Wednesday, January 17, 2018

Markets surge after Apple plans to repatriate billions dollar to the US

Dow soared 322 to a new record, advancers over decliners about 2-1 & NAZ rocketed ahead 74.  The MLP index lost 1+ to the 297s.  Junk bond funds were little changed & Treasuries drifted lower.  Oil was up pennies in the 63s & gold fell 8 to 1328.

AMJ (Alerian MLP index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Apple (AAPL), a Dow & NAZ stock, will bring hundreds of Bs of overseas $s back to the US, pay about $38B in taxes on the money & invest 10s of Bs on domestic jobs, manufacturing & data centers in the coming years.  The company plans capital expenditures of $30B in the US over 5 years & create 20K new jobs at existing sites & a new campus it intends to open, the company announced.  “We are focusing our investments in areas where we can have a direct impact on job creation and job preparedness,” CEO Tim Cook said, which alluded to unspecified plans by the company to accelerate education programs.  In its Dec approval of the most extensive tax-code revisions since 1986, Congress scrapped the previous intl tax system for corps -- an unusual arrangement that allowed companies to defer US income taxes on foreign earnings until they returned the income to the US.  That “deferral” provision led companies to stockpile an estimated $3.1T offshore.  By switching to a new system that’s designed to focus on domestic economic activity, congressional tax writers also imposed a 2-tiered levy on that accumulated foreign income: Cash will be taxed at 15.5% & less liquid assets at 8%.  Companies can pay over 8 years.  AAPL has the largest offshore cash reserves of any US company, with about $252B in at the end of Sep, the most recently reported fiscal qtr.  The company also plans to open another site in the US focused initially on employees who provide technical support to AAPL product users.  AAPL said it will announce the location of the new campus at a later date.  The stock rose 2.91.
If you would like to learn more about AAPL, click on this link:

Apple Expects to Pay $38 Billion Tax on Repatriated Cash

Almost all of the 12 Federal Reserve districts reported “modest to moderate gains” in economic activity at the start of 2018, a Federal Reserve survey showed.  The Fed's Beige Book economic report, based on anecdotal information collected by the 12 regional Fed banks on or before Jan 8, said the Dallas Fed bank was the exception, reporting “a robust increase.”  “The outlook for 2018 remains optimistic for a majority of contacts across the country,” according to the report.  The report appears generally to support the Fed's outlook for 2018, which forecasts 2.5% economic growth & 3 interest-rate increases.  Investors, judged by prices in fed funds futures contracts, have fully priced in at least 2 more hikes.  Joblessness remained at 4.1% in Dec, a level that hasn't been bettered since 2000.  “Most districts cited on-going labor market tightness and challenges finding qualified workers across skills and sectors, which, in some instances, was described as constraining growth,” the Beige Book said.  Most districts said wages increased at a “modest” pace, while a few “observed that firms were raising wages in a broader range of industries and positions since the previous report.”  The Beige Book said most districts reported “modest to moderate” price growth.  Firms in some districts said they were able to boost selling prices.  The Fed's preferred measure for inflation, after excluding volatile food & energy components, was just 1.5%  in the 12 months thru Nov.  That measure has lagged below the Fed's 2% target for most of the past 5 years.  Central bankers raised their 2018 growth forecast to 2.5% from 2.1% in Sep, according to their estimate from the Dec meeting.  Pres Trump signed a $1.5T tax-cut bill into law on Dec 22.  Fed Chair Janet Yellen said that Fed officials “generally identified changes in tax policy as a factor supporting this modestly stronger outlook.”  Almost all contacts in the Chicago Fed's district said the tax bill would have a positive impact on their firms.  “Most respondents expected to spread the tax savings across outlays for capital, labor, debt repayment, and profit distributions to owners,” the Chicago Fed added.  After contributing almost nothing to GDP in Q4-2016, nonresidential investment bounced back in the first 3 qtrs of 2017.  “Reports indicated that some manufacturers increased capital expenditures over the reporting period,” the Beige Book said.  The report added that residential real estate activity “remained constrained” across the country, with homes sales limited by tight housing inventory.

Fed Says Almost All Districts Saw Modest to Moderate Growth

Bank of America (BAC) Q4 profits fell by nearly ½ from a year ago, as the bank had to book $2.9B in charges related to the new tax law.  But setting aside those charges, the bank is showing signs that whatever damage was left over from the financial crisis is largely healed.  The consumer banking giant EPS was 20¢, down from 39¢ from the same period a year ago.  Like many banks this qtr, BAC had to write down the value its stockpile of deferred tax assets on its balance sheet.  The assets are basically credits it could have used to pay future income taxes that built up after the 2008 financial crisis, when banks like BAC had B$s in losses from bad mortgages & other toxic investments.  Because the maximum corp tax rate was reduced from 35% to 21% under the new tax law, banks had to revalue those credits.  The bank also had to write down $946M in renewable energy investments that were also impacted by the tax law.  Longer term, BAC execs see the tax law as a positive for the bank.  The company now expects its effective tax rate to be roughly 20%, down from 29% historically.  While the bank has raised wages for some of its lowest paid, front-line employees, CEO Brian Moynihan said that he expects most of the tax savings to be channeled into stock buybacks & higher divs.  Outside of the impact of the tax law, BAC continues to benefit from rising interest rates.  When the Federal Reserve raises interest rates, that allows banks to charge more to borrowers for loans.  Net interest income at BAC rose 11% from a year earlier to $11.46B.  BAC is particularly well positioned to benefit from higher interest rates with its consumer-centric business & large mortgage banking franchise.  The bank grew deposits & loans in the qtr, compared to a year earlier, even while closing roughly 100 branches over the last 12 months.  The charge-off rate of loans remained low as well at a steady 0.68%.  In other businesses, trading revenues fell 11%  to $2.5B.  Many banks have reported declines in trading revenue for Q4 as markets were abnormally calm last year, which kept investors from actively trading.  Total revenue at the bank was $20.44B, up from $19.99B in the same period a year earlier.  The stock fell pennies.
If you would like to learn more about BAC, click on this link:

Bank of America 4Q profits fall by 48 percent due to tax law

Goldman Sachs (GS), a Dow stock, posted a $1.93B loss in Q4 as the investment bank had to record more than $4B in charges related to the new tax law.  It was the bank's first quarterly loss in more than 6 years.  The EPS lost was $5.51, compared with EPS of $5.08 in the same period a year earlier.   Excluding the one-time charges, EPS was $5.68 a share, beating estimates.  Like other banks, GS had to write down Bs in assets impacted by the new tax law, resulting in the quarterly loss.  It had $3.32B in charges related to foreign earnings now taxable under the law & $1.1B in charges for deferred tax assets it stockpiled after the financial crisis.  Firm-wide, revenue fell to $7.83B from $8.17B a year earlier.  Additionally, results were hurt by a relatively weak performance on its trading desks, typically one of its strongest businesses.  The segment inside that contains its trading operations had net revenue of $2.37B, down 34% from a year earlier.  Fixed income, currencies & commodities trading net revenue fell 50%.  The firm's advisory businesses made up for the weak performance in trading.  The stock dropped 5.08.
If you would like to learn more about GS, click on this link:

Goldman Sachs posts $1.9 billion loss due to new tax law

Stocks continue to soar to the heavens as gold retreated for a change.  Dow stock Boeing (BA) led the charge, gaining almost 16.  The Dow is solidly above 26K & up almost 8K from where it stood just before the election.  The AAPL news was a powerful signal for the bulls & the Beige Book report was like throwing fuel on a fire.  The latest word on the DC disaster is a gov shutdown should have little of no effect on the economy.  Clearly APPL doesn't care.  The Dow chart below is as pretty as they come.

Dow Jones Industrials

Markets rise on better than expected earnings

Dow advanced 98, advancers over decliners about 3-2 & NAZ added 21.  The MLP index dropped 1+ to the 297s.  Junk bond funds fell & Treasuries were little changed.  Oil was about even in the 63s & gold slid back 1 to 1336.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil63.56

GC=FGold  1,335.50

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Stocks opened higher as earnings season continued & another major bank reported healthy results.  The $ rose, while Treasuries declined & gold extended the Tues drop, with Congress appearing closer to a deal to avert a gov shutdown after Jan 19.  S&P 500 gained after Bank of America (BAC) beat estimates & indicated that it could benefit from the US tax overhaul by reducing pressure to cut future costs.  The Stoxx Europe 600 Index was down slightly.  Support came from the weaker €, which was dragged down by some verbal intervention from the ECB, while the ¥ & Swiss franc were among the other major currencies falling against the greenback.  Traders appear to be taking a pause, perhaps questioning the pace of gains in global equity markets since the start of 2018.  After sales updates from many retailers, the earnings season is ramping up, with money managers eager for good news to help maintain the rally.  Meanwhile bond investors are mulling the potential for monetary policy in the US to tighten faster than expected & settling their nerves after last week's selloff.  The notion of a bear market doesn't seem to have endured, the yield curve steepening bartely lasted a day.  West Texas crude slipped before US gov data forecast to show crude stockpiles fell for a 9th week.

Stocks Rise as BofA Continues Strong Bank Earnings: Markets Wrap

US factory production rose for a 4th straight month in Dec, capping the strongest qtr since 2010 & underscoring a resurgence in manufacturing that's primed for further advances, Federal Reserve data showed.  Factory output rose 0.1% (est 0.3% gain) after rising an upwardly revised 0.3%.  Total industrial production, which also includes mines & utilities, increased 0.9% (est 0.5% rise) after a revised 0.1% decrease.  Capacity utilization, measuring the amount of a plant that is in use, rose to 77.9% (est 77.4%) from 77.2%.  The smaller-than-expected Dec gain in manufacturing output reflected a 0.1% drop in production of nondurable goods, including petroleum & chemicals.  Output of durable goods rose a solid 0.3%.  Factory output increased at a 7% annualized rate in Q4, the strongest since 2010.  Combined with national & regional surveys of purchasing managers, the figures indicate manufacturing was robust at the end of the year.  Stronger consumer spending, increased business investment & more shipments of merchandise to overseas customers are providing plenty of fuel for the nation’s producers.  What's more, the lowest business inventory-to-sales ratio in 3 years could translate into increased production in coming months.  Factory output climbed 1.3% in 2017, the strongest annual reading in 5 years.  The Fed's monthly data are volatile & often get revised.  Manufacturing, which makes up more than 75% of total industrial production, accounts for about 12% of the US economy.  It increased 2.4%  in Dec from the same month a year earlier.

U.S. Manufacturing Output Rose in December for Fourth Month

Sentiment among America's homebuilders eased in Jan to the 2nd-highest level since 2005, a sign the housing market will continue to make strides this year, according to the National Association of Home Builders/Wells Fargo.  The housing Market Index fell to 72 (matching est) from the Dec 74 reading that was the strongest since 1999.  Measure of 6-month sales outlook slipped to 78 from a 12-year high of 79.  Current sales gauge for single-family homes cooled to 79 from 80.  The first builder-sentiment reading for 2018, albeit a decline from a 18-year high, is consistent with other reports that indicate residential construction will build on recent growth, as a solid job market, relatively low mortgage costs & rising confidence help propel housing demand.  Hurdles for builders still include climbing costs of construction supplies, as well as shortages of workers & ready-to-build land.  Last month's tax-cut legislation that limited deductions for mortgage interest & property taxes could also hurt sales in some areas, even if it gives an overall boost to the economy.  The outlook gauge suggests “housing demand should grow in 2018,” Robert Dietz, chief economist at NAHB, said.  “As the overall economy strengthens, owner-occupied household formation increases and the supply of existing home inventory tightens, we can expect the single-family housing market to make further gains this year.”  “Builders are confident that changes to the tax code will promote the small business sector and broader economic growth,” NAHB Chairman Randy Noel, a custom home builder, said.  “Our members are excited about the year ahead, even as they continue to face building-material price increases and shortages of labor and lots.”  Gauge of prospective buyer traffic fell to 54 from 58

Homebuilder Sentiment in U.S. Cools in January From 18-Year High

The stock market digested the news which brought selling yesterday, & the bulls are back.  They like earnings.  The mess in DC relating to a gov shutdown does not bother traders, at least for the moment.  They figure those guys will come up with a temp patch, whatever.  The Dow just needs another 100 to close above 26K & that could be done today or tomorrow based on the way the bulls are behaving.

Dow Jones Industrials