Friday, July 20, 2018

The Race to $1 Trillion

For years now, Apple has been on a relentless push to become the first company to reach $1 trillion in market capitalization. Then Amazon came along. Apple still holds the edge with a market cap of $944 billion, but Amazon, riding another strong showing on Prime Day, just crossed $900 billion for the first time this week, and it seems to have momentum on its side.

Amazon banged out a fresh high on Wednesday and is up more than 50 percent for the year. Meanwhile, Apple hasn’t set a new share price record since June and is up only about 12 percent year-to-date.

To hit $1 trillion in market value, Amazon needs to rally about 13 percent and raises its share price $2,060, while Apple only has to get to $203.45, a 6 percent gain. Amazon reports its earnings next week, while Apple reports on July 31.

Thursday, July 19, 2018

The Beige Book Warns on Tariffs

Ten of the Federal Reserve’s 12 districts reported moderate or modest economic growth so far this summer, the Fed said in its latest roundup of anecdotal information about regional economic conditions known as the Beige Book. But manufacturers across the U.S. expressed concern about tariffs, with many reporting higher prices and supply-chain disruptions in the wake of new trade policies.

In the Philadelphia Fed district, “one machinery manufacturer noted that the effects of the steel tariffs have been chaotic to its supply chain—disrupting planned orders, increasing prices, and prompting some panic buying,” the Beige Book said. The Philadelphia district covers the bottom half of New Jersey.

The New York district, which covers the northern half of our state, reported similar concerns: “A number of manufacturing contacts remarked that tariffs have raised their costs. Moreover, uncertainty about future trade policy was cited as a major concern, particularly in parts of upstate New York, where there is substantial trade with Canada.”

Wednesday, July 18, 2018

The Danger of a Strong Dollar

U.S. corporations are warning that currency fluctuations are weighing on their results, raising a red flag for investors heading into the thick of the second-quarter earnings season. Roughly half of the first 23 S&P 500 firms that posted results for the latest quarter as of Friday said currency swings either had a negative impact on earnings or revenue or were expected to become a headwind in the coming months, according to FactSet.

That makes currency swings by far the most mentioned headwind on earnings calls so far. In comparison, seven firms mentioned the rising cost of raw materials, while five mentioned oil and gas prices and just one cited tariffs.

The strengthening dollar suggests that multinational firms could face an increasingly tough environment in the second half of the year. S&P 500 companies grew their earnings at the fastest pace since 2010 in the first quarter, boosted in part by a depreciating U.S. dollar. A weaker dollar benefits U.S. multinationals by making exports cheaper to foreign buyers, and also by making their overseas profits look bigger when translated back into the U.S. currency.

Tuesday, July 17, 2018

Netflix Stumbles

Netflix has been one of Wall Street's hottest and most-watched stocks in the past 12 months - its share price has risen by about 150 percent over the past year. But it took a hit today when it reported second quarter subscriber numbers that were short of what the analysts were expecting, and the stock is paying for it.

During the quarter, the company added 670,000 domestic streaming subscribers, and 4.47 million international subs. That compares with consensus estimates for 1.2 million and 5.04 million, respectively. The numbers missed those targets as well as Netflix's own forecast for 1.2 million and 5 million domestic and international subscriber additions, respectively.

On the other hand, Netflix beat earnings expectations of 79 cents per share, reporting 85 cents for the quarter. But that wasn't enough to keep the stock from reeling, falling by about 13 percent in after-hours trading last night.

Monday, July 16, 2018

Trying to Get Out of Correction

The U.S. stock market could hit a notable milestone today, but it isn’t one that investors will feel particularly good about. Both the Dow Jones Industrial Average and the S&P 500 index  have been in correction territory since February 8, when concerns that inflation was returning to the economy sparked a sell-off that led to their dropping 10 percent from record levels hit earlier in the year.

Both the Dow and the S&P have been in correction territory for 108 trading days. This matches the longest such stretch since the financial crisis in 2008. Should they stay in correction through today, that will mean they are in their longest such stretch since 1984. In that stretch, it took the S&P 122 days to emerge from correction territory, and the Dow 123 days.

Based on their current levels, the Dow would need to rise about 6.2 percent to hit a new record and exit correction territory. The S&P 500 would need to gain just 2.6 percent to ease the correction.


Friday, July 13, 2018

Retiring in New Jersey

New Jersey is towards the bottom of the pack among the best states to retire in, according to the latest survey from Bankrate.com. Our state ranked 32nd, right in between Pennsylvania and West Virginia.

What's wrong with retiring in New Jersey? On the bright side, the Garden State rates very well on crime (tied for 4th best), health care quality (10th), and culture (11th). It's middle of the pack on weather (24th) and well-being (28th).

But what kills us is that it's expensive to live here. New Jersey ranks 42nd among all the states in cost of living, and dead last in taxes. Bankrate says South Dakota is the best state for retirement, and New York the worst.

Thursday, July 12, 2018

The Sudden Drop in Oil Prices

Oil prices dropped suddenly yesterday for the first time in more than a year, signaling that the recent rally in energy prices may be coming to an end. August West Texas Intermediate crude, the U.S. benchmark, marked its sharpest daily decrease in about 13 months amid fears of flagging demand and renewed production from Libya.

The drop marked the worst percentage decline for oil futures since June of 2017. It was the steepest fall on a dollar basis in nearly three years, since September of 2015.

What made the losses more surprising is that the U.S. oil supply is also dropping, which could be expected to bolster prices. The Energy Information Administration reported yesterday that domestic crude supplies plunged by 12.6 million barrels for the week ended July 6.


Wednesday, July 11, 2018

Why Is Small Business So Optimistic?

Figures out yesterday show that the NFIB Small Business Optimism Index was at 107.2 in June, a tick below below May’s record high but still the sixth highest reading in the index’s 45-year history. The record high for this index is 108.0, reached in 1983.

Reported job creation rose five points, as 63 percent of businesses reported hiring or trying to hire. However, 55 percent reported few or no qualified applicants for the positions they were trying to fill. Twenty-one percent of employers surveyed cited the difficulty of finding qualified workers as their top business problem.

Credit concerns remained historically low, as just 3 percent of owners reported that all their borrowing needs were not met. Only 2 percent of business owners surveyed reported that financing was their top business problem, while 16 percent of survey participants listed taxes as their top business problem.

Tuesday, July 10, 2018

ETFs Continue to Slow

Even though the market remains relatively solid for 2018, exchange-traded funds continue to suffer. U.S.-listed ETFs posted net monthly outflows in June for a third month in 2018, according to the latest U.S. ETF Flash Flow report from State Street Global Advisors.

This is the greatest number of months with outflows in any year since 2008, and we are only halfway through 2018, the report says. If the year has just one more month of net outflows, 2018 would tie the record of four such months, reached a few times in the late nineties.

According to the report, international and emerging market funds have been hurt the worst, registering their largest back-to-back months of outflows since the start of 2016. International equities saw outflows totaling $3.3 and $9.9 billion in May and June, respectively.

Monday, July 9, 2018

The Downside to Low Unemplyoment

As the economy teeters at full employment, rising wages are beginning to eat into the profits of some U.S. companies. That’s good news for U.S. workers, but the steady rise in wages poses a threat to U.S. companies after a streak of double-digit quarterly profit growth that has helped underpin the broader stock market.

Economists at Goldman Sachs predict that every percentage-point increase in labor-cost inflation will drag down S&P 500 earnings by 0.8 percent. In total, labor costs amount to 13 percent of revenue for S&P 500 companies.

The industrials sector is most susceptible to increasing wages, Goldman reports. Those companies have a 21 percent ratio of labor costs to revenue, the most out of the S&P’s 11 sectors. The consumer discretionary sector, the S&P’s best-performing sector this year, is also likely to take a hit if wage growth accelerates.

Friday, July 6, 2018

June's Jobs Report

June was another big month from an employment standpoint, with the economy adding 213,000 new jobs, the Bureau of Labor Statistics said this morning. Job gains have averaged 215,000 per month over the first half of 2018. Nevertheless, the unemployment rate ticked up to 4.0 percent.

U.S. employers have added to payrolls for 93 straight months, extending the longest continuous jobs expansion on record. The BLS report showed professional and business services adding 50,000 jobs in June. Employment also grew in manufacturing, health care and construction. All levels of government added 11,000 jobs last month.

The unemployment rate rose in June from its lowest mark since April 2000 because 601,000 Americans entered the labor force, and not all found jobs. It’s a sign that historically low unemployment may have prompted some of those on the sidelines to start job searches.

Thursday, July 5, 2018

2018's Biggest Winners So Far

With the first half of 2018 now in the books, these are the top 10 best-performing stocks in the entire S&P 500 index for the first six months of the year:

  1. Fossil Group, up 215 percent
  2. ABIOMED, up 114 percent
  3. Netflix, up 95 percent
  4. Twitter, up 80 percent
  5. XL Group, up 62 percent
  6. Tripadvisor, up 60 percent
  7. Under Armour, up 59 percent
  8. Align Technology, up 53 percent
  9. Chipotle Mexican Grill, up 50 percent
  10. Macy's, up 44 percent

Wednesday, July 4, 2018

Thoughts for Independence Day

"Humanity has won its battle. Liberty now has a country." ~Marquis de Lafayette

 "Liberty has never come from the government. Liberty has always come from the subjects of it. The history of liberty is a history of resistance." ~Woodrow Wilson

"For to be free is not merely to cast off one's chains, but to live in a way that respects and enhances the freedom of others." ~Nelson Mandela

Tuesday, July 3, 2018

The Year So Far

It's been a pretty middling year in the markets: Halfway into 2018, the S&P 500 is up less than 2 percent. Moreover,  all of those gains are thanks to a rally in just two sectors: technology and consumer discretionary.

The S&P 500 information technology sector, in fact, accounted for 102 percent of the year-to-date gains as of Friday. Amazon.com, which is in the consumer discretionary sector, has accounted for 34.6 percent of all the gains. Amazon.com has gained more than 45 percent since the start of the year.

Considering market caps, the five largest contributors to the year-to-date gains have been:

  • Amazon.com, up 0.82 percent   
  • Microsoft, up 1.42 percent 
  • Apple, up 1.12 percent 
  • Netflix, up 1.72 percent 
  • Facebook, up 1.56 percent 


Monday, July 2, 2018

Today's the Day

Is today the best trading day of the year? According to the website Marketwatch, the first trading day of July - that's today - is the one day of the year most likely to have a positive return for the S&P 500, which it has done 83.3 percent of the time.

The first half of July tends to be mildly bullish, and often hosts a brief summer rally. Keep in mind, though, that the summer rally tends to be the weakest of all seasonal rallies. Before you get too excited, note that the average return for the S&P on this date is 0.35 percent.

The S&P isn't the only likely winner on this date. The win rate for the Dow Jones Industrial Average  is 77.77 percent, and the win rate for the Nasdaq is 72.22 percent.