Market Minutes for the week of February 6th:
“If you’re going through hell – keep going” – Sir Winston Churchill
So far in 2017, the Dow Jones Industrial Average is off to a good start, up about 1.50%. It feels good to be sure but when you look below the headline print, just four stocks of the Dow 30 are responsible for 98% of the gain, they are: Apple, IBM, Boeing and Visa. Apple itself has accounted for nearly a third of Dow’s rise in 2017. Last year, the Dow outgained the S&P 500 and NASDAQ Composite where shares of Goldman Sachs, UnitedHealth Group, IBM and 3M counted for 46% of last year’s 13% gain.
“A 50-project list outlining President Donald Trump’s infrastructure priorities surfaced last week. The projects on the list, titled ‘Priority List: Emergency and National Security Projects,’ would cost about $140 billion and employ the equivalent of 24,000 workers for 10 years.”, reports Forbes’ Holly Warfield. Breaking down the infrastructure priorities 44.3% goes to rail, 15.5% to energy, 15.4% to highways and bridges, 10.8% to airports, 9.4% to shipping, 3.1% to water and 1.5% to ‘other’.
Growth and spending on equipment and hiring seem to be the focus in the post-election earnings report of the first quarter. J.J. Kinahan, chief strategist at TD Ameritrade says, “I see a tone change in how the CEOs are speaking about earnings. They, by and large, are talking about growth rather than talking about being able to meet targets.”
The former CEO of Chrysler and Home Depot, Bob Nardelli says that Washington needs to get used to the fast pace of this president. He says that, “Washington better catch up to this business-oriented, business-minded president. We have a lot of gnashing of teeth right now about the rate with which the president is moving. That’s not fast in the business world.”
Jim Cramer: “I know President Trump sounded like he put his foot in his mouth when he said he has friends who can’t get loans so therefor we need to deregulate. But what he was trying to say, I believe, was this: Even rich people can’t get loans from banks. My experience is that’s quite true. The bank lending officers have a perverse incentive not to make loans because the regulators truly discourage loans to people who don’t need them. The banks tend to not turn you down flat. Instead they offer you a rate that they know you wouldn’t possibly take. They are uncompetitive because they don’t want to run afoul of the examiners who are emboldened by Dodd-Frank and they don’t want to mess with compliance people who feel it is their job to say no. No, Dodd-Frank won’t be scrapped. But my hope would be that they make it so there aren’t hundreds of provisions that can get bankers in trouble simply because they don’t understand them. The number of lawyers and compliance people needed to simply not screw up because the law is so hard to understand is just a killer.”
Pulitzer prize-winning oil analyst Daniel Yergin says that U.S. producers could boost oil output for 2017 by more than 500,000 barrels per day if oil prices stay between $50 and $55 per barrel. Although oil prices hover at around one-half of their 2014 peak, Yergin notes that the downturn has forced drillers to be more efficient so “A dollar invested in 2017 produces about two and a half time as much oil as a dollar invested in 2014, so I think even at these lower prices, we’re going to see this recovery.”
The organizers of the Mavericks Big-Wave surf contest held at Half Moon Bay, California, have filed for chapter 11 bankruptcy. Titans of Mavericks LLC is hoping to sail through the bankruptcy courts quickly so the event can still take place before March 31st. “Due to the unpredictable nature of surf swells, participants of the contest are on alert from November 1 to March 31. When the perfect swell are on the forecast, the event organizers put out a call to surfers and hold the event on 48 hours notice … Since 1999, the contest has taken place only 9 times, most often in late January or early February.”, according to Stephanie Gleason of MarketWatch. No wonder they are in bankruptcy … how do you promote and advertise an event that may or may not occur!
In last week’s Market Minutes I mentioned the top sky crane capitals of America in 2016 so, I suppose that logically, the next statistic to follow would be who built the most skyscrapers in 2016. Here you go: China – 84, U.S. – 7, South Korea – 6, Indonesia – 5, Qatar – 4. The total for China in 2016 marks a record high with completions up 23.5 over 2015. Last year was the ninth year in a row that China has led the world in buildings built to the sky. 31 cities in China had at least one 200-meter-plus building completed in 2016.
Boulder, Colorado is to food companies what Silicon Valley is to tech companies. “Up-and-coming food companies like Purely Elizabeth, Made in Nature and Good Karma Foods have relocated to Boulder to take advantage of the city’s deep bench of food executives, a food retail environment that prizes innovation and experimentation, and a growing pool of money for investment in food companies, among other things. The second-largest natural foods distributor, KeHE, opened an office [in Boulder] in 2013 and the Rodale Institute, a non-profit research group devoted to organic farming, is opening a satellite office [there].”, reports The New York Times’ Stephanie Strom.
Pros and cons of “target date” funds according to a panel at CNBC: Pros: 1.) They are simple to use for employers’ automated enrollment plans and this covers them from a fiduciary standpoint. 2.) They can provide a diverse portfolio with only a few trades. 3.) They are great for beginning investors because the funds rebalance and reallocated automatically as the target date approaches. Cons: 1.) Target-date funds are funded by one fund company for the most part, and they may not have the best managers in each asset class. 2.) Investors have no say as to where they are overweight and underweight in their investments. 3.) Target-date funds are usually more expensive for higher earners because of the added layer of management needed to rebalance. A custom portfolio is often cheaper to build from scratch. 4.) The allocations of target-date funds can differ from one fund company to another. Funds with the same target date but from different companies may have different risk tolerances. Fund A may not be as conservative as Fund B. It’s always a good idea to review the prospectus before taking action.
Domino’s Pizza has announced that they are rolling out a wedding registry for couples. The Ann Arbor, Michigan-based chain is selling e-gift cards starting at $15 that can be given as gifts to the happy couple. Beats fine china that will never be used.
According to four undisclosed sources, the initial public offering for tequila maker Jose Cuervo, is at least four times oversubscribed (four buyers for every one share). The 476.6 million share offering is expected to be priced at the upper end of the 30 to 34 peso range which will net the 259-year old company nearly $900 million (at $1=20.454 Mexican pesos). The Beckman family currently runs the business and will remain the majority shareholder. Jose Cuervo controls 30% of the global tequila market.
Snapchat says that “older people” are flocking to the site. 33 million U.S. users over the age of 35 used Snapchat in the 4th quarter of 2016, compared with only 10 million in 2015 – a growth of 224%. Growth among users was highest in women over 35 with 19.5 million users in the 4th quarter of 2016, up 320% from the previous year’s 4.6 million women users.
According to Bloomberg’s Anita Balakrishnan, “Uber is getting serious about a plan to build flying cars … [Their] plan involves airborne taxis that travel 50 to 100 miles between “vertiports” that connect passengers between their homes and offices.” Uber has “…hired Mark Moore, a thirty-year NASA veteran to direct “aviation engineering.” Moore told Bloomberg that despite technical obstacles and costs, he expects that, with the right market, several flying cars will debut in the next one to three years.”
Amazon has announced that the company is planning to hire 2,000 new full-time workers at two new fulfillment centers in California. The one in Eastvale will offer smaller items like books, electronics and toys. The center in Redlands will focus on larger items like sporting equipment, patio furniture and pet food. This move is part of Amazon’s previous announcement that they plan to create over 100,000 jobs in the U.S. over the next 18 months.
Intel has announced that the company will invest $7 billion in a previously shuttered plant in Arizona that will employ 3,000 people.
Panera Bread is investing further in an increasingly lethargic, pajama pants-wearing, tech-obsessed world. The company announced that it is aggressively launching a new service that it expected to grab roughly $40 billion in market share in the delivery space. Only 15% of the stores were offering this service as of the 4th quarter of last year. That number is on pace to reach around 35% by the end of this year.
Panera Bread reports 4th quarter earnings of $2.05 per share on revenue of $727.1 million, an increase of 5.1% year over year.
General Motors reports 4th quarter earnings of $1.28 per share on revenue of $43.9 billion, a 10.8% increase year over year.
Walt Disney reports fiscal 1st quarter earnings of $1.55 per share on revenue of $14.78 billion, a decrease of 3.0% year over year.
Archer Daniels Midland reports 4th quarter earnings of $0.75 per share on revenue of $16.5 billion, an increase of 0.3% year over year.
Zillow reports 4th quarter earnings of $0.14 per share on revenue of $227.6 million, an increase of 34.4% year over year.
Allergan reports 4th quarter earnings of $3.90 per share on revenue of $3.86 billion, an increase of 6.9% year over year.
Time Warner reports 4th quarter earnings of $1.25 per share on revenue of $7.89 billion, an increase of 11.4% year over year.
Whole Foods Market reports fiscal 1st quarter earnings of $0.39 per share on revenue of $4.92 billion, an increase of 1.9% year over year.
News Corp. reports fiscal 2nd quarter earnings of $0.19 per share on revenue of $2.12 billion, a decrease of 1.9% year over year.
Gannett reports 4th quarter earnings of $0.50 per share on revenue of $867 million, an increase of 17.3% year over year.
Yum Brands reports 4th quarter earnings of $0.79 per share on revenue of $2.02 billion, an increase of 2.0% year over year.
Coca-Cola reports 4th quarter earnings of $0.37 per share on revenue of $9.41 billion, a decrease of 5.9% year over year.
Twitter reports 4th quarter earnings of $0.16 per share on revenue of $717 million, an increase of 0.9% year over year.
Yelp reports 4th quarter earnings of $0.27 per share on revenue of $194.8 million, an increase of 26.7% year over year.
Next week: Earnings reports from: Fossil, Cisco Systems, Groupon, PepsiCo, MGM, Deere, Smuckers and Campbell Soup. Economic reports: Industrial Production, Producer Price Index, Consumer Price Index, Philly FED Manufacturing Index.
WTI Crude oil: $54.08 per barrel. 10-year Treasury note: 2.39%. 30-year mortgage: 4.17%.
Sources: Real Money Pro, CNBC, Bloomberg, 361 Capital, the Wall Street Journal, Estimize.com. Seeking Alpha, MarketWatch and U.S Trust.
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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.