January 25, 2018.
Market Drops from Intraday High
Yesterday, after all of the major indexes had hit intraday highs earlier in trading, they summarily fell, only the blue chip Dow coming out marginally up. It was a day that saw a lot of twists and turns, from Treasury Secretary, Mnuchin’s comment that signaled Trump’s policy preference for a weak dollar, to GE’s shockingly large insurance loss – and news of an SEC investigation – and a massive fine imposed on Qualcomm by the European Commission for its under the rug payments to Apple.
Wall Street honed in on the comments of President Trump’s Treasury Secretary, Steven Mnuchin, who said the administration supports “bilateral trading agreements.” He also noted, “a weaker dollar is good for trade.” The U.S. dollar, which tumbled 10% last year, traded yesterday at a new three year low. Who does a weak dollar benefit? The obvious answer is multinational companies, vying for market share in price-competitive service and product offerings. The comments made by Mnuchin, though, also had an effect on the home front, pushing up yields on the 10-year T-bond; a weaker dollar can undermine demand for government bonds.
The greatest fear perhaps in the marketplace, besides Trump’s protective trade measures, is high stock valuations. In gauging valuations some look at the standard Price/Earnings ratio; others look at what’s called CAPE. CAPE refers to the Cyclically Adjusted Price Earnings ratio.
Index Summary: The Dow rose 0.16% to record a new record, led by gains in Goldman (GS) which rose 2.15% and American Express (AXP) which climbed 1.35%. Apple (AAPL), though, shed 1.59%. The S&P 500 fell 0.06%, the tech-heavy NASDAQ falling 0.61%. All-in-all, the three indexes are up between 6% and 8.1% this year, riding the wave of higher corporate profits. Whereas the PE on the S&P 500 is slightly higher than the level seen before the Great Crash in the 1920s, Capital Economics Chief Market Economist, John Higgins, noted, “Nonetheless, the CAPE remains well below its all-time high of just above 44, which it reached in December 1999, before the dot-com bubble burst.”
Qualcomm (QCOM) was definitely in the spotlight yesterday, after word broke that it was undercutting competitors like Intel (INTC) by making illegal payments to Apple to ensure the latter would only use its chips for its iPhones and iPads. At present, Apple is not under investigation in the said claim. That notwithstanding, with its $1.2 billion fine, the European Commission has solidified itself as the strongest governmental force in the world in anti-trust regulation and enforcement. Both Qualcomm and Apple benefitted from the ongoing collusive arrangement which muscled out competitors and hurt consumers.
General Electric (GE), which was already under SEC investigation, got worse news yesterday, the SEC announcing that it was also investigating the company’s whopping insurance charge. GE slipped 2.7%. The conglomerate has been trying to shed legacy businesses, finding that comes at a very large cost.
Comcast (CMCSA) rose 1.3%, after reporting an earnings boost from broadband; it also announced a $5 billion stock repurchase plan for 2018. Texas Instruments (TXN) fell 8.5% after releasing in-line results, coupled with a modest outlook.
One industry that took a big hit yesterday was the airline industry. The bloodbath was prompted by United Continental Holdings (UAL) which fell 11%. The company precipitated a panic after announcing expansion plans. The finances of the airline industry are such that when companies compete in a new market the way they do it is by undercutting each other. That put shock waves through the industry and market players who remember the last price war and what it did to bottom-line earnings.
United President Scott Kirby, though, defended its growth strategy. He said that the company had lost market share to Delta and American and that now it had to catch up. Kirby noted that United was losing high-paying connecting passengers flying between small cities and big airports. “The best way to compete with a low-cost carrier is matching prices,” noted Kirby. “No one chooses to fly on an ultra-low-cost carrier if they can get the same price on United Airlines, nobody.”
Today’s Economic Calendar: International trade numbers and jobless claims will be released at 8:30, with both wholesale inventories and new home sales numbers coming out at 10:00.
The U.S. IHS Markit flash services PMI dropped in January to 53.3. The manufacturing figure climbed to 55.5. Like always, a reading of 50 or higher means expansion. Existing home sales came out at a seasonally adjusted annual clip of 5.57 million for December, beneath the consensus of a rate of 5.73 million.
Thursday’s Hot Stocks: LVS, DFS, FFIV, WHR, F, AAPL
Have a great trading day!
| Economic Calendar
|Wednesday||9:00||FHFA House Price Index||0.5 %||Medium|
|Wednesday||10:00||Existing Home Sales||5.750 M||Medium|
|Wednesday||10:30||Oil Inventories||-6.9 M barrels||Low|
|Thursday||8:30||International Trade in Goods
|Thursday||8:30||Jobless Claims||240 K||Medium|
|Thursday||10:00||Wholesale Inventories||683 K||Medium|
|Thursday||10:00||New Home Sales||0.5 %||Medium|
|Friday||8:30||Durable Goods Orders||0.8 %||Medium|
|STT||State Street Corporation||AM||Tuesday|
|VZ||Verizon Communications Inc.||AM||Tuesday|
|PG||The Procter & Gamble Company||AM||Tuesday|
|JNJ||Johnson & Johnson||AM||Tuesday|
|TXN||Texas Instruments Incorporated||PM||Tuesday|
|COF||Capital One Financial Corporation||PM||Tuesday|
|UAL||United Continental Holdings, Inc.||PM||Tuesday|
|GD||General Dynamics Corporation||AM||Wednesday|
|SWK||Stanley Black & Decker, Inc.||AM||Wednesday|
|RCL||Royal Caribbean Cruises Ltd.||AM||Wednesday|
|GE||General Electric Company||AM||Wednesday|
|UTX||United Technologies Corporation||AM||Wednesday|
|LVS||Las Vegas Sands Corp.||PM||Wednesday|
|LRCX||Lam Research Corporation||PM||Wednesday|
|CCI||Crown Castle International Corp. (REIT)||PM||Wednesday|
|F||Ford Motor Company||PM||Wednesday|
|URI||United Rentals, Inc.||PM||Wednesday|
|MKC||McCormick & Company, Incorporated||AM||Thursday|
|NOC||Northrop Grumman Corporation||AM||Thursday|
|LUV||Southwest Airlines Co.||AM||Thursday|
|AAL||American Airlines Group Inc.||AM||Thursday|
|UNP||Union Pacific Corporation||AM||Thursday|
|WDC||Western Digital Corporation||PM||Thursday|
|MXIM||Maxim Integrated Products, Inc.||PM||Thursday|
|HON||Honeywell International Inc.||AM||Friday|
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