Market Minutes for the week of February 13th:
“Golf is a game in which you yell ‘fore,’ shoot six and write down five” – Paul Harvey
The U.S. stock market continues on its remarkable run, making new high after new high. Yes, the animal spirits unleashed by last fall’s election, are still at work. But according to Jim Cramer, there are other factors at work as well: “Let’s start with the transports. It’s one of the oldest theories when it comes to stocks that the transports have to confirm the Dow before you can trust a market, meaning that the transports have to make a new high along with the Dow before you can believe there’s some solid grounding … The stocks of the rails, the truckers, the freight forwarders and the airlines are leading the way and that shows the rally is backed by a burst in commerce. Remember my theory: I totally agree that there have been some animal spirits unleashed by our pro-business president, but it’s the numbers themselves, not the hoped-for tax relief, that’s driving things.” Cramer continues: “The best-acting group is the financials, especially the banks. There is no leadership better than the banks because these companies represent the gasoline to the system. If bank stocks are going higher, it’s a sign they are taking your deposits and either lending them out at good rates or buying Treasuries and buying back stocks and paying higher dividends than they currently do. Or both? I think with President Trump it might be both. The economy is heating up, the consumer price index came in hot today. A lot of that was the increase in the price of gasoline … [It] doesn’t matter because it’s going to force the Fed’s hand to raise rates a bunch of times. That’s fantastic for the banks, as is the potential for deregulation that doesn’t need congressional approval. Yes, a really healthy economy needs more lending, not banks just rewarding shareholders, but I can tell you that when I have seen the bank stocks go higher and be good investments, then commercial lending and economic expansion aren’t far behind.”
James DePorre: “We’re at the crossroads of common sense and greed … The market is at a juncture where common sense suggests that it rest, but greed suggests that it could easily keep going. Many market players are still more fearful of missing out than they are of being caught in a turn.”
Peter Boockvar: “Headline CPI (Consumer Price Index) rose 0.6% month over month, double expectations and brings the year over year gain to 2.5%, the highest level in almost 5 years … Energy was a main factor (up 4% month over month and 11% year over year) but the rate ex energy and food jumped 0.3% and 2.3% year over year.
The December Producer Price Index rose by 0.6%, two times higher than the forecast estimate.
January Retail Sales rose by 0.4%. Sales gains were driven by clothing, electronics, department stores (finally) and sporting goods. Online sales were unchanged, auto sales fell by 1.4% and building materials sales were up by 0.3%.
The Conference Board said that the Leading Economic Indicators Index rose 0.6% in January better than the estimate of 0.5%. The index has 10 components including manufacturer new orders, stock prices and average weekly initial claims for unemployment insurance.
The Conference Board said that the Leading Economic Indicators Index rose 0.6% in January better than the estimate of 0.5%. 10 components make up the index including manufacturer new orders, stock prices and average weekly initial claims for unemployment insurance.
The February Reuters/University of Michigan Consumer Sentiment came in at 95.7 vs the decade high reading posted in January at 98.5.
The Philly Fed’s Manufacturing Business Outlook Survey rose to 43.3 this month vs a reading of 23.6 in January. That is the biggest jump and the highest level since January 1984!!!
January housing starts came in at 1.246 million annualized units vs 1.279 million for December.
Foreign entities (public and private) sold $21.8 billion in U.S. Treasury notes and bonds in December to close the year with net selling of $343 billion, a record-setting amount. It appears that the multi decade trend of foreign governments financing our debt is over, for now.
The New York Fed reports that current household debt totals $12.58 trillion, something not seen since 2008. The 4th quarter alone saw an increase of $226 billion, which was the largest quarterly jump since 2013. Animal spirits unleashed by the election results??
Of the $12.58 trillion in household debt, credit card debt represented just over $1.0 trillion according to the Nilson Report. Although, total debt is near the amount Americans owed in December 2007 at the start of the Great Recession, less of the debt today is from credit cards and more from mortagages and student loans.
According to the Oil Price Information Service, U.S. oil producers exported an unprecedented 7 million barrels of crude oil last week. Analysts aren’t surprised that U.S. crude has filled in the market since OPEC cut back production by 890,000 barrels per day. It appears that China is a destination for the U.S. oil as Reuters has reported that 7 million barrels were lined up and heading to Asia with 2 million barrels targeted for PetroChina and Unipec.
The IRS has said that they will not reject tax returns that fail to disclose whether the tax filers have health insurance or not. The move was made quietly on February 6th after an executive order by President Trump gave federal agencies authorization to reduce the financial burden of complying with Obamacare.
Millennials aren’t as financially savvy as they think according to the findings of a new survey by George Washinton Univeristy and the National Endowment for Financial Education. The cash-strapped generation surveyed demonstrated only 8% had a high level of financial know-how and just 24% understood basic money management. But 69% gave themselves high marks. Two-thirds of those polled have at least one source of long-term debt and 30% have more. This could explain why many are delaying major life milestones like buying a car or a home or even having children. When asked if they could cover a $2,000 emergency expense, 48% said probably not or definitely not. 30% had overdrawn their bank accounts at least once in the past year. However, on a positive note, most millennials have a checking or savings account. 51% have a retirement account, 25% have investments in stocks, bonds or mutual funds and over 40% own a home.
The Colorado Department of Revenue announced that for 2016, the state raked in nearly $200 million in tax revenue from $1.3 billion in marijuana sales. Since the sale of pot became legal in 2012, the state has collected over $1 billion tax revenue from the sale of weed. High times!
U.S. airlines cancelled just 1.17% of scheduled flights in 2016 according to the Department of Transportation. This is the lowest rate in 22 years. The number of complaints also dropped to 2.7 per 1,000 passengers for mishandled bags. That’s the lowest level since 1987, when the DOT first began keeping records. Also hitting record lows are the percentage of bumped passengers, which is currently at a rate of 0.62 per 10,000 passengers – a number not seen since 1995. Technology and corporate philosophy are cited as the big reasons behind the improvement reports J.D. Power. Planes, passengers and baggage are benefitting from tech improvements and the airlines of today are more invested in providing better service.
A single-day pass to Walt Disney will soon get a little more pricey. The theme park will charge as much as $5 more per ticket for certain days starting February 19, taking the cost for an adult ticket to between $107 and $124.
Diageo PLC is investing 25 million euros for a new Irish whiskey distillery, after selling Bushmills, its Irish whiskey brand, just two years ago. The Wall Street Journal reports the space has grown 131% by volume globally since 2016. The new premium Irish whiskey will be distilled at James Gate, home to the Guinness brewery.
U.K consumer products company Reckitt Benckiser has agreed to purchase Mead Johnson for $17.9 billion. The move will allow them to get into the baby food market and grow their presence in Asia.
Priceline reports they will purchase travel meta-search site Momondo Group for $550 million in cash. Momondo is popular with young travelers and experiencing rapid growth.
PayPal will buy Canadian cloud-based payment processing firm TIO Networks for $233 million in an all cash deal.
Wal-Mart will purchase outdoor retailer Moosejaw for $51 million. Moosejaw operates 10 stores in the U.S. and has a robust online market.
Japanese investment firm Softbank will acquire Fortress Investment Group for $3.3 billion in cash.
Cigna officially terminated its merger agreement with Anthem after a judge blocked the proposed merger. Cigna is seeking $1.85 billion in a reverse termination fee along with $13 billion in additional “damages” for lost premium value to Cigna shareholders.
The $34 billion merger agreement between Aetna and Humana ended when it was blocked on antitrust grounds by a federal court. Humana will receive a $1 billion break-up fee from Aetna.
Humana declared it is withdrawing state exchanges and will not offer individuals commercial health insurance. It will also buy back $2 billion in stock. All this after the failed merger with Aetna.
United Healthcare has been sued by the Department of Justice over claims that the company overcharged Medicare, specifically Medicare Advantage, by “hundreds of millions and likely billions of dollars” over more than a decade. The suit was originated by a whistleblowing former executive of the company.
More vivid colors and a greater resolution are the big draws for the fifth-generation Apple TV scheduled to be released in the coming months, according to Bloomberg. The sets are Apple’s latest effort to take back market share from Roku and Amazon and support 4k content.
In Charleston, South Carolina, Boeing workers overwhelmingly voted against joining the Machinist Union. The move by the 787 assembly plant upholds the South’s reluctance to unionize.
Hasbro made a big announcement before the start of Toy Fair. Their classic game, Monopoly will no longer contain the thimble token as a playing pieces. It’s all part of the “Monopoly Token Madness” campaign where folks were encouraged to decide which 8 tokens the game will keep. More than 4 million people voted. No word yet on what the new token will be.
Snap, owner of Snapchat, anticipates its upcoming IPO will have a valuation of around $22.2 billion if the shares are priced between $14 and $16.
TripAdvisor reports 4th quarter earnings of $0.16 per share on revenue of $316 million, an increase of 2.3% year over year.
MGM Resorts reports 4th quarter earnings of $0.04 per share on revenue $2.46 billion, an increase of 12.3% year over year.
Marriott reports 4th quarter earnings of $0.85 per share on revenue of $5.46 billion, an increase of 47.2% year over year.
CBS Corporation reports 4th quarter earnings of $1.11 per share on revenue of $3.52 billion, a decrease of 1.9% year over year.
Kraft Heinz reports 4th quarter earnings of $0.91 per share on revenue of $6.86 billion, a decrease of 3.7% year over year.
Cisco Systems reports 4th quarter earnings of $0.57 per share on revenue of $11.58 billion, a decrease of 2.9% year over year.
PepsiCo reports 4th quarter earnings of $1.20 on revenue of $19.52 billion, an increase of 5.0% year over year.
Campbell Soup reports fiscal 2nd quarter earnings of $0.91 per share on revenue of $2.17 billion, a decrease of 1.4% year over year.
J.M. Smucker reports fiscal 3rd quarter earnings of $2.00 per share on revenue of $1.88 billion, a decrease of 4.6% year over year.
Deere reports fiscal 1st quarter earnings of $0.61 per share on revenue of $4.7 billion, a decrease of 1.5% year over year.
Next week: Earnings from: Home Depot, Wal-Mart, Tesla, Fitbit, Nordstrom, J.C. Penney and Gap. Economic reports: Single Family New Home Sales, Existing Home Sales and Case-Shiller Home Price Index/Composite 20.
WTI Crude oil: $53.42 per barrel. 10-year U.S. Treasury note: 2.45%. 30-year mortgage: 4.15%.
Sources: 361 Capital, Bloomberg, Wall Street Journal, Real Money Pro, CNBC, Seeking Alpha, MarketWatch and Estimize.com.
Disclosure: This publication shall not constitute an offer to sell or the solicitation of any offer to buy or sell any securities of the companies mentioned. This publication is solely a compilation of recent news releases from the sources cited above.
Ken Beach, President and Managing Partner of Cascade Investment Group, member FINRA & SIPC. Cascade Investment Group is not a tax or legal advisor. You should always consult with your tax advisor or attorney before taking any actions that may have tax consequences.