Morning News: March 20, 2019
Posted by Eddy Elfenbein on March 20th, 2019 at 7:05 am

EU Regulators Fine Google 1.49 Billion Euros for Blocking Advertising Rivals

In Greece, an Economic Revival Fueled by ‘Golden Visas’ and Tourism

Wall Street Is Betting the Fed’s Rate-Raising Days Are Done for Now

Fed May Retain Bias to Hike Interest Rates: Decision-Day Guide

Disney Closes $71 Billion Deal for Fox Entertainment Assets

UBS Says First Quarter Was ‘One of the Worst’ in Recent History

Ford Explorer Owners Say Their SUVs Are Making Them Sick

How Dow Chemical Got Woke

BMW Warns of Profit Slump and Sets a $14 Billion Savings Plan

Jury Finds Bayer’s Roundup Weedkiller Caused Man’s Cancer

Lyft IPO Oversubscribed Ahead of Listing Next Week

Tesla’s Meandering Energy Strategy Is Still Killing Solar

Cullen Roche: Is Government Debt “Equity”?

Nick Maggiulli: We All Make Mistakes

Jeff Carter: An Epic Fail in America & Costs Are Going Up Because The Economy is So Good

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Morning News: March 19, 2019
Posted by Eddy Elfenbein on March 19th, 2019 at 7:12 am

Germany Makes Its Big Bank Problem Even Bigger

JP Morgan and Goldman Sachs are Getting More Bullish on India

Fed Chairman Powell Keeps Peddling A Dangerous Economic Myth

Banking’s Back-Office Workhorses Are Merging as Technology Reshapes Finance

Levi’s, Whose Jeans Are a Rugged Symbol of Americana, Prepares to Go Public

Intel and the Department of Energy are Building America’s First Exascale Supercomputer, a Computer Capable of a Quintillion Calculations Per Second

It’s Showtime For Apple – Not So Much For Investors

Tesla Is Reportedly Gearing Up for a Big Quarter-End Delivery Push

IBM Launches A Blockchain-Based Global Payments Network Using Stellar’s Cryptocurrency

GM Considers Options for Its Lyft Stake Following IPO

Trump Rebukes General Motors and Union Over Idling of Lordstown Plant

Electric Vehicles: Fruitless Search For An Impossible Dream?

Tilray Stock Gains Because Earnings Don’t Matter When the Marijuana Opportunity Is This Big

Joshua Brown: Monopolies Consumers ❤

Michael Batnick: You’re a Liar

Ben Carlson: Talk Your Book: The Low Volatility Anomaly, Will the U.S. Continue to Dominate? & Daniel Kahneman on Intuition

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S&P 500 Trades at Five-Month High
Posted by Eddy Elfenbein on March 18th, 2019 at 9:59 am

For the first time since October, the S&P 500 is above 2,830.

Note how much the daily ranges have narrowed. Going by intra-day highs and lows, the S&P 500 has now made back 82% of what it lost.

Another Mega-Deal for Payments
Posted by Eddy Elfenbein on March 18th, 2019 at 8:36 am

A few weeks ago, Fiserv (FISV) agreed to buy First Data in a mega-deal. Whenever you see a big deal in an industry, you often see the other players strike back. Today, FIS said it’s going to buy Worldpay for $34 billion.

The industry is now at the heart of a dealmaking boom as consumers change the way they pay for goods and legacy providers are challenged by rivals from startups to Apple Pay. Industrywide revenue is projected to surge to $2.4 trillion by 2027, according to a report from Boston Consulting Group and Swift.

(…)

Payments companies earn fees from charging to service the billions of dollars of purchases made by consumers and businesses, and many have been turning to deals to grab market share. The rise of contactless payments, and the need to update back-end infrastructure, also have spurred mergers.

We’re not done yet. Expect to see more deals ahead. There are also IPOs coming onboard. This is good news for Fiserv.

Morning News: March 18, 2019
Posted by Eddy Elfenbein on March 18th, 2019 at 6:57 am

OPEC, Russia Deepen Oil Output Cuts but Disagree on Their Duration

Nearly Half of Americans Don’t Expect to Live Comfortably in Retirement, But It’s Not Too Late

FIS’s $34 Billion Bid for Worldpay Drives Payments Deal Spree

Deutsche Bank Is in Talks With Commerzbank After Turnaround Efforts Failed

Lyft to Seek Valuation of Up to $23 Billion in Its IPO

Instagram Stories Will Generate More Ad Revenue Than All of Snap This Year

Flying Taxis. Seriously?

Heart Replacement Valves From Edwards and Medtronic Beat Surgery

General Electric: Falling To Rock Bottom

Why Are So Many Farmers Markets Failing? Because The Market Is Saturated

Jelly Belly Creator Debuts Cannabis-Infused Jelly Beans

Jeff Miller: Will the Fed Hint at a New Course?

Cullen Roche: Is Government Debt “Equity”?

Roger Nusbaum: Is “Your Number” Hokum

Howard Lindzon: Momentum Monday – Sneaky Good Market Action

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Industrial Production +0.1% in February
Posted by Eddy Elfenbein on March 15th, 2019 at 10:59 am

This morning’s Industrial Production report showed a slight increase last month. Last month, IP rose by 0.1% while the Street had been expecting an increase of 0.3%.

Last month’s production rise was driven in large part by a 3.7% increase in utilities, a category subject to weather fluctuations. It also likely reflects some recovery from a weak January, when industry output fell a revised 0.4%.

But manufacturing, which accounts for nearly three-fourths of the nation’s industrial production, remained on shaky footing last month. Output at all U.S. factories decreased 0.4% after falling 0.5% in January. The decline was spread across multiple sectors, with output of machinery, electronics and apparel all dropping.

Economists are increasingly worried that recent trends in global industry, and a slowing world economy more broadly, will filter into the U.S. manufacturing industry.

While recent Commerce Department figures showed domestic demand for manufactured goods remains solid, other measures have shown some cooling. The Institute for Supply Management said its measure of factory-sector activity weakened in February, and hiring in the sector has also slowed, according to the Labor Department.

Industrial Production for February was below where it was in November.

CWS Market Review – March 15, 2019
Posted by Eddy Elfenbein on March 15th, 2019 at 7:08 am

“Most investors want to do today what they should have done yesterday.”
– Larry Summers

Last Friday, Wall Street got spooked by a poor jobs report. For February, the economy created just 20,000 net new jobs. Wall Street had been expecting nine times that number. Some folks are dismissing this as a one-off and not indicative of a souring economy, while others think this is the beginning of more bad news.

As for me, I take a middling view. The economy is still doing well, but as investors, we need to be prudent. The fact is that earnings growth is slowing down. We’re currently in the “lull” period between earnings seasons when there’s not a lot of financial or economic news. As such, every news item probably draws undue influence.

Every day, it seems, the market gets jostled by whatever the current headline is on China or North Korea or Brexit. These issues simply aren’t that central to the market’s long-term bearing. For investors, everything comes down to earnings and interest rates. Outside that, the rest is noise.

In this week’s issue, I want to take a closer look at where we are with the economy. There are some cracks appearing in the façade. I also want to take an early look at the Q1 earnings season, which is still a month away. This looks to be the slowest growth for earnings in quite some time. Later on, I’ll cover some news impacting our Buy List stocks. (Ross Stores has some ambitious plans for 2019.) But first, let’s take a deep dive into one of the worst jobs reports in years.

The Jobs Report Was a Bust, but Should You Be Worried?

Last Friday, the government released the jobs report for February, and the numbers weren’t good. The U.S. economy created just 20,000 net new jobs last month. That was far below expectations of 180,000. In fact, this was the third-lowest number of the past eight years. The unemployment rate ticked down to 3.8%.

A few points. One is that the jobs data is revised several times. Also, by the government’s admission, the jobs data is a rough estimate with a fairly large error margin. The problem is that this report aligns with some (note my word choice here) other economic data.

For example, I’ve previously discussed the rotten retail-sales report for December. I tend to think it’s a bad number because businesses like Walmart and Ross Stores said they’ve been doing well. This week, however, the retail-sales report for January was a bummer as well. In fact, the lousy report for December was revised downward. It’s even lousier. For Q1, the Atlanta Fed now expects GDP growth of just 0.4%. Yikes!

I’ve also noticed that some of the recent weekly jobless-claims reports have been on the soft side. That could be due to the government shutdown. That data series tends to bounce around a lot. Also, the labor markets tend to be a lagging indicator. In fact, I’ve dug through the numbers and found that high unemployment is often a very good buy signal for stocks.

As always, the housing market is crucial. This week, the new-home-sales report came in below expectations. The soggy housing market may pick up soon since mortgage rates have fallen to the lowest in over a year. Recently, economists at Goldman Sachs made the case that housing is due for a rebound. I think they’re right, and it’s another reason why a patient Fed is good news.

We’ll know more about housing when we find out the earnings report from Buy List stocks like Sherwin-Williams (SHW) and Continental Building Products (CBPX). In fact, shares of Continental have dropped lower recently. The stock had gapped up after a favorable earnings report, but it’s given back all those gains. My Buy Below for Continental is currently $31 per share, but if you’re able to get in below $26, then you got a good deal. I’ll caution you that it will take time to rally.

Not all the economic news has been bearish. This week, the Commerce Department said that orders for durable goods rose by 0.4% in January. That’s the highest in six months. Also, the jobs report showed that average hourly earnings are up 3.4% in the last year. That’s not great, but it’s the highest rate in the last ten years. That underscores an important aspect of the economic recovery: lots of jobs have been created, but wage growth has been listless. I think we’re a long way from full capacity.

On Wednesday, the S&P 500 did something I would not have predicted. It hit its highest level since early October. This is also another reason why I don’t try to predict where the market is headed. (Once a member of the financial media asked me what my “year-end target” was. I said “December 31st.” I haven’t heard back from him.) Here’s a cool fact: Since World War II, the stock market has been up in the 12 months following the midterm election every time. That’s a perfect 18-for-18.

Before this week, the S&P 500 fell eight times in nine sessions. Monday, Tuesday and Wednesday of this week were all strong up days. The index is currently above its 50- and 200-day moving averages. However, I want to stress caution. Within the stock market, the industrial sector has been badly lagging. Coupled with this, small-caps issues have lagged while the biggest stocks have enjoyed the best gains.

This is a good time to be conservative. Look for solid dividend stocks (SJM at 3.3%!), and stay away from any shaky high-fliers. As always, pay attention to our Buy Below prices. They’re here for your protection. Now let’s take a look at what we can expect when first-quarter earnings season begins in a few weeks.

This Could Be the Worst Earnings Season in Three Years

March is already halfway over, and soon Q1 earnings season will be upon us. This will be an interesting season for Wall Street because the earnings got a big boost in 2018 thanks to the corporate tax cut. That story has run its course. For Q4, the S&P 500 had the highest number of earnings misses since Q4 of 2013.

Currently, Wall Street expects Q1 earnings from the S&P 500 of $37.12 per share. That’s the index-adjusted number. Every one point in the index is worth roughly $8.4 billion. Over the last six months, the Q1 estimate has been revised lower by nearly 10%. If that estimate is correct, it would represent growth of just 1.6% over last year. That would be the weakest growth in some time. In fact, there’s a good shot that Q1 growth won’t be growth at all but instead will show an earnings decrease.

The big weak spot is Energy. Oil prices still haven’t done much. We don’t own any energy stocks on the Buy List. That’s not a bold prediction on energy prices. I just haven’t seen anything that caught my eye. Consider that ExxonMobil (XOM) is expected to earn $4.32 per share this year. That’s down from $4.88 per share last year. In 2011, the company made $8.37 per share.

The other earnings weak spots are in Materials (-11%) and Consumer Discretionary (-11%). This certainly reflects the housing slowdown. On the plus side, earnings for Financials are expected to be up 14%, and Healthcare is expected to be up 30%. Quiz: What are the best-performing sectors over the past year? Answer: REITs and Utilities. Yep, the boring stuff has been working.

Interestingly, the Financial sector has the lowest aggregate Price/Earnings Ratio. We can see that on our Buy List. All three of our major financial stocks, AFLAC (AFL), Eagle Bancorp (EGBN) and Signature Bank (SBNY), are going for less than 12 times this year’s earnings.

Buy List Updates

I usually don’t pay much attention to ratings changes from Wall Street firms on our Buy List stocks, but I wanted to pass along two items this week. RBC Capital Markets lifted its price target on Stryker (SYK) from $184 to $204. They have an “outperform” rating on the stock. Stryker continues to be a very good stock. Also, Raymond James upgraded Broadridge Financial Solutions (BR) to “outperform” and set a price target at $118 per share.

Let me reiterate that I’m not a fan of price targets. It’s a silly concept. If a stock is good, then it’s good. There’s no set line that it needs to cross. Our Buy Below prices aren’t targets, and you’ll notice how often we change them.

Ross Stores (ROST) says it plans to open 100 new stores this year. In February and March, Ross opened 22 stores, plus six dd’s Discount stores. For 2019, the company plans to open 75 Ross Stores and 22 dd’s.

“These recent openings reflect our ongoing plans to continue building our presence in both existing and newer markets, including the Midwest for Ross, and expansion of dd’s DISCOUNTS into Oklahoma and Illinois,” said Jim Fassio, President and Chief Development Officer. “We now operate a total of 1,745 Ross Dress for Less and dd’s DISCOUNTS locations across 38 states, the District of Columbia, and Guam. As we look out over the long-term, we remain confident that Ross can grow to 2,400 locations and dd’s DISCOUNTS can become a chain of 600 stores given consumers’ ongoing focus on value.”

Ross now runs 1,500 Ross Stores. The stock recently beat earnings, raised its dividend and announced a big share buyback.

We have two Buy List earnings reports between now and Q1 earnings season. FactSet (FDS) is due to report on March 26. The stock is currently above my Buy Below price. Hold off on buying it for now. I may change our Buy Below, but I want to see the earnings report first. I’ll have more details next week. RPM International (RPM) is due to report its fiscal Q3 earnings on Thursday, April 4. Wall Street expects earnings of 12 cents per share.

That’s all for now. The Federal Reserve meets again on Tuesday and Wednesday. The policy statement will come out on Wednesday afternoon. Don’t expect any change to interest rates. The Fed will also update its economic projections for the next few years. The factory-orders report is on Tuesday. Then on Friday, the existing-home-sales report is due out. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

– Eddy

Morning News: March 15, 2019
Posted by Eddy Elfenbein on March 15th, 2019 at 7:04 am

China’s Premier Acknowledges Economic Slowdown, Promising Tax Cuts

Fed Puts Inflation Expectations at Heart of Major Policy Review

The Era of Cheap Money Shows No One Knows How Monetary Policy Works

Mutual Funds Start to Put Their Mouth Where Their Money Is

The Newest Threat to Wall Street is a House Freshman You’ve Probably Never Heard Of

S.E.C. Accuses Volkswagen of Fraud in Diesel Scandal

Facebook: The Red Flag in Chris Cox’s Goodbye Letter to Staff

Apple Defends App Store Policies After Spotify’s Antitrust Complaint

Tesla’s Biggest Overseas Market is Kind of Bored by Model Y

Boeing Promised Pilots a 737 Software Fix Last Year, but They’re Still Waiting

Boeing Black Box Review Begins in France, Aviation World Waits

U.S. Judge Rules Qualcomm Owes Apple Nearly $1 Billion Rebate Payment

Lawrence Hamtil: The Global Portfolio’s Rough Three Decades

Ben Carlson: The Art of Repetition

Jeff Carter: Tech Is Separating Us; Tech Is Leaving Communities Behind; Capitalism Can Save Us

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Morning News: March 14, 2019
Posted by Eddy Elfenbein on March 14th, 2019 at 7:15 am

Why the Worst May Already Be Over for the Global Economy

China and U.S. to Push Back Trump-Xi Meeting to at Least April

A Better Way to Break Up Big Tech

Boeing Tries to Limit the Fallout After U.S. Grounds 737 MAX

Facebook’s Crisis Management Algorithm Runs on Outrage

Facebook’s Data Deals Are Under Criminal Investigation

The Fate of Financiers Tied to College Admissions Scandals

SoftBank and Other Investors May Buy $1 Billion Stake in Uber’s Self-Driving Cars

Nissan, Mitsubishi Executives Exit as Ghosn Empire Is Dismantled

China Customs Lifts Suspension on Tesla Model 3 Imports

General Electric Sees 2019 Profit Below Estimates

Why Aurora’s Latest Strategy Smells Like Desperation

Jeff Miller: Is The Market’s Momentum Back?

Joshua Brown: What Are Your Thoughts: New Highs Soon?

Michael Batnick: The Twenty Craziest Investing Facts Ever & Where Were You at the Bottom?

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Morning News: March 13, 2019
Posted by Eddy Elfenbein on March 13th, 2019 at 7:14 am

De Rothschilds to Take Swiss Bank Private in $98 Million Bid

Iran Hunts for More Ships to Keep Its Oil Flowing

U.K. Unveils Tariffs for a No-Deal Brexit Ahead of Key Vote

British Panel Calls for Stricter Antitrust Rules on Tech Giants

Boeing Flights Grounded Across the Globe, but Not in the U.S.

Boeing Disaster Isolates FAA With China Leading Push Against 737 Max

Talk to ‘Green New Deal’ Backers, BP CEO Tells Oil Industry

Volkswagen Moves to Rapidly Increase Production of Electric Cars

Investors Lose a Major Justification for Holding Tobacco Stocks

Google’s Larry Page Leveled ‘Veiled Threat’ Over Control of Company

Wells Fargo C.E.O. Is Grilled on Capitol Hill

Finance Titans Indicted in College Admissions Scandal

Ben Carlson: Is It Worth It To Be a Famous Fund Manager Anymore?

Nick Maggiulli: Nothing Happens, Then Everything Happens

Howard Lindzon: Peak California, Weak Boeing, Wrong Warren (Senator Elizabeth) …and The Vix is Still 4 in Tuscany

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