111,000 barrels a day, with the increase led by Russian production.

The number of Americans filing for unemployment benefits fell more than expected last week. Initial claims for state unemployment benefits dropped 11,000 to a seasonally adjusted 254,000 for the week ended Nov. 5. It was the 88th consecutive week that claims remained below 300,000, a threshold associated with a healthy labor market. That is the longest stretch since 1970.

Crashes Here There And Everywhere - Financial Review

Financial Review

Crash

Sinclair Noe — July 8, 2015

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

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DOW – 261 = 17,515
SPX – 34 = 2046
NAS – 87 = 4909
10 YR YLD – .02 = 2.20%
OIL – .68 = 51.65
GOLD + 3.00 = 1159.00
SILV + .08 = 15.22

The stock market crashed today. Before you accuse me of over exaggerating, I do not consider a 261 point drop on the Dow to be a crash; that’s just a down day, with a dollop of ugly. No, I mean the actual New York Stock Exchange crashed. The computers malfunctioned. Trading stopped for 3.5 hours. Open orders were cancelled. Other orders were re-routed. This was an actual technical crash. It started with a few squirrelly trades in the morning, and at 11:32 AM, the New York Stock Exchange surrendered, halted trading, and tried to reboot the computers.

And for the most part, it did not stop trading in NYSE listed stocks. The other exchanges picked up the trades. First, the Nasdaq did not crash; next the BATS system just re-routed trades, ARCA picked up more trades, and the Philly exchange handled some trades as well. So, in many ways, it was a typical trading day. The New York Stock Exchange is really more of a TV studio these days than a central force behind buy and sell orders. CNBC broadcasts there; tourists gawk; all the trades are electronic, in a room full of servers far from the trading floor on Wall Street, maybe an office park in New Jersey.

Still, there was something strange about the shutdown.

Earlier this morning, United Airways announced they had suffered computer problems, which resulted in a halt to all U.S. departures for about two hours, disrupting travel for thousands of passengers in the second such setback since early June. The FAA described the problem as “automation issues”. United described it as “a network connectivity issue”. United was down for about 2 hours, and just after they resumed flights, the Wall Street Journal’s website went down, and then the NYSE went down.

Both United and the New York Stock Exchange were adamant that the problems were a result of internal technical problems, rather than malicious hackers. And we have not heard anything that connects the malfunctions. Still, it gives you pause and a certain discomfort. The digital world is not as solid as it should be.

Meanwhile, Chinese stock markets crashed; their computers were working just fine; this was an old fashioned sell-off. The Peoples Bank of China issued a statement this morning that it would support market stability by providing liquidity, while guarding against financial risk. Still, they could find buyers. Nearly half of all Chinese listed companies have now voluntarily suspended their shares from trading to insulate themselves from the meltdown. The total market cap of the stocks that were halted is about $2.6 trillion. The Shanghai Composite Index fell 5.9 percent. It’s now about 32 percent below the peak of 5,166 it reached on June 12; the Shenzhen Index dropped 2.6%. The panic in mainland markets also rippled across the border, knocking Hong Kong down 5.8% and Japan 3.1%.

So, why are Chinese companies suspending trading? Part of the reason is to just get a time out and hope the Chinese government can intervene in some way, but the unwinding of margin loans is adding fuel to the fire. Individual investors in China have used generous margin financing terms to enter the stock market and then build up their portfolios. Less-known is that Chinese companies have been doing the same thing by using their own corporate stock to secure loans from banks. Stocks are being suspended by the companies themselves because many have bank loans backed by shares which the banks themselves may want to liquidate.

The Greek economy crashed a few years ago, and now the politicians are just trying to keep it on life support. Greek banks are closed, the ATMs are running out of cash, the Greek stock market is also closed, and Eurozone leaders are meeting in Brussels to determine whether they will continue propping up the patient or if they will pull the plug. Greek Prime Minister Alexis Tsipras has requested a 3 year loan. Creditors are demanding a written, detailed proposal spelling out all the details before they will consider providing aid. They want that proposal by tomorrow.

Earlier today, Germany rejected any debt haircut or debt re-profiling or debt restructuring. Then International Monetary Fund Managing Director Christine Lagarde said that Greece needs debt restructuring as part of a bailout deal, but warned that Athens won’t receive special treatment as the government seeks to delay its loan repayments to the IMF. I think that means they know how to help, they could help, or they might just look the other way.

The Federal Reserve published minutes from its Federal Open Market Committee June 16-17 meeting. The meeting predated the collapse of negotiations between Greece and its creditors, and the continuing descent of the Chinese stock market, but its tone and more recent public remarks of Fed officials suggest that the central bank is still likely to raise rates this year unless the domestic economy is significantly disrupted by global events.

Fed officials have concluded that economic problems during the winter months were overstated, reflecting problems in the government’s measuring sticks rather than an actual downturn. The Fed concludes: “Real activity in the first quarter was likely stronger than the then-current official estimate.” The account also cited a “substantial” improvement in labor market conditions over the last year. In particular, it noted signs that increased demand for labor had “begun to result in a firming of wage increases.” The pace of wage increases remains slow by historical standards. But officials have said that faster wage growth would offer an important indication that the labor market was finally returning to full health, and also that higher rates might be necessary to control inflation. And so, the Fed determined that economic conditions are continuing to approach those consistent with warranting a start to the normalization of the stance of monetary policy.”

Fed funds futures give a 54 percent probability that the central bank will lift rates in December, down from 59 percent before the Fed released the minutes of its June policy gathering. At the start of the month, the likelihood of the central bank lifting its near-zero benchmark rate this year was nearly 70 percent. The chance of a September hike is now 21 percent. In other words, the Fed wants to hike interest rates, and your guess is as good as anybody’s as to when they will do it.

Consumer borrowing in the US climbed in May. The Federal Reserve reports total credit increased by $16.1 billion, following a $21.4 billion gain in the prior month that was more than initially reported. Non-revolving debt climbed $14.5 billion in May after increasing $12.9 billion. Revolving debt, which includes credit cards, rose by $1.6 billion in May after an $8.5 billion advance. Lending by the federal government, which is mainly for student loans, rose by $3.9 billion.

Second quarter earnings reporting season kicked off this afternoon as Alcoa posted earnings that missed analysts’ estimates. Alcoa is a former Dow Industrial stock, and with ticker symbol AA, it has the alphabetical distinction of the first major stock to report quarterly earnings, although that starting line has been blurred for a long time.  Alcoa kept its 2015 global aluminum-demand growth forecast unchanged at 6.5 percent, and it reduced its projection for industrywide sales to the aerospace and Chinese truck markets. China, the world’s biggest aluminum user, is poised to grow at its slowest pace in a quarter of a century. Get used to companies complaining about a slowdown in China, or Europe, or how they were hurt by a stronger dollar.

After winning key legislation in Congress last month, the Obama administration has now scheduled a high-level trade meeting for late July in an effort to conclude the Trans-Pacific Partnership. Several other lower-level talks will take place beforehand, including tomorrow’s meeting between the U.S. and Japan to close gaps on auto and agriculture trade. According to people following the talks, a deal in coming weeks could allow the TPP to come to a final vote in Congress before the end of the year.

Oil prices fell for a fifth straight session after weekly inventory data showed an unexpected increase in crude supplies. The Energy Information Administration reported commercial crude-oil stockpiles rose by 400,000 barrels in the week ended July 3. The EIA also reported that gasoline stockpiles rose 1.2 million barrels, as demand fell from the prior week.

Microsoft plans to  plans to cut up to 7,800 jobs and write down the value of its Nokia purchase by more than 80%, the latest indications of the company’s continuing struggles in the phone business. In addition to the write-down, which will be booked in its recently ended fiscal fourth quarter, Microsoft said it also would take a restructuring charge of $750 million to $850 million. The company expects the moves to be “substantially complete” by the end of the calendar year. The new cuts are in addition to the roughly 18,000 employees Microsoft said it planned to let go a year ago.

JPMorgan has agreed to pay at least $125 million to settle investigations by U.S. state and federal authorities that it sought to improperly collect and sell consumer credit card debt. JPMorgan has been accused of relying on robosigning and other methods of collecting debt from consumers that they may not have owed and providing inaccurate information to debt buyers.

In other banking news, Jon Corzine and other former MF Global officials have agreed to be part of a $64.5 million settlement to end litigation brought by investors burnt by the 2011 collapse of the futures brokerage. The move marks the first time the former New Jersey governor agreed to pay those who lost money in MF Global, which became the eighth-largest bankruptcy in US corporate history when a bet on European sovereign debt soured.

Financial Review

Dignity

Sinclair Noe — June 26, 2015

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

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DOW + 56= 17,946
SPX – 0.82 = 2101
NAS – 31 = 5080
10 YR YLD + .08 = 2.48%
OIL – .07 = 59.63
GOLD + 1.30 = 1175.20
SILV – .09 = 15.85

For the week, both the Dow and S&P 500 fell 0.4 percent while the Nasdaq fell 0.7 percent. Nike rose 4.3 percent to $109.71 and was the biggest boost to the Dow after reporting a better-than-expected quarterly profit, lifted as it sold more high-margin shoes and apparel at higher prices.

Micron Technology sank 18 percent to $19.66 a day after forecasting a further decline in prices of chips used in personal computers. It also gave a revenue outlook for the current quarter that was well below market estimates. The PHLX Semiconductor index (SOX) fell 2.4 percent.

The Supreme Court has ruled that same sex couples have a constitutional right to marry nationwide. Voting 5-4, the justices said states lack any legitimate reason to deprive gay couples of the freedom to marry. The ruling in support of marriage equality was widely expected, given the Supreme Court’s previous ruling on the issue. In June 2014, the Supreme Court overturned the 1996 Defense of Marriage Act, opening up federal benefits to same-sex married couples. It heard two cases: Hollingsworth v. Perry, the successful challenge to California’s Proposition 8 measure, a 2008 ballot initiative that banned gay marriage in that state; and a New York case, U.S. v. Windsor, which overturned DOMA. Today’s ruling legalized same sex marriage but there’s still no federal law protecting LGBT employees from discrimination. Twenty-one states and Washington, DC, have passed employee non-discrimination laws, but it’s still legal in many places, even the US Congress, for employers to fire workers based on sexual orientation or gender identity.

The case is Obergefell v Hodges, and the person behind the case is James Obergefell; he married his husband Arthur in 2013 after the Supreme Court struck down the Defense of Marriage Act. Arthur died three months later, and Obergefell sued to be able to have his name included on his husband’s death certificate. That is something that will change with today’s ruling; also look for changes in Social Security rules, taxation, estate planning, insurance, and the military has announced that it will now recognize same sex marriages and allow gay couples in the military to receive benefits from the Department of Defense. So, there will be a big economic impact from today’s ruling, in addition to other implications.

At the center of the marriage case was the question of whether the right to same-sex marriage is protected under the Fourteenth Amendment. Justice Kennedy wrote for the majority that: “Under the Due process Clause of the fourteenth Amendment, no State shall ‘deprive any person of life, liberty, or property, without due process of law.’ The Fundamental liberties protected by this Clause include most of the  rights enumerated in the Bill of Rights… in addition these liberties extend to certain personal choices central to individual dignity and autonomy, including intimate choices that define personal identity and beliefs.”

In closing, Kennedy writes that the petitioners have asked for “equal dignity in the eyes of the law” and the court has granted it.

Health care stocks, especially hospital operators, rose sharply yesterday after the Supreme Court ruled that Obamacare federal subsidies were legal. Fresh health care M&A chatter also followed the decision. Humana, the smallest of the big five insurers, is pursuing a deal to sell itself and could reach an agreement by next week. Among those in the running to buy it are two bigger competitors, Aetna and Cigna. Already, Anthem has offered $47 billion to acquire Cigna, a deal that Cigna has rebuffed, potentially with an eye to buying Humana. Anthem itself had also expressed interest in buying Humana, though it is now focused on Cigna. Still, it remains to be seen whether government regulators will bless too many consolidations, because of antitrust concerns.

In the case Johnson v. United States, the Supreme Court just struck down a provision of the Armed Career Criminal Act that says that someone’s past crimes count as “violent” if they involve a risk of serious injury to another person, even if the crime didn’t actually involve violence. The Armed Career Criminal Act is a federal variation of the “three strikes, you’re out” laws that have been passed in several states, though in this case, it’s closer to “four strikes.” If someone has three violent felonies (or “serious” drug crimes) on his record, the law tacks an extra five years onto his fourth conviction. The problem is what crimes count as “violent felonies”; it’s a term that has never been defined legally. So, that’s what the Supremes struck down, and now they don’t have to make those definitions on a case by case basis. In reality, the Supremes are kicking it back to Congress to fix the language.

We are heading into what should be a decisive weekend regarding Greece. Eurozone finance ministers will meet again on Saturday in a last-ditch effort to find an agreement with Greece, ahead of the country’s crucial €1.6B debt payment due to the IMF by Tuesday. International creditors offered a proposal to extend the Greek bailout program by 5 months and release $17 billion in rescue funds. While German Chancellor Angela Merkel touted the five-month bailout extension as “very generous,” Greek Prime Minister Alexis Tsipras compared its terms to an “ultimatum” and “blackmail.” Greece owes about $1.8 billion on Tuesday; money it does not have. The Greek story is developing right now, and it looks like Tsipras has just called for a July 5 referendum, so it will go to the voters.

If you are wondering why Greece might reject a deal from creditors, it helps to remember that in 2010 and 2012, Greece accepted bailout deals from European creditors totaling hundreds of billions of euros in order to prevent the collapse of the Greek banking system. The funds kept Greece from a potential default that would force it out of the eurozone, but most of the enormous sum of money involved in the bailouts ultimately didn’t end up funding public services or directly going to the Greek people.

Instead, much of the bailout funds went back to the same creditors who gave Greece both the bailouts. This resulted in a situation where the so-called troika of the IMF, European Central Bank and European Commission were effectively lending Greece money so it could pay off the debt it already owed them. Essentially the Troika paid itself while leaving the tab to Greece.  In other words, the Greek situation is very difficult to predict for now.

The University of Michigan consumer sentiment rose to a final June reading of 96.1, reaching a five-month high, rebounding from a drop in May. The yield on the 10-year Treasury rose 8.7 basis point to 2.480%, its highest level since September 30. Over the week, the yield gained 21.1 basis points, the largest weekly gain in the month of June. The two-year yield increased 8.9 basis point to 0.712% and the yield on the 30-year Treasury rose 8.3 basis points to 3.239%. Typically, we have seen that when there is uncertainty, such as the situation with the Greek debt negotiations, there is a flight to safety, but it looks like a shift in trading strategy in the Treasury market from “buying the dips” to “selling the rallies”.

While we have been paying attention to Greece, it looks like a bubble has popped in China. China’s $8.8 trillion stock market is crashing. The Shanghai Composite Index dropped 7.4% today, following a sell-off on Thursday that left Chinese shares down 3.5%. The Shanghai market, China’s largest, closed down almost 20% from its recent peak, while the second-largest Shenzhen market fell 8.2%, and is now down 20% from recent highs, entering bear-market territory. The country’s startup stocks have lost a quarter of their value since hitting a record high earlier in the month; the ChiNext index dropped 8.9% today. The selling pressure seemed driven by the sense that the government had become uncomfortable with the equity market surge throughout much of the first half of the year. At its peak earlier this year, the Shanghai composite was up roughly 60% and the Shenzhen index was up more than 120%.

The U.S. and Japan are likely to resolve outstanding bilateral issues so a 12-nation Trans-Pacific Partnership deal can be struck at a multilateral ministerial meeting in July. A deal between the two countries is vital to clinching the TPP pact, which would cover 40% of the world economy. Remaining bilateral issues include Japan’s market for farm products and the U.S. market for auto parts.

The Russell indexes go through an annual rebalancing, and it happened today. Changes in the small-cap Russell 2000 and the large-cap Russell 1000 and the Russell 3000 mean that the index funds and ETFs that track these benchmark indices must buy or sell stocks to match up with the changes.  Roughly $835 billion is invested in index funds that track the Russell indices. Normally, the rebalancing results in very heavy trading but volume was just slightly higher today.

Islamic extremists have launched terror attacks in 4 countries. As French police pieced together what happened in an attack at a factory near Lyon where one man was decapitated, at least 37 beachgoers were gunned down in Tunisia. A suicide bomber at a Shiite mosque in Kuwait left 25 people dead, while al-Shabaab militants killed 30 peacekeepers in Somalia. Officials say there is no immediate confirmation that the attacks were coordinated. Coordinated or not coordinated; I’m not sure which is scarier.