Wednesday, October 18, 2017

The Dow tops 23,000 on IBM earnings

Dow jump up 141, but decliners slightly ahead of advancers & NAZ gained all of 4.  The MLP index remained weak, losing another 1 to the 287s, & the REIT index fell fractionally to the 355s.  Junk bond funds did little & Treasuries were sold.  Oil was pennies in the 51s & gold slid back 3 to 1283.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil52.18

GC=FGold   1,281.60

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A larger-than-forecast decline in US new- home construction reflected the weakest pace of building in the South since Oct 2015, showing the fallout from hurricanes Harvey & Irma, according to  government figures.  Residential starts dropped 4.7% M/M (est. -0.4%) to a 1.13M annualized rate (est. 1.18M), the slowest in a year.  Starts in the South slumped 9.3% to 527K; also fell in Midwest & Northeast.  Single-family starts declined 4.6%, multifamily construction was down 5.1%. Permits, a proxy for future construction, decreased 4.5% to 1.22M rate (est. 1.25M).  Similar to other recent economic data, figures on housing starts have the potential to remain volatile for several months.  The widespread damage from the hurricanes also may cause a further shortage of workers & ready-to-build lots, along with lingering supply-chain delays & higher prices for raw materials.  Only homes that have to be completely rebuilt, for which a permit is issued as new construction, are counted as a start, while partially damaged dwellings are considered repairs.  At the same time, history shows activity typically rebounds in later months as rebuilding efforts begin in areas affected by major storms.  In a hopeful sign that concern over fallout from the hurricanes has been alleviated, a gauge of homebuilders' confidence rebounded to a 5-month high in Oct.  Prior to the weather-related distortions, the steady job market and still-low mortgage costs were sustaining demand for housing.  Economists expect residential construction will keep expanding, albeit gradually.  Single-family home starts fell to a 829K rate in Sep, the slowest since May, from 869K the prior month.

Drop in September U.S. Home Starts Reflects Slump in South

International Business Machines's (IBM), a Dow stock, shift to newer businesses such as cloud & security services helped it beat revenue estimates & the technology major hinted at sales growth after nearly 6 years of declines.  IBM has been focusing on cloud, cybersecurity & data analytics, or what the company calls its "strategic imperatives", to counter a slowdown in its legacy hardware & software businesses.  Revenue from these businesses climbed 11% to $8.8B in Q3, accounting for 46% of total revenue.  Revenue from the cognitive solutions business, which includes the AI-powered supercomputer Watson, rose nearly 4% to $4.40B, after falling 2.5% in the previous qtr.  Analysts expected revenue of $4.17B.  IBM expects revenue to grow $2.8-2.9B in Q4 from Q3.  This implies revenue of $22-22.1B, a year-on-year growth of about 1.4% at the high end.  A part of the rise in revenue is expected to come from the mainframe business, which got a boost from the launch of Z14.  Revenue in mainframe business jumped 60% in Q3, CFO Martin Schroeter said, adding that the business gained from Z14, which began shipping in mid-Sep.  IBM backed its forecast for 2017 adjusted EPS of at least $13.80.  Analysts are expecting EPS of $13.75.  Total revenue fell 0.4% to $19.15B, but handily beating estimates of $18.6B.  EPS fell to $2.92 from $2.98 a year earlier.  Excluding one-time items, EPS was $3.30 beating estimates of $3.28.  The stock soared 13 to 160.  If you would like to learn more about IBM, click on this link:

IBM beats revenue estimates; hints at sales growth

2 Senators reached a bipartisan agreement to shore up Obamacare for 2 years by reviving federal subsidies for health insurers that Pres Trump planned to scrap & the pres indicated his support for the plan.  The deal worked out by Rep Senator Lamar Alexander & Dem Senator Patty Murray would meet some Dem objectives, including reviving the subsidies for Obamacare & restoring $106M in funding for a federal program that helps people enroll in insurance plans.  In exchange, Reps would get more flexibility for states to offer a wider variety of health insurance plans while maintaining the requirement that sick & healthy people be charged the same rates for coverage.  The Trump administration said last week it would stop paying $B to insurers to help lower-income Americans pay medical expenses, part of Trump's effort to dismantle Obamacare.  The subsidies to private insurers cost the gov an estimated $7B this year & were forecast at $10B for 2018.  Trump's move to scuttle them had raised concerns about chaos in insurance markets.  The Alexander-Murray plan could keep Obamacare in place at least until the 2020 presidential campaign starts heating up.  "This takes care of the next two years. After that, we can have a full-fledged debate on where we go long-term on healthcare," Alexander said of the deal.  It is unclear whether the agreement can make it thru Congress.  Chuck Schumer, the top Senate Dem, said it had "broad support" among senators in his party, but it was harder to gauge possible support among Reps.  Moderate Rep Senator Susan Collins, who helped sink earlier Obamacare repeal legislation, voiced backing for the new plan, but conservative Reps may be less welcoming.

U.S. senators reach bipartisan deal on Obamacare, Trump indicates support

The Dow is flying high again, however the rest of the market is lagging behind.  Earnings may be choppy.  The goings on in DC are more important & predicting what will happen there is tricky.  Passing a revised version of Obamacare would be a major step forward that could open up passage for tax reform.  The stock market is drooling over that thought & that is critical to keep the market rally going.  Closing above 23K by the Dow is a good start on extending the rally.

Dow Jones Industrials


Tuesday, October 17, 2017

Uneven markets as earnings season begins

Dow went up 40 (just below 23K), decliners over advancers 4-3 NAZ backed off pennies.  The MLP index fell 1+ to the 278s & the REIT index inched up to the 355s.  Junk bond funds & Treasuries crawled higher.  Oil finished little changed (more below) & gold dropped 15 to 1287.

AMJ (Alerian MLP Index tracking fund)

 Live 24 hours gold chart [Kitco Inc.]

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Higher spending across the board drove Johnson & Johnson's, (JNJ), a Dow stock & Dividend Aristocrat, Q3 profit down 12%, despite a big sales jump fueled by recent acquisitions, hot new cancer drugs & strong sales of other key medicines.  However, the health care giant easily topped expectations.  With momentum in product sales across all 3 business segments, the company boosted its financial forecast for the 3rd time this year.  JNJ's biggest ever, $30B to buy Swiss biopharmaceutical company Actelion in Jun, added $670M to the qtr's sales of Actelion's drugs for dangerously high blood pressure in the lungs.  That also gave JNJ a 6th disease focus area, along with drugs for cancer, infectious diseases and immune, neurological & cardiovascular disorders.  Sales of prescription medicines soared 15.4% to $9.7B , boosted by blood cancer drug Imbruvica, Darzalex for multiple myeloma, blood thinner Xarelto & immune disorder drug Stelara.  Revenue from older drugs declined amid pressure for lower prices & increased competition.  But JNJ said it's scrapped 2 experimental drugs it recently touted as future blockbusters.  Sales of consumer health products such as Tylenol & Neutrogena skin care rose 2.9%, to $3.4B, & sales of Acuvue contact lenses & other medical devices jumped 7.1%, to $6.B.   Device sales were boosted $291M by this year's acquisition of Abbott Medical Optics, which sells products for Lasik & eye cataract surgery.  The company said the hurricanes that recently hit US coastal areas & Puerto Rico, where it has 6 factories, forced surgery cancellations for days, reducing revenue minimally, but haven't disrupted product supplies.  However, the Puerto Rico factories are only partially running, on generators.  Total sales were $19.7B, up from $17.8B in Q3-2016, exceeding forecasts for $19.28B.  EPS was $1.37, down from $1.53 a year earlier.  Adjusted for one-time costs, the company posted EPS of $1.90, topping forecasts for $1.80.  JNJ now expects full-year earnings EPS of $7.25-7.30 on revenue of $76.1-76.5B.  In Aug, it forecast full-year EPS of $7.12-7.22 & revenue of $75.8-76.1B.  Analysts has been projecting full-year EPS of $7.18.  The stock shot up 4.67 to go over 140.  If you would like to learn more about JNJ, click on this link:

Johnson & Johnson tops Street 3Q forecasts, hikes forecast

Goldman Sachs' (GS), a Dow stock, Q3 profits fell 3% from a year earlier, as the trading desks the biggest investment bank were weighed down by a slow summer that also affected most of its competition.   Results still beat forecasts, however.  The  bank had EPS of $5.02 compared with $4.88 last year.  EPS rose because there are fewer shares outstanding compared with the same period a year ago.  Analysts had been looking for EPS of $4.17.  The trading desks, which are weighted toward bonds, currencies & commodities, struggled this qtr, as did those at its competitors.  Net revenue in that business was $1.45B, down 26% from a year earlier.  Markets have been abnormally quiet this year, which has hurt investment banks' trading profits since they benefit when markets are more active.  Despite the struggling trading operation, the investment banking business had an especially good qtr, reporting a 17% rise in revenue.  Revenue from underwriting & companies turning to GS investment bankers for advice both increased.  Its on common equity, a measurement of a bank's profitability by showing how well it performs with the assets on its books, was 10.9%.  Investment banks like GS aim for that measurement to be above 10%.  CEO Lloyd Blankfein called the firm's overall performance so far this year "solid."  Company-wide revenue was $8.33B which compared with $8.17B a year earlier.  Analysts were looking for revenue of $7.53B.  The stock sank 6.32 to the 236s.  If you would like to learn more about GS, click on this link:

Goldman Sachs' results beat forecasts despite trading drop

Harley-Davidson (HOG) reported a better-than-expected quarterly profit & maintained its full-year shipments forecast, despite prolonged weak demand in its home market.  US retail motorcycle sales, or sales by dealers to customers, fell 8.1% in Q3, & total global retail sales dipped 6.9%.  Still, the company said it expects to ship 241K-246K motorcycles this year, down 6 -8% from a year earlier.  EPS was 40¢ in Q3, down from 64¢ a year earlier.  Revenue from motorcycles & related products fell to $962M from $1.09B.   Analysts had expected EPS of 39¢ & revenue of $953.3M.  The stock rose 95¢ to the 47s.  If you would like to learn more about HOG, click on this link:

Harley-Davidson beats profit estimates, backs full-year forecast

Oil prices gave up earlier gains & turned negative as expectations of high US production & exports offset concerns that fighting between Iraqi & Kurdish forces could threaten the country's crude output.  US crude was down 59¢ (1.1%) at $51.28 per barrel.  Earlier, both contracts were up by nearly 1%.  The Iraqi gov recaptured territory across northern Iraq from Kurds, widening a campaign that has shifted the balance of power in the country.  The fighting in one of Iraq's main oil-producing areas helped to restore a risk premium on oil prices, though officials said that oilfields in the region were operating normally.  Analysts forecast US crude inventories declined by about 4.8M barrels in the latest week.  Tension between the US & Iran is also rising, increasing the global risk premium for oil.  Pres Trump on Fri refused to certify Iran's compliance over a nuclear deal, leaving Congress 60 days to decide on further action against Tehran.  During the previous round of sanctions against Iran, about 1M bpd of oil was cut from global markets.  Elsewhere in the Middle East, US-backed militias in Syria declared victory over Islamic State in its capital Raqqa , raising flags over the last jihadist footholds after a 4-month battle.  With supply cuts led by OPEC tightening the market, analysts have been raising their oil price forecasts.

Oil turns negative as US output gains offset Middle East tensions

Dow is pushing to go over 23K, but couldn't make it today.  Maybe tomorrow.  Earnings have been reasonably good, although at times they are only beating forecasts with year over year profit declines.  Earnings reports are not likely to be conclusive.  Getting those guys in DC to move forward on tax reform & other issues like the fiscal budget remains clouded.  Traders will try hard to get the Dow over 23K tomorrow.

Dow Jones Industrials