Financial Review

M&A Media Mayhem

Sinclair Noe — November 17, 2017

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DOW – 100 = 23,358
SPX – 6 = 2578
NAS – 10 – 6782
RUT + 5 = 1492
10 Y – .01 = 2.35%
OIL + 1.54 = 56.68
GOLD + 15.10 = 1294.40

Cryptocurrency

• Number of Currencies: 907
• Total Market Cap: $234,132,708,353
• 24H Volume: $10,050,026,221

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	7,810.0	$130.16B	$3.69B	36.76%	1	+1.72%	+24.52%
	Ethereum	ETH	347.82	$33.16B	$615.23M	6.12%	0.0443825	+4.95%	+10.56%
	Bitcoin Cash	BCH	1,250.80	$21.26B	$3.12B	31.07%	0.161821	+6.40%	-11.49%
	Ripple	XRP	0.22750	$8.81B	$145.99M	1.45%	0.00002925	+1.34%	+8.98%
	Litecoin	LTC	69.090	$3.70B	$164.46M	1.64%	0.00879685	+2.34%	+10.55%
	Dash	DASH	453.36	$3.48B	$144.22M	1.43%	0.0580253	+7.17%	+31.26%
	NEO	NEO	41.150	$2.66B	$436.25M	4.34%	0.00523784	+1.91%	+44.47%
	IOTA	MIOTA	0.82220	$2.28B	$57.87M	0.58%	0.00010516	+3.92%	+39.22%
	Monero	XMR	131.00	$2.01B	$63.19M	0.63%	0.0167686	+3.56%	+9.07%
	NEM	XEM	0.19553	$1.75B	$7.02M	0.07%	0.00002498	+2.25%	+3.59%

It has been a wild week on Wall Street, with the biggest gain and the largest drop in two months after touching records a week earlier. Investors are trying to gauge whether benchmarks will continue a march to all-time highs on strong earnings and faster growth spurred by corporate tax cuts or if they will be pulled down amid lofty valuations, the flattest yield curve in a decade and a selloff in junk bonds.

For the week, the Dow lost 0.3%. The S&P lost 0.1%. The Nasdaq gained 0.5% for the week.

Yesterday, the House passed its version of a tax cut plan. The Senate is still debating its own plan, trying to reduce the 10-year debt impact below $1.5 trillion. A Reuters poll showed that nearly two-thirds of more than 60 economists said they were not confident the Trump administration would get the legislation passed this year.

The biggest problem for the tax plan is that it is widely despised. The latest survey from Quinnipiac out this week found that just 25 percent of voters approve of the GOP tax-cut plan while 52 percent disapprove. Most voters, 61 percent, believe the plan will benefit the wealthy, while just 24 percent view it as good for the middle class.

With 95 percent of S&P 500 companies having reported third-quarter results, earnings are on pace to grow 6.2% from a year earlier, according to FactSet. That’s up from the 3.1% growth rate expected at the end of period.

Technology companies drove much of the growth. The sector reported a 19.7 percent increase in earnings and was the biggest contributor to earnings growth rate. If the tech sector was excluded, the overall growth rate would fall to 2.8% from 6.2%.

Profits at companies that generate more that 50% of their sales outside the United States, grew more than 13% in the third quarter. Earnings at firms that get a majority of their revenue from within the U.S., rose only 2.3%.

The energy sector reported the largest increase in earnings of the S&P 500’s 11 sectors at 135%. The increase reflects how hard the roughly two-year slide in oil prices had hit the industry; 74 percent of companies have reported profits above analysts’ expectations, above the five-year average of 69 percent; Financial firms reported the biggest decline in profits, down 8.3%. That decline can largely be blamed on Hurricanes Harvey and Irma. Insurance companies in the sector reported 63% decrease in profits.

The Commerce Department on Friday said October housing starts surged, rising 13.7% to a seasonally adjusted annual rate of 1.29 million. That’s the second-highest level of the economic recovery. Building permits, a less volatile series, rose 5.9% to 1.3 million.

Big double-digit gains came from both the South and the Midwest, with at least some of that attributed to the recovery from the hurricanes that ravaged Texas and Florida. On a percentage basis, the Northeast was the biggest mover, up a whopping 42%, but that’s the smallest region for activity. It’s possible warm weather proved to be a boost in the Northeast region. Single-family starts rose 5.3%, and starts with five or more units leaped 37.4%.

The Federal Communications Commission (FCC) on Thursday rolled back media ownership regulations under the guise of trying “to modernize its broadcast ownership rules and to help promote ownership diversity.”

The approved order: Eliminates newspaper/broadcast and radio/television cross-ownership rules, which imposed restrictions on owning multiple media outlets in the same market; Relaxes rules about local television ownership—including joint sales agreements, which allow a company to control news operations at several stations in one market, where stations would typically compete against each other; and formally requests “comment on how to design and implement” an FCC diversity incubator program. In other words, this is the beginning of the end of local media.

The new rules are expected to help Sinclair Broadcasting move forward with a proposed a $3.9 billion merger with Tribune Media, which would enable the company to reach 72 percent of the U.S. population. The merger must be approved by the FCC.

There are also longer-term forces at work: traditional media companies are struggling with more customers canceling pricy cable contracts while Netflix and Amazon.com are spending billions of dollars on making shows and movies. More viewers now stream programming on smartphones or other devices, diverting the flow of advertising dollars away from traditional media companies.

And so now, everybody is trying to buy or sell a media company. It started a year ago when AT&T announced it had reached an agreement to buy Time Warner. Then things really turned upside down when 21st Century Fox — just three years after trying to buy Time Warner — signaled it wanted to sell some assets to Disney.

Then on Thursday, it was reported that Comcast might buy some of Fox. Or Verizon might. It might even be sold off piecemeal. Hulu may be the single most important piece of Fox’s pie as Disney and Comcast look to compete with streaming services from Netflix and Amazon.

Comcast currently holds a 30 percent ownership stake in Hulu. Acquiring Fox’s 30 percent stake would give Comcast a majority holding. Disney, which also holds a 30 percent ownership stake in Hulu, is in the same position.

Charter Communications director John Malone says 4 firms have talked to the cable company about a potential merger or acquisition. And of course, President Trump might not allow AT&T to buy Time Warner. Meanwhile, Meredith Corp is considering a bid for Time Inc and Discovery Communications is acquiring Scripps Networks Interactive.

But wait, there’s more! The Federal Communications Commission will drive a stake through its own net neutrality rules roughly this time next month. Net neutrality is the concept that the internet should be an even playing field. Whether it’s your cousin’s blog or Google, net neutrality proponents argue all data should flow the same, meaning no persons or companies can be favored by the networks on which the data flows. That keeps big companies from paying for preferential treatment.

This is how the internet has generally operated, but as more services move online, concerns have grown that internet service providers will want to start charging for better access. Net neutrality supporters argue that this would turn the internet into a pay-to-play world, hampering innovations and leaving people to the whims of major companies. The rules could be voted on by mid-December, leaving the door open for internet providers to begin manipulating traffic.

FCC Chairman Ajit Pai has made no secret of his wish to undo the benchmark rules. Pai has been working to repeal the FCC’s net neutrality rules since the start of his time as chairman. Pai floated initial rules in May, which led into the usual comment period that FCC rule changes go through. That process was a disaster for the FCC. There appears to be almost unanimous support – exception for some telecom companies – for existing net neutrality rules.

Elon Musk built a truck, a big-rig. It is all electric. It does not drive itself, but the Tesla Semi is equipped with Enhanced Autopilot. The big reveal was last night in California. The truck has a 500-mile range, roughly twice what Reuters claimed in August. It’s also more than double what Cummins and Daimler have promised so far in their planned electric trucks.

That figure, and the promise of solar-powered “Megachargers” to give 400 miles of range in 30 minutes — supplementing the existing Supercharger network — should help put to rest concerns that an electric truck is impractical for hauling outside of cities.

For Tesla, this was a fundraising event – looking for pre-orders, and it looks like some of the big trucking firms were ready to buy. Walmart preordered 15. Here’s the sales pitch: electric trucks can go for a million miles before requiring a major overhaul. The operating cost is $1.26 per mile vs. $1.51 per mile for traditional diesel. And they can be linked in a convoy, dropping the cost down to $0.85 a mile.

The big question is whether Tesla can build the trucks before they run out of money. The actual production is proving to be quite a challenge for Tesla. After the big truck display, Tesla unveiled a new version of its Roadster, sports car, which comes with a $200,000 price tag.

Musk boasted of the Roadster’s 0–60 mph time of 1.9 seconds and top speed of at least 250 mph. And it comes with a 650-mile range – that’s Los Angeles to San Francisco and back in one charge, a significant milestone for an electric car.

And in today’s edition of “Banks Behaving Badly” – Swiss financial markets authority FINMA has found that the Swiss subsidiary of U.S. investment bank JPMorgan broke anti-money laundering rules. FINMA ruled on June 30 that JPMorgan Switzerland had “seriously infringed” regulatory oversight provisions.

The case involved a “violation of obligations of diligence on questions of money-laundering.” Both FINMA and JPMorgan declined to comment on FINMA’s ruling and it was unclear what action, if any, the regulator had taken against JPMorgan. FINMA is not authorized to levy fines, but may confiscate unlawfully realized gains.

It is important to remember that JPMorgan is a really big bank, and with hugeness come the inevitable slips and blunders. But it must take some real effort ot get busted for money laundering lapses by the Swiss. That’s just sloppy.

Stocks Trade in Red Shade as Success for Tax Proposal Weighed

Charles Schwab: On the Market

Posted: 11/17/2017 4:15 PM EST

Stocks Trade in Red Shade as Success for Tax Proposal Weighed

 

U.S. stocks finished the trading session lower and the week mixed as investors appeared to exercise caution amid the developing path of proposed tax policy, some disappointing Chinese economic data and a flattening yield curve. Treasury yields were mixed and the U.S. dollar was lower, while crude oil prices rebounded from a recent decline and gold was also higher. Shares of GAP, Abercrombie & Fitch, and Foot Locker traded solidly higher following the release of the companies Q3 earnings results. 

The Dow Jones Industrial Average (DJIA) declined 100 points (0.4%) to 23,358, the S&P 500 Index declined 7 points (0.3%) at 2,579, and the Nasdaq Composite slipped 11 points (0.2%) to 6,783. In moderate volume, 875 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil rallied $1.36 to $56.71 per barrel and wholesale gasoline was $0.03 higher at $1.74 per gallon. Elsewhere, the Bloomberg gold spot price gained $15.46 to $1,294.04 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—declined 0.3% to 93.63. Markets were mixed for the week, as the DJIA decreased 0.3% and S&P 500 Index ticked 0.1% lower, while the Nasdaq Composite advanced 0.5%.

Gap Inc. (GPS $29) reported Q3 earnings-per-share (EPS) of $0.58, versus the $0.54 FactSet estimate, as revenues rose 1.1% year-over-year (y/y) to $3.8 billion, roughly in line with forecasts. Q3 same-store sales grew 3.0% y/y, above the expected 1.3% gain. GPS raised its full-year guidance. Shares finished nicely higher.

Applied Materials Inc. (AMAT $56) posted fiscal Q4 EPS of $0.91, or $0.93 ex-items, compared to the forecasted $0.91, with revenues rising 20.0% y/y to $4.0 billion, above the estimated $3.9 billion. The chip equipment maker issued Q1 guidance that exceeded projections. AMAT traded lower.

Abercrombie & Fitch Co. (ANF $16) announced Q3 earnings of $0.15 per share, or $0.30 ex-items, topping the forecasted $0.22, as revenues increased 5.0% y/y to $859 million, north of the estimated $820 million. Q3 same-store sales rose 4.0% y/y, above the expected 0.4% gain. Shares rallied as ANF also issued a Q4 outlook that bested the Street's expectations.

Williams-Sonoma Inc. (WSM $46) reported Q3 EPS of $0.84, matching forecasts, as revenues rose 4.3% y/y to $1.3 billion, rough in line with expectations. Q3 same-store sales grew 3.3% y/y, just above the estimated 3.0% increase. WSM issued Q4 profit guidance that missed expectations. Separately, the company announced the acquisition of home furnishings and décor industry 3-D imaging and augmented reality platform Outward Inc. WSM traded solidly lower.

Foot Locker Inc. (FL $41) posted Q3 profits of $0.81 per share, or $0.87 ex-items, versus the expected $0.80, as revenues decreased 0.8% y/y to $1.9 billion, topping the forecasted $1.8 billion. Q3 same-store sales declined 3.7% y/y, compared to the projected 4.6% drop. FL said despite a continued highly promotional environment, it believes it can exceed its Q4 guidance issued in August. Shares surged nearly 30%.

Housing construction activity stronger than expected

Housing starts (chart) for October jumped 13.7% month-over-month (m/m) to an annual pace of 1,290,000 units, well above the Bloomberg forecast of a 1,190,000 unit rate. September starts were upwardly revised to an annual pace of 1,135,000. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, grew 5.9% m/m in October to an annual rate of 1,297,000, after September's favorably revised 1,225,000 rate, and north of the expected annual pace of 1,250,000 units.

The Kansas City Fed Manufacturing Activity Index for November showed growth decelerated more than expected, with the index dipping to 16 from 23 in October, compared to the forecasted 21, though a reading above zero denotes expansion in activity.

Treasuries finished mixed, with the yield on the 2-year note ticking 1 basis point (bp) higher to 1.72%, while the yield on the 10-year note declined 3 bps to 2.35%, and the 30-year bond dropped 5 bps to 2.78%.

The markets continued to grapple with the ongoing flattening of the yield curve and the recent soft data out of China that came amid a relatively positive global economic backdrop. Also, U.S. tax reform uncertainty remained as yesterday's bill passing in the House opened the door for scrutiny and concerns about the reconciliation process with the Senate's plan that differs significantly on some key areas and is expected to be voted on the week after the Thanksgiving holiday. As such, check out our article, Does Low Market Volatility Portend a Market Tumble?, as well as Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's latest commentary, Tax Reform: Key Differences Between the Senate and House Plans.

Europe mostly lower and Asia mixed to close out the week 

European equity markets traded mostly lower after breaking a string of losses yesterday that came amid what seemed to be a flare-up in global market risk aversion. With U.S. tax reform uncertainty lingering despite yesterday's House bill passing, coalition talks in Germany ramped up and the Brexit stalemate remained. For analysis of the uncertainty political front in the region, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives Randy Frederick's video, Political Risk: How Should Investors Respond?. The British pound and the euro ticked slightly higher versus the U.S. dollar as the markets continued to digest comments from European Central Bank President Mario Draghi, who offered an upbeat outlook for the economy, but said the central bank needs to be patient in normalizing policy as inflation remains subdued. Schwab's Jeffrey Kleintop provides analysis of the changing global monetary policy landscape in his article, How the Shift by Central Banks May Affect the Stock Market. Bond yields in the region were mostly lower, while energy issues recovered modestly as crude oil prices rebounded after a recent drop.

Stocks in Asia finished mixed to close out a week that saw some increased downside pressure as the global markets appeared to shift to a de-risking mood on the heels of a global rally. Schwab's Jeffrey Kleintop, CFA, offers a look at the global market rally seen this year that has been fostered by the broadest economic growth in a decade in his latest article, 5 Reasons Investors Should Give Thanks. Some support came from yesterday's rebounds in the U.S. and Europe, but the markets continued to be cautious as U.S. tax reform uncertainty lingered, crude oil prices sold off, and recent Chinese economic data has disappointed. Japanese equities pared solid early gains as the yen gained ground late in the day. Mainland Chinese shares declined with sentiment being exacerbated by local media reports warning of high valuations in some stocks that have rallied as of late, per Bloomberg. Equities trading in Hong Kong and India advanced, while Australian securities were also higher and South Korean shares finished flat.

Stocks bounce back to finish week mixed

U.S. stocks finished the trading week mixed as a strong rally on Thursday, led by tech issues, was able to offset losses that developed early in the week as the uncertainty surrounding the likelihood of a successful domestic tax policy overhaul intensified. The House passed its bill to reduce taxes and focus is now tuned to the Senate and its legislative process with a floor vote expected shortly after the Thanksgiving holiday break. Economic data was mostly positive as an advance read on retail sales unexpectedly increased m/m, showing widespread sales gains, but also revealing a dip in online shopping. A separate report showed small business optimism rose and consumer inflation was mostly in line with expectations. Market participants were also treated to hotter-than-expected producer price inflation figures, slowing in some regional manufacturing output and an unexpected rise in weekly jobless claims.

In earnings news, Wal-Mart Stores (WMT $97) surged to a record high after it revealed its Q3 results, while Home Depot (HD $167), Tyson Foods (TSN $78), and Dick's Sporting Goods (DKS $29) also topped analysts' quarterly projections. Target (TGT $57) disappointed with its quarterly marks and General Electric (GE $18) cut its quarterly dividend in half. As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, third quarter earnings season is largely complete and can be characterized as a positive one—with strong “beat rates” for both top- and bottom-line results; while economic data continues to indicate solid growth.

Although next week will be shortened by Thursday's Thanksgiving holiday, during which the U.S. markets will be closed, the economic calendar will still deliver a feast of key reports that could provide sustenance for market action. Housing will remain in focus, with the release of existing home sales, along with manufacturing demand in the form of the preliminary durable goods report. The Leading Index will give us a look at how many cylinders the economy is firing on, while the minutes from the Fed's Oct/Nov monetary policy meeting will provide us discussion details as the highly-expected December rate hike decision looms. We will get a look at the psyche of the consumer, courtesy of the final University of Michigan Consumer Sentiment Index for this month. The week will come to a close with Markit's November business activity reports, illustrating the pace of growth in output from the manufacturing and services sectors.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest, Schwab Sector Views: 'Tis the Season…Almost, much of the U.S. economy arguably comes down to how the consumer is faring as businesses make hiring and investing decisions based on their expectations of consumer demand. Brad adds that it would be difficult to view the status of the consumer as anything less than mostly positive with unemployment historically low, wages trending higher and still low interest rates conspiring to boost consumer confidence.

International reports due out next week that deserve a mention include: Australia—Leading Index. Japan—trade balance and the All Industry Activity Index. Eurozone—Markit Manufacturing and Service PMIs and consumer confidence, along with German Q3 GDP and PPI. U.K.—public sector net borrowing, Q3 GDP and business investment.

Stocks Gain Ground, Dow Rallies

On the Market

Posted: 10/18/2017 4:15 PM EDT

Stocks Gain Ground, Dow Rallies

 

U.S. stocks finished higher with Dow member IBM's quarterly results aiding the blue chip index to close well above the 23,000 mark for the first time. Treasury yields rose despite continued uncertainty in regard to the future leadership of the Federal Reserve. Housing construction activity disappointed and the Fed's Beige Book noted a modest and moderate increase in domestic economic activity. The U.S. dollar and crude oil prices were little changed, while gold was lower. 

The Dow Jones Industrial Average (DJIA) rallied 160 points (0.7%) to 23,158, the S&P 500 Index added 2 points (0.1%) to 2,561, and the Nasdaq Composite was nearly 1 point higher at 6,624. In moderate volume, 677 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.15 higher to $52.26 per barrel and wholesale gasoline increased $0.01 to $1.64 per gallon. Elsewhere, the Bloomberg gold spot price lost $4.04 to $1,281.08 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 93.41.

Dow member International Business Machines Corp. (IBM $160) reported Q3 earnings-per-share (EPS) of $2.92, or $3.30 ex-items, versus the $3.28 FactSet estimate, as revenues dipped 0.4% year-over-year (y/y) to $19.2 billion, topping the expected $18.6 billion. The company's cloud revenue rose 20% y/y, helping it achieve double-digit growth in its strategic imperatives. IBM reaffirmed its full-year earnings outlook and projected Q4 revenues that topped forecasts and would end a 22-quarter streak of declines. Shares rallied.

Abbott Laboratories(ABT $56) reported Q3 EPS of $0.32, or $0.66 ex-items, versus the projected $0.65, with revenues rising 5.6% y/y to $6.8 billion, compared to the expected $6.7 billion. ABT issued Q4 profit guidance that matched forecasts, while it narrowed its full-year earnings outlook. Shares traded higher.

Housing construction activity misses, ahead of Fed's business activity report

Housing starts (chart) for September dropped 4.7% month-over-month (m/m) to an annual pace of 1,127,000 units, below the Bloomberg forecast of a 1,175,000 unit rate. August starts were upwardly revised to an annual pace of 1,183,000. Starts on both single and multi-unit structures were down m/m but are higher compared to the last year. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, fell 4.5% m/m in September to an annual rate of 1,215,000, after August's downwardly revised 1,272,000 rate, and south of the expected annual pace of 1,245,000 units. Permits for single unit structures were up m/m and y/y, while multi-family units were down sharply m/m and y/y.

The MBA Mortgage Application Index rose 3.6% last week, following the prior week's 2.1% decline. The increase came as a 3.0% gain in the Refinance Index was met with a 4.2% rise in the Purchase Index. The average 30-year mortgage rate decreased 2 basis points (bps) to 4.14%.
Mortgage demand appears healthy and home-buying incentives may be bolstered by continued relatively low interest rates and high rental rates in some areas of the country, as discussed as one of the reasons we have an outperform rating on the financial sector in Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest, Schwab Sector Views: Sustainable Energy?.

In afternoon action, the Federal Reserve released its Beige Book, a summary of business activity across the nation used as a tool to prepare for its next two-day monetary policy meeting ending on November 1st. The report indicated that domestic economic activity increased at a pace split between modest and moderate in September through early October. Major disruptions from hurricanes Harvey and Irma were reported in some areas and sectors in the Richmond, Atlanta and Dallas Districts. Meanwhile, job growth was modest on balance, and labor markets continued to be characterized as "tight."

The report also noted that price pressures remained modest and several Districts noted increased manufacturing input costs that in most cases weren't passed through to selling prices, while retail prices increased slightly. For our analysis of inflation, Schwab's Chief Investment Strategist Liz Ann Sonders notes in her article, The Waiting: Wage Growth and Inflation Finally Getting in Gear?, with wage growth picking up and the labor market even tighter, it’s time to put even traditional measures of inflation back on the radar screen. Also, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes his commentary, Inflation May Be The Biggest Question For Investors In 2018, that central banks are behaving as if wages and inflation will revive in the year ahead. If they don’t, and central banks don’t alter their policy path, the global stock markets could be in for a rough 2018.

Global monetary policy remains in focus as many central banks appear to be shifting onto the path to normalization, while the upcoming end of Fed Chief Janet Yellen's term is fostering some uncertainty. Schwab's Jeffrey Kleintop discusses, How the Shift by Central Banks May Affect the Stock Market, and Schwab's Chief Fixed Income Strategist, Kathy Jones talks in the video with Vice President of Trading and Derivatives, Randy Frederick, Should a Change in Fed Leadership Matter to Investors?. Tax reform continues to garner attention, with the Senate expected to vote this week on its budget resolution that could help nudge it further down the long road to fruition, as discussed by Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend in the article, Tax Reform Framework Released, But The Road Ahead Is Long.

Check out these articles and video on the Market Commentary page at www.schwab.com. Follow our Schwab experts on Twitter: @lizannsonders, @jeffreykleintop, @kathyjones and @randyafrederick.
Treasuries finished lower, with the yield on the 2-year note ticking 2 bps higher to 1.56%, while the yields on the 10-year note and 30-year bond rose 4 bps to 2.34% and 2.85%, respectively. The U.S. dollar was little changed as global economic optimism was countered by the aforementioned uncertainties.

Tomorrow, the U.S. economic calendar will begin with weekly initial jobless claims, forecasted to have ticked lower to a level of 240,000 from the prior week's 243,000, as well as the Philly Fed Manufacturing Index, anticipated to have ticked lower to a reading of 22.0 in October from 23.8 in September. Rounding out the day, we'll receive the Leading Index for September, expected to increase 0.1% m/m after rising 0.4% in August.

Europe higher despite lingering political uneasiness, Asia mixed as Japan continues streak

European equity markets finished higher, despite festering political uncertainty as the independence standoff between Spain and Catalonia continues, with that latter given a deadline of Thursday morning to renounce independence claims. Also, Brexit talks remain in a deadlock ahead of this week's summit of European Union leaders. For analysis, see Schwab's Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond?, and our article, Brexit Begins: What's Next for the U.K?, on the Market Commentary page at www.schwab.com. IBM's earnings results across the pond appeared to foster some optimism regarding global earnings as the season kicks into gear. The euro ticked higher and British pound dipped versus the U.S. dollar, while bond yields in the region gained solid ground to boost financials. In economic news, U.K. employment change came in below forecasts, while eurozone construction output declined in August.

Stocks in Asia finished mixed as the markets await a flood of Chinese economic data tonight, headlined by the nation's Q3 GDP report, which is expected to show growth slowed slightly to a 6.8% y/y pace from 6.9% in Q2. Also, the commencement of China's Communist Party National Congress was in focus but comments from President Xi offered no huge changes to the country's outlook. Shares trading in Hong Kong and mainland China gained ground. Japanese equities nudged higher to continue a winning streak to 12 sessions, which has led the Nikkei 225 Index to its highest level since 1996. Japan's stock market has contributed to the global rally and Schwab's Jeffrey Kleintop, CFA, and Randy Frederick discuss in the video, Are Investors Underestimating the Stock Market Rally?, on the Market Commentary page at www.schwab.com. Stocks trading in South Korea and India dipped, while Australian securities finished mostly flat.

The international economic docket for tomorrow will include trade data, the All Industry Activity Index and machine tool orders from Japan, employment data and business confidence from Australia and retail sales from the U.K., while China will release retail sales in addition to its aforementioned GDP report.

Stocks Hold All-Time Highs

Charles Schwab: On the Market

Posted: 10/17/2017 4:15 PM EDT

Stocks Hold All-Time Highs

 

U.S. stocks finished the regular trading session fairly flat, though the Dow broke through the 23,000 mark intraday as market participants waded through a flood of corporate earnings and economic reports. Treasury yields were little changed and the U.S. dollar rose as uncertainty and speculation in regard to who will soon lead the Federal Reserve remains. In economic news, homebuilder sentiment and industrial production rebounded, while import prices rose. Gold was lower and crude oil prices inched higher.

The Dow Jones Industrial Average (DJIA) increased 40 points (0.2%) to 22,997, the S&P 500 Index added 2 points (0.1%) to 2,559, and the Nasdaq Composite was nearly unchanged at 6,624. In moderate-to-light volume, 692 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.01 higher to $51.88 per barrel and wholesale gasoline also increased $0.01 to $1.63 per gallon. Elsewhere, the Bloomberg gold spot price lost $9.69 to $1,286.10 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 93.51.

Morgan Stanley(MS $49) reported Q3 earnings-per-share (EPS) of $0.93, compared to the $0.81 FactSet estimate, as revenues rose 3.4% year-over-year (y/y) to $9.2 billion, above the projected $9.0 billion. The company said its results reflected the stability its wealth management, investment banking and investment management businesses bring when its sales and trading business faces a subdued environment. Shares traded higher.

Netflix Inc. (NFLX $199) posted Q3 EPS of $0.29, versus the expected $0.32, as revenues grew 30.3% y/y to $3.0 billion, roughly in line with forecasts. The company reported net subscriber additions for its domestic and international streaming units that both topped estimates, with the latter easily besting forecasts. NFLX issued Q4 guidance that exceeded expectations and said it will spend $7-8 billion on content for 2018. Shares lost ground.

Dow member Goldman Sachs Group Inc. (GS $236) announced Q3 profits of $5.02 per share, above the estimated $4.17, as revenues increased 1.9% y/y to $8.3 billion, topping the $7.5 billion expectation. The company's trading revenues fell, while its investment banking and investing and lending revenues rose solidly. Shares traded lower.

Dow component UnitedHealth Group Inc. (UNH $204) achieved Q3 EPS of $2.51, or $2.66 ex-items, versus the projected $2.56, with revenues rising 9.0% y/y to $50.3 billion, compared to the estimated $50.4 billion. UNH raised its full-year earnings outlook and shares finished nicely higher.

Dow member Johnson & Johnson(JNJ $141) reported Q3 earnings of $1.37 per share, or $1.90 ex-items, versus the expected $1.80, as revenues rose 10.3% y/y to $19.7 billion, above the forecasted $19.3 billion. The company noted the strong performance of its pharmaceutical business. JNJ raised its full-year guidance and shares traded solidly to the upside.

Homebuilder sentiment rebounds, industrial production rises

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month rose to a five-month high of 68, versus the Bloomberg forecast calling for it to match September's unrevised 64 level. The index sits well above the 50 mark, the point of separation for good versus poor conditions. The NAHB said the report showed homebuilders are rebounding from the initial shock of the hurricanes, but need to be mindful of long-term repercussions from the storms, such as intensified material price increases and labor shortages.

Housing construction will come into focus tomorrow, with the economic calendar delivering the September housing starts and building permits report. Starts are projected to dip 0.4% month-over-month (m/m) to an annual rate of 1,175,000 units and permits are forecasted to decline 2.1% to a rate of 1,245,000 units. MBA's mortgage applications report tomorrow will also give us a look at home lending activity. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest, Schwab Sector Views: Sustainable Energy?, mortgage demand appears to be healthy, while interest rates continue to be relatively low and the high rental rates in some areas of the country provide incentive for home buying.

Industrial production (chart) rose 0.3% month-over-month (m/m) in September, matching estimates, after August's upwardly revised 0.7% decrease, which snapped a six-month string of gains. Manufacturing and mining production both ticked higher, while utilities output rose solidly. Capacity utilization rose to 76.0% from the prior month's downwardly revised 75.8% rate, and compared to forecasts of 76.2%. Capacity utilization is 3.9 percentage points below its long-run average. The Federal Reserve noted the continued effects of the hurricanes held down growth in total production. Tomorrow, the Fed will give us a look at national business activity in the form of its Beige Book, a tool it will use to prepare for its next two-day monetary policy meeting scheduled to end November 1st.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses the global impact of the natural disasters in his latest article, Fires, Hurricanes, and Earthquakes: What Disasters Mean For Markets, noting that stock market losses associated with past major disasters were typically short-lived.

The Import Price Index (chart) gained 0.7% m/m for September, above projections to match August's unrevised 0.6% gain. Compared to last year, prices were up 2.7%, topping forecasts of a 2.6% gain and compared to August's unrevised 2.1% increase.

Treasuries finished mixed but little changed, with the yield on the 2-year note increasing 1 basis point (bp) to 1.55%, the yield on the 10-year note flat at 2.30% and the 30-year bond rate dipping 1 bp to 2.81%. The U.S. dollar gained ground on uncertainty regarding who will be the next Fed Chief amid the backdrop of signs that inflation may be nudging higher and global economic growth remains steady. Also, the markets continued to grapple with global political uncertainty and the potential for U.S. tax reform.

As such, Schwab's Chief Investment Strategist Liz Ann Sonders offers her article, The Waiting: Wage Growth and Inflation Finally Getting in Gear?, and Schwab's Jeffrey Kleintop, CFA, delivers his commentary, Inflation May Be The Biggest Question For Investors In 2018.
Moreover, Jeff discusses, How the Shift by Central Banks May Affect the Stock Market, and Schwab's Chief Fixed Income Strategist, Kathy Jones talks in the video with Vice President of Trading and Derivatives, Randy Frederick, Should a Change in Fed Leadership Matter to Investors?. For analysis of the journey to tax reform, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's article, Tax Reform Framework Released, But The Road Ahead Is Long.

Check out these articles and video on the Market Commentary page at www.schwab.com. Follow our Schwab experts on Twitter: @lizannsonders, @jeffreykleintop, @kathyjones and @randyafrederick.

Europe slips as political uncertainties linger

European equity markets gave up early gains and finished modestly lower even as the euro and British pound lost ground as the U.S. dollar showed some strength on speculation regarding who will be the leader of the Central Bank. Materials issues led to the downside and political concerns continued to stymie conviction. Financials pared gains after rising in the wake of key results from the sector in the U.S. The pound shrugged off signs that U.K. inflation continues to rise, with Brexit negotiations remaining in a deadlock even after Prime Minister Theresa May's meeting in Brussels yesterday with European Union officials. However, Spanish stocks rebounded from recent weakness that has come as Spain continues to push Catalonia for clarification on whether it declared independence or not, showing some resiliency in the face of the nation lowering its GDP growth outlook. For analysis of the uncertain political front in the region, see Schwab's Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond?, and our article, Brexit Begins: What's Next for the U.K?, on the Market Commentary page at www.schwab.com. In other economic news, German investor confidence for October came in below forecasts. Bond yields in the region were mostly lower.

Stocks in Asia finished mixed with continued global economic optimism helping support sentiment, while caution appeared elevated ahead of a flood of Chinese economic data, headlined by its Q3 GDP report, as well as the highly anticipated Communist Party gathering in China later this week. Japanese equities rose as the yen weakened to help it extend its string of gains to eleven sessions that has taken it to levels not seen in over two decades. Mainland Chinese stocks declined and shares trading in Hong Kong finished flat. Australian securities advanced with basic materials gaining ground and the minutes from the Reserve Bank of Australia's policy meeting earlier this month suggested that there was no sense of urgency to raise rates. South Korean equities advanced and Indian shares dipped. Schwab's Jeffrey Kleintop, CFA, and Randy Frederick offer a look at global investing in the video, Is An Optimistic Outlook for Global Equities Warranted?, on the Market Commentary page at www.schwab.com.

Tomorrow, the international economic docket will be limited to leading indicators from Australia, jobless claims from the U.K. and construction output from the Eurozone.

Record Run Continues Despite Looming Fed Meeting

Charles Schwab: On the Market

Posted: 9/19/2017 4:15 PM ET

Record Run Continues Despite Looming Fed Meeting

U.S. equities added to record highs, continuing to show resiliency in the face of geopolitical and U.S political concerns, and ahead of tomorrow's Fed decision. U.S. housing construction activity in August topped expectations, adding to the upbeat mood, and Treasury yields modestly added to their recent rebound. Meanwhile, the U.S. dollar and crude oil prices declined, while gold was modestly higher.

The Dow Jones Industrial Average (DJIA) increased 40 points (0.2%) to 22,371, the S&P 500 Index gained 3 points (0.1%) to 2,507, and the Nasdaq Composite increased 7 points (0.1%) to 6,461. In moderate volume, 809 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.45 to $49.90 per barrel and wholesale gasoline lost $0.01 to $1.66 per gallon. Elsewhere, the Bloomberg gold spot price increased $3.87 to $1,311.31 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 91.78.

Shares of Kohl's Corp. (KSS $45) rose as the Street cheered its announcement that it will offer free returns for Amazon.com Inc's (AMZN $970) customers at select stores starting in October. The offer comes on the heels of its announcement earlier this month that it will launch a new Amazon smart home experience in 10 select Kohl's stores.

Shares of Best Buy Co. Inc. (BBY $53) fell as the Street expressed disappointment toward the company's new long-term financial targets that it released ahead of its investor day this afternoon.

AutoZone Inc. (AZO $535) reported fiscal Q4 earnings-per-share (EPS) of $15.27, or $15.18 ex-items, above the $15.11 FactSet estimate, as revenues grew 3.3% year-over-year (y/y) to $3.5 billion, roughly in line with expectations. Q4 same-store sales rose 1.0% y/y, versus the projected 0.8% gain, while its gross margin was flat y/y, slightly missing estimates, and its operating expenses rose due partly to higher wage pressure. Shares finished lower.

Shares of T-Mobile US Inc. (TMUS $65) and Sprint Corp. (S $8) moved higher following a report from CNBC's David Faber that the two companies are in active merger talks but that they are still weeks away from finalizing a deal. According to the report, Deutsche Telekom AG (DTEGY $19)—which owns about 64% of T-Mobile—would be the majority owner, while Softbank Group Corp. (SFTBY $41)—which owns nearly 84% of Sprint—will emerge as a large minority holder. None of the entities mentioned have commented on the report.

Housing construction activity tops forecasts in August

Housing starts (chart) for August dipped 0.8% month-over-month (m/m) to an annual pace of 1,180,000 units, but above the Bloomberg forecast of a 1,174,000 unit rate, while July starts were favorably revised to an annual pace of 1,190,000. Single-unit construction rebounded after the prior month's decline, while multi-family starts continued to drop. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, jumped 5.7% m/m in August to an annual rate of 1,300,000, after July's upwardly revised 1,230,000 rate, and north of the expected annual pace of 1,220,000 units. Permits for multi-unit rebounded from July's drop, while single-unit authorizations declined.

The housing market will likely be hampered by the storms in the short-term, joining the headwinds of higher building materials costs and shortages of lots and labor. Also, low supply and elevated prices have hampered existing home sales, which hit an eleven month low in July and will be in focus tomorrow as the August figures are released, projected to tick 0.2% higher m/m to an annual rate of 5.45 million units (economic calendar). However, as noted in yesterday's homebuilder confidence report and Schwab's Chief Investment Strategist Liz Ann Sonders' article, Trying to Reason with Hurricane Season: The Aftermath of "Harma", a boost associated with the recovery/rebuilding efforts is likely, while Liz Ann adds that real estate has been one of most consistent beneficiaries in the subsequent months following the 10 costliest U.S. hurricanes. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders. MBA Mortgage Applications will also be reported.

The Import Price Index (chart) increased 0.6% m/m for August, topping projections of a 0.4% rise, and compared to July's downwardly revised 0.1% dip. Compared to last year, prices were up by 2.1%, below forecasts of a 2.2% gain and compared to July's downwardly revised 1.2% increase.

Treasuries dipped, as the yield on the 2-year note was flat at 1.40%, while the yields on the 10-year note and the 30-year bond ticked 1 basis point higher to 2.24% and 2.81%, respectively. For analysis of the bond markets, see Schwab's Chief Fixed Income Strategist, Kathy Jones', and Vice President of Trading and Derivatives, Randy Frederick's, video, The Economy is Picking Up, But Bond Yields Are Falling—What's That About?, on the Insights & Ideas page at www.schwab.com. Follow Kathy and Randy on Twitter: @kathyjones and @randyafrederick.

Bond yields modestly extended a sharp recent rebound that has come as the markets shrugged off festering geopolitical tensions, while an acceleration in consumer price inflation added to the positive economic backdrop to bring the Fed back into focus, with the Federal Open Market Committee (FOMC) beginning its two-day monetary policy meeting today.

A rate hike is not expected after tomorrow's conclusion but the announcement that the Central Bank will begin to shrink its massive $4.5 trillion balance sheet is highly anticipated. For further analysis of the meeting, check out our latest article, Fed Watch: What to Expect from the September Meeting, on the Insights & Ideas page at www.schwab.com and follow us on Twitter: @schwabresearch.

Europe battles back from early weakness, Asia lower 

European equity markets mostly ticked higher, overcoming early losses with the euro and British pound paring losses versus the U.S. dollar and despite caution ahead of tomorrow's monetary policy decision by the U.S. Federal Reserve. Global monetary policy remained in focus as the Fed decision will be followed by the Bank of Japan's policy statement, while the Bank of England signaled last week that a rate hike may be delivered in the coming months and the European Central Bank suggested at its last monetary policy decision that it will begin to discuss in detail dialing back its stimulus measures this autumn. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses the potential changes in global monetary policy in his latest article, How the Shift by Central Banks May Affect the Stock Market, noting that despite the coming shift by central banks towards trimming/tapering their balance sheets, we don't believe the bull market is at risk. Read more on the Markets & Economy page at www.schwab.com including Jeff's point that earnings, not easing, remain the key support for stock markets around the world. In economic news, German investor confidence easily topped expectations for September. Bond yields in the region finished mixed to little changed.

Stocks in Asia finished mostly lower following the recent global market rally, with caution appearing to set in ahead of tomorrow's monetary policy decision out of the U.S., which will be followed by the Bank of Japan's decision later this week. Markets in mainland China, Hong Kong, Australia, India and South Korea were all lower. However, Japanese equities bucked the trend, finishing solidly higher in their return to action from yesterday's holiday, playing catch up with the markets and bolstered by the recent weakness in the yen. Schwab's Jeffrey Kleintop, CFA, offers analysis of the global investing landscape in his articles, What are fund flows telling us about trends and risks in the global stock market?, and, An important benefit to global investors is back after 20 years, on the Markets & Economy page at www.schwab.com.

Reports on tomorrow's international economic calendar will include trade data from Japan, PPI from Germany and retail sales from the U.K.

Stocks Add to Record Highs

Charles Schwab: On the Market

Posted: 9/18/2017 4:15 PM ET

Stocks Add to Record Highs

U.S. equities extended recent record highs, continuing to show resiliency against lingering geopolitical and political concern, as well as monetary policy uncertainty ahead of decisions from the Fed and Bank of Japan this week. Treasury yields extended last week's run and the U.S. dollar was higher amid softer-than-expected home-builder sentiment, while gold was lower and crude oil prices gained slight ground.

The Dow Jones Industrial Average (DJIA) increased 63 points (0.3%) to 22,331, the S&P 500 Index gained 4 points (0.2%) to 2,504, and the Nasdaq Composite increased 6 points (0.1%) to 6,455. In moderate volume, 821 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.02 higher to $49.91 per barrel and wholesale gasoline gained $0.01 to $1.67 per gallon. Elsewhere, the Bloomberg gold spot price declined $11.73 to $1,308.46 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 92.08.

Northrop Grumman Corp. (NOC $262) announced an agreement to acquire aerospace and defense technology company, Orbital ATK Inc. (OA $132), for $134.50 per share or about $7.8 billion in cash plus the assumption of $1.4 billion in net debt. NOC said the deal is expected to be accretive to earnings-per-share (EPS) in the first full year after the deal closes, which is expected in the first half of 2018. NOC was nicely higher and OA rallied sharply.

Home-builder sentiment drops to kick off economic week headlined by Fed

The National Association of Home Builders (NAHB) Housing Market Index showed home-builder sentiment this month fell to 64, versus the Bloomberg forecast calling for it to match August's downwardly-revised 67 level. However, the index sits well above the 50 mark, the point of separation for good versus poor conditions. The NAHB said the recent hurricanes have intensified its members' concerns about the availability of labor and the cost of building materials, but once the rebuilding process is underway builder confidence is expected to return to the high levels seen this spring.

Tomorrow, we will get a look at August housing construction activity in the form of housing starts and building permits, with starts projected to rebound 1.7% month-over-month (m/m) to an annual rate of 1,174,000 units after July's 4.8% drop (economic calendar). Permits are expected to dip 0.8% to an annual rate of 1,220,000 units following the prior month's 4.1% fall. Also on tap is the Import Price Index, forecasted to have increased 0.4% m/m during August following the 0.1% rise seen in July.

Schwab's Chief Investment Strategist Liz Ann Sonders points out in her article, Trying to Reason with Hurricane Season: The Aftermath of "Harma", that we expect to see a dip in economic activity in the short-term, followed by a boost associated with the recovery/rebuilding efforts. She adds that real estate has been one of most consistent beneficiaries in the subsequent three-to-twelve months following the 10 costliest U.S. hurricanes. We believe the impact will unlikely dent the Fed's plans to continue monetary policy normalization. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter:@lizannsonders.

Treasuries were lower, as the yield on the 2-year note ticked 1 basis point (bp) higher to 1.39%, while the yields on the 10-year note and the 30-year bond gained 3 bps to 2.23% and 2.80%, respectively.

Bond yields rebounded sharply last week after hitting levels not seen since November and the U.S. dollar recovered modestly from multi-year lows, as an ongoing positive economic backdrop was met with consumer price inflation accelerating in August to keep the possibility of a December Fed rate hike in play. Also, The Bank of England (BoE) and European Central Bank (ECB) has signaled they may start to tighten highly accommodative monetary policy, the markets shrugged off another missile test by North Korea, and economic cost estimates of Hurricane Irma appeared to be less than feared.

Schwab's Chief Fixed Income Strategist, Kathy Jones, and Vice President of Trading and Derivatives, Randy Frederick, provide analysis of the bond markets in the video, The Economy is Picking Up, But Bond Yields Are Falling—What's That About?, on the Insights & Ideas page and follow Kathy and Randy on Twitter: @kathyjones and @randyafrederick.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks, investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. Read more on the International Investing page at www.schwab.com.

This sets the stage for Wednesday's monetary policy decision from the Federal Open Market Committee (FOMC) (economic calendar). As noted in the latest Schwab Market Perspective: A Cat and Mouse Fall, the Fed is playing their own internal cat and mouse game with some officials citing low inflation as a reason to delay further tightening; while others want to stay on the steady path toward normalization, due to the tighter labor market. We continue to believe that the start to the slow winding down of the Fed's massive balance sheet will be announced this week; but that an additional rate hike before year end remains in question. We continue to believe the Fed's "quantitative tightening" (QT) could be the cause of some heightened volatility. Read more on the Markets & Economy page at www.schwab.com.

Europe and Asia move higher to begin the week

European equity markets traded higher, continuing to shrug off lingering geopolitical concerns, while monetary policy decisions from the Fed and Bank of Japan this week were in focus but appeared to not stymie conviction. The British pound gave back some of last week's surge against the U.S. dollar as the Bank of England (BoE) signaled that it may raise rates in the coming months. The pound lost ground despite BoE Governor Carney reiterating that a rate hike could be in the offing. The euro gave up modest gains and dipped late in the session even as the European Central Bank is expected to announce the start of dialing back its stimulus measures this fall. Bond yields in the region were mostly higher, except for in Portugal, which fell sharply after the nation received an upgrade of its credit rating to investment grade by Standard & Poor's. In economic news, eurozone consumer price inflation rose in line with expectations for August.

For a look at global investing, see Schwab's Jeffrey Kleintop's, CFA, article, U.S. vs international: what do earnings tell us about what may be ahead?, on the Markets & Economy page at www.schwab.com, and his video with Randy Frederick, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page.

Stocks in Asia finished higher amid the recent global market resiliency in the face of festering North Korean tensions and monetary policy uncertainty, though attention on this week's Fed and Bank of Japan decisions ramped up. The yen continued to lose ground on the U.S. dollar, but markets in Japan were closed for a holiday. Mainland Chinese stocks rose modestly and those traded in Hong Kong rallied, as late-Friday's stronger-than-expected lending statistics were met with today's report showing August home prices cooled to ease concerns about further government efforts to curb housing activity. Markets in Australia advanced, led by financials, South Korean listings jumped and Indian equities gained ground in the wake of the nation's upbeat August trade report after Friday' close. Both South Korean and Indian markets moved back to near record highs and Schwab's Jeffrey Kleintop, CFA, offers his article, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over, on the Markets & Economy page at www.schwab.com. 

Financial Review

No Moral Equivalency

Sinclair Noe — August 16, 2017

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

Subscribe: iTunes | Android | RSS

DOW + 25 = 22,024
SPX + 3 = 2468
NAS + 12 = 6345
RUT + 0.30 = 1383
10 Y – .04 = 2.23%
OIL + .03 = 46.81
GOLD + 11.70 = 1283.80
BITCOIN – 0.41% = 4407.22 USD
ETHEREUM – 4.55% = 304.68

Fallout from Trump’s news conference yesterday resulted in the collapse of his business councils today. Six CEOs quit Trump’s manufacturing council in recent days: Richard Trumka, leader of the AFL-CIO; Thea Lee, an economist and former deputy chief of staff at the AFL-CIO; Scott Paul, head of the Alliance for American Manufacturing; Kenneth Frazier, Merck CEO; Kevin Plank, Under Armour CEO; Brian Krzanich, Intel CEO

This morning, the list of CEOs grew. Inge Thulin, the CEO of 3M, was the seventh executive to quit Trump’s manufacturing council. Here is part of his statement: “I joined the Manufacturing Jobs Initiative in January to advocate for policies that align with our values and encourage even stronger investment and job growth – in order to make the United States stronger, healthier and more prosperous for all people. After careful consideration, I believe the initiative is no longer an effective vehicle for 3M to advance these goals. As a result, today I am resigning from the Manufacturing Advisory Council.”

Denise Morrison, president and CEO of the Campbell Soup Company, resigned from the manufacturing council. Here’s part of her statement: “Racism and murder are unequivocally reprehensible and are not morally equivalent to anything else that happened in Charlottesville. I believe the President should have been – and still needs to be – unambiguous on that point.”

Jeff Immelt, chairman of GE, Alex Gorsky, CEO of Johnson & Johnson, and the CEO of United Technologies, Gregory Hayes, all announced they would leave the council, citing Trump’s recent statements as their reasoning.

Yesterday, Trump tweeted: “For every CEO that drops out of the Manufacturing Council, I have many to take their place. Grand-standers should not have gone on. JOBS!”

But nobody stepped up to be a replacement.

The strategy forum, which is led by Blackstone Group’s Stephen Schwarzman, held a conference call late Wednesday morning and the majority indicated they would leave the group, so a decision was reached to disband.

In a statement from the strategy and policy forum, the group said it was breaking up amid the controversy. “The debate over forum participation has become a distraction from our well-intentioned and sincere desire to aid vital policy discussions on how to improve the lives of everyday Americans.”

Mary Barra, General Motors CEO, issued a statement saying: “Recent events … require that we come together as a country and reinforce values and ideals that unite us — tolerance, inclusion and diversity — and speak against those which divide us — racism, bigotry and any politics based on ethnicity.”

JPMorgan Chase CEO Jamie Dimon said: “The racist behavior on display by these perpetrators of hate should be condemned and has no place in a country that draws strength from our diversity and humanity.” Dimon is also chairman of Business Round-table.

This afternoon, Trump tweeted: “Rather than putting pressure on the business people of the Manufacturing Council and Strategy & Policy Forum, I am ending both. Thank you all!”

Except he didn’t end anything. You can’t fire these people after they already quit. In practical terms, the end of these groups may not make much difference. After all, Trump has achieved so few of his goals on economic policy that the executives’ absence can’t really hurt. It was never clear exactly what the councils were doing other than providing photo opportunities.

Republican leaders in Congress have little appetite for confronting Trump directly. But his sympathetic statements about the white supremacists and Nazis that marched in Charlottesville, Virginia, embarrasses them just like business leaders, and many spoke out today, or more specifically tweeted.

Arizona Senator John McCain tweeted, “There’s no moral equivalency between racists and Americans standing up to defy hate and bigotry. The President of the United States should say so”

Sen. Jeff Flake, a strong critic of Trump, tweeted, “We can’t accept excuses for white supremacy and acts of domestic terrorism. We must condemn. Period.”

Meanwhile, the 2012 Republican nominee Mitt Romney tweeted: “No, not the same. One side is racist, bigoted, Nazi. The other opposes racism and bigotry. Morally different universes.”

Sen. Lindsey Graham issued a statement: “Through his statements yesterday, President Trump took a step backward by again suggesting there is moral equivalency between the white supremacist neo-Nazis and KKK members who attended the Charlottesville rally and people like Ms. Heyer. I, along with many others, do not endorse this moral equivalency.” He continued: “Many Republicans do not agree with and will fight back against the idea that the Party of Lincoln has a welcome mat out for the David Dukes of the world.”

Former Presidents George H. W. Bush and George W. Bush joined the chorus of lawmakers speaking out to condemn the racist violence, saying: “America must always reject racial bigotry, anti-Semitism, and hatred in all forms. As we pray for Charlottesville, we are reminded of the fundamental truths recorded by that city’s most prominent citizen in the Declaration of Independence: we are all created equal and endowed by our Creator with unalienable rights.”

The New York Times’ Andrew Ross Sorkin reported on CNBC that “a number of people” on Wall Street and at Goldman Sachs have called chief economic advisor Gary Cohn to suggest that he resign from the administration. You also must wonder if Treasury Secretary Steven Mnuchin might be considering longer-term reputational damage. Newly installed Chief of Staff John Kelly looked extremely uncomfortable during Trump’s remarks Tuesday.

The dollar turned lower against most major currencies.

Trump’s Charlottesville uproar overshadowed a GOP tax plan roadshow. Top Republican tax writers went to a national shrine for tax cutters — former President Ronald Reagan’s California ranch — hoping to make a sales pitch for a historic overhaul of the U.S. tax code. Republicans have said they want to spend August — usually a quiet month in Washington — building support for a tax overhaul among constituents at home.

Representative Kevin Brady, the Texas Republican who chairs the House Ways and Means Committee said that despite the distractions, tax writers in the White House, Senate and House remain on schedule to produce a plan that can be voted on in 2017.

And Wall Street largely ignored the problems, except for an early morning Trump tweet against Amazon. The tweet read: “Amazon is doing great damage to tax paying retailers. Towns, cities and states throughout the U.S. are being hurt – many jobs being lost!” Trump wrote.

Trump has repeatedly targeted Amazon.com, whose CEO Jeff Bezos ​owns the Washington Post, one of several major media outlets that have been swept up in the president’s ongoing fight with the press. Amazon does collect state sales taxes in Washington, D.C., and 45 states that have such a levy.

The Federal Reserve released minutes of the July 25-26 FOMC meeting. Federal Reserve policymakers appeared increasingly wary about recent weak inflation and some called for halting interest rate hikes until it was clear the trend was transitory but it looks like they are ready to begin reducing the Fed’s $4.5 trillion portfolio of Treasury bonds and mortgage-backed securities.

Last month’s meeting, which concluded with a unanimous decision to leave rates unchanged, was marked by a lengthy discussion about the recent soft inflation readings, the minutes showed. The central bank’s preferred inflation measure dropped to 1.5 percent in June from 1.8 percent in February and has remained below its 2 percent target for more than five years.

The lack of inflation spurred concerns the Fed may have to cool its monetary tightening pace even though the economy is growing moderately and the unemployment rate fell to 4.3 percent in July, matching a 16-year low touched in May.

Meanwhile, in an interview published by the Financial Times, Fed Vice Chairman Stanley Fischer called efforts in Washington to rescind regulations put in place after the 2008 financial crisis “mind boggling.” Fischer told the Financial Times , “It took almost 80 years after 1930 to have another financial crisis that could have been of that magnitude, and now after 10 years everybody wants to go back to a status quo before the great financial crisis. And I find that really extremely dangerous and extremely shortsighted.”

In a separate interview on CNBC, Atlanta Federal Reserve President Raphael Bostic said he doesn’t expect the U.S. to achieve the White House goal of 3% growth. The economy has grown around 2% annually since an expansion began in mid-2009.

Housing starts declined 4.8 percent to a seasonally adjusted annual rate of 1.16 million units, hurt by a drop in groundbreaking on single-family projects, The Commerce Department revised June’s sales pace down to 1.21 million units from the previously reported 1.22 million units. Building permits dropped 4.1 percent, with the multi-family segment recording a drop of 11.2 percent. Permits for single-family homes were unchanged.

Urban Outfitters shares were up more than 22% as the company reported earnings that beat estimates, but some analysts say the second-quarter earnings numbers should give investors pause. The chain reported a comparable sales decline of 7.9% and revenue declined from a year ago.

Cisco Systems reported fiscal fourth-quarter revenue and adjusted earnings in line with expectations but predicted another drop in revenue in the next quarter. Cisco dropped in after-hours trade.

Shares of Agilent climbed 4%, after the maker of scientific and medical equipment blew past estimates for its fiscal third quarter and raised guidance for the year.