• Today’s Federal Reserve Policy Statement
    Posted by on November 1st, 2017 at 2:01 pm

    The Fed didn’t raise rates. Here’s the Fed statement:

    Information received since the Federal Open Market Committee met in September indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate despite hurricane-related disruptions. Although the hurricanes caused a drop in payroll employment in September, the unemployment rate declined further. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters. Gasoline prices rose in the aftermath of the hurricanes, boosting overall inflation in September; however, inflation for items other than food and energy remained soft. On a 12-month basis, both inflation measures have declined this year and are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Hurricane-related disruptions and rebuilding will continue to affect economic activity, employment, and inflation in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term. Consequently, the Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

    In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1 to 1-1/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.

    In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

    The balance sheet normalization program initiated in October 2017 is proceeding.

    Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Jerome H. Powell; and Randal K. Quarles.

  • Earnings from Cognizant and Ingredion
    Posted by on November 1st, 2017 at 11:25 am

    October was another up month for the S&P 500. This makes seven winning months in a row, and except for a very small loss, this was nearly our 12th-straight up month in a row.

    This morning, we got the ISM report for October. I like this report because it comes out on the first business day of each month. For October, the ISM was 58.7, which was a little bit below expectations. Any reading above 50 means the manufacturing sector is expanding. The ISM for September was 60.8 which was the highest in 13 years.

    The ADP payroll report said that 235,000 private sector jobs were added last month. That’s more than economists had been expecting. The ADP report is always a preview of the official jobs report, which comes out on Friday. Wall Street is expecting that 310,000 jobs were created in October. The issue here is that it reflected the rebound from the hurricane-impacted report for September.

    We got two more Buy List earnings report this morning. First up, Cognizant Technology Solutions (CTSH) reported Q3 earnings of 98 cents per share. Previously, the company had told us to expect Q3 earnings of at least 95 cents per share.

    CTSH also raised their full-year guidance from at least $3.67 per share to at least $3.70 per share. Now the bad news. That implies Q4 earnings of 95 cents per share which is below the 98 cents Wall Street had been expecting. Traders didn’t like that and the stock is down around 5% this morning.

    “We are making consistent progress in executing the plan to accelerate our shift to digital services and solutions,” said Francisco D’Souza, Chief Executive Officer. “We’ve systematically built the significant capabilities needed to help our clients transform their business, operating, and technology models ̶ a transformation we call digital at scale. We believe our long-term relationships with clients and deep understanding of their priorities puts us in a privileged position to help them adapt, compete, and grow.”

    On the revenue side, Cognizant expects revenues between $3.79 billion and $3.85 billion. Wall Street had been expecting $3.76 billion. I’m not concerned about this report. CTSH’s numbers are fine.

    For Q3, Ingredion (INGR) reported Q3 earnings of $2.21 per share. That beat the Street by 19 cents and it’s a nice increase from $1.96 per share a year ago. The company raised the low-end of its full-year guidance by 15 cents per share. Ingredion now expects 2017 earnings of $7.65 to $7.80 per share. That implies Q4 earnings $1.67 to $1.82 per share. The stock is currently up 3.6%.

  • Morning News: November 1, 2017
    Posted by on November 1st, 2017 at 7:03 am

    Why the Dow Jones Industrial Average Crushed the S&P 500 in October

    Consumer Confidence Highest In 17 Years

    Fed Likely on Hold, but Could Give Clues on Possible December Rate Rise

    Trump’s Trade Endgame Could Be the Undoing of Global Rules

    The Financial Lessons Behind the Allegations Against Paul Manafort

    The Daily Prophet: What Does CME Know That Jamie Dimon Doesn’t?

    Buffett Streak of ‘Free’ Insurance Money May Be Ending

    Under Armour: Down 67% Since June 2015

    Walmart Wants You to Party in Its Stores This Christmas Season

    Cognizant Beats Earnings Estimates on Digital Services Strength

    Starbucks Releases a Color-It-In-Yourself Holiday Cup

    Mylan Top Executive Engulfed in Alleged Price-Fixing Ring

    Howard Lindzon: The Great Digital Pyramid Rally of 2017 – Bitcoin and Egypt at All-Time Highs

    Jeff Carter: Where The Puck Is Going With Big Data

    Ben Carlson: The Increasing Importance f the 401k

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  • Fiserv Earned $1.27 per Share
    Posted by on October 31st, 2017 at 4:19 pm

    Fiserv (FISV) reported Q3 earnings of $1.27 per share. That was four cents below Wall Street’s estimate.

    “Fiserv continued to execute well, delivering double-digit adjusted earnings per share growth despite pressure from lower periodic revenue in the quarter,” said Jeffery Yabuki, President and Chief Executive Officer of Fiserv. “Sales were solid in the quarter, providing momentum for a strong close to the year.”

    Fiserv narrowed their full-year guidance from $5.03 to $5.17 per share to $5.05 to $5.12. That represents growth of 14% to 16% over last year. That means Q4 earnings of $1.34 to $1.41. Wall Street had been expecting $1.36 per share.

    “We expect to achieve our full-year financial outlook which includes strong fourth quarter revenue growth leading to internal revenue growth acceleration in 2018,” said Yabuki.

  • Noon Market Notes
    Posted by on October 31st, 2017 at 12:02 pm

    It looks like President Trump will nominate Jay Powell to be the next Fed chairman. I don’t have much to say about this choice except that Powell is very much an establishment pick.

    He’s a registered Republican who was previously nominated by President Obama—twice, in fact. This would mean he’s been appointed to the Fed three times in five years.

    Powell was approved in May 2012 by a vote of 74-21. He was approved again in June 2014 by a vote of 67-24. Given the two previous Senate votes, I think he’ll pass this time with ease.

    The Federal Reserve meets today and tomorrow. Going by the futures market, there’s a 2% chance the Fed will hike rates now and a 98% chance they’ll hike in December.

    This morning, the Conference Board reported that consumer confidence is at its highest level since 2000.

    Consumer confidence rose to 125.9 in October, according to the Conference Board.

    The index “increased to its highest level in almost 17 years,” Lynn Franco, Director of Economic Indicators at The Conference Board, said in a statement. That was in December 2000, when the index hit 128.6.

    The economic weight of Hurricanes Harvey and Irma pulled down the spirits of U.S. consumers in September, when the index was relatively flat. In October, “consumers’ assessment of current conditions improved,” Franco said.

    “[This was] boosted by the job market which had not received such favorable ratings since the summer of 2001,” Franco said.

    The high level of confidence suggests the economy will continue to expand “at a solid pace” for the rest of 2017, Franco added.

    Two quick stories to pass along. At InvestorPlace, Charles Payne says Snap-on (SNA) could reach $200 per share.

    Also, Hormel Foods (HRL) bought Columbus Manufacturing for $850 million.

    Columbus, which bills itself as a “millennial-focused brand,” makes premium salami and other meat products.

    I’m not sure how salami can be millennial-focused, but there you go. Shares of HRL are up 3% today.

    Finally, Fiserv (FISV) will report after the close.

  • Morning News: October 31, 2017
    Posted by on October 31st, 2017 at 7:02 am

    Is The UK About To Have Its First Rate Rise In A Decade?

    Japan Central Bank Keeps Policy Intact, Cuts Price Outlook

    Trump Is Expected to Name Jerome Powell as Next Fed Chairman

    Xi Jinping Tells Apple and Facebook CEOs His Plans for Reforming China

    Homebuilders’ Record Deal Belies Industry’s Anxiety About Taxes

    Who’s in Charge Now, Samsung?

    Amazon.com’s Advertising Business Just Had Its Best Quarter Ever

    FCC Clears CenturyLink-Level 3 Combination

    CVS-Aetna Deal Could Have Same Result as Telecom Mergers — Higher Prices

    Waymo’s CEO Says Self-Driving Cars Are ‘Really Close’ to Being Ready For The Road — But Plenty of Challenges Remain

    Burberry’s Christopher Bailey to Leave Before 2019

    This Is the Tunnel Elon Musk Is Building Under Los Angeles

    Roger Nusbaum: Get Ready For #MACtion

    Michael Batnick: 10 Questions I’m Pondering At The Moment

    Joshua Brown: QOTD: Vanguard in Defense of 401(k)s

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  • The Growing Gap On Wall Street
    Posted by on October 30th, 2017 at 4:32 pm

    There’s been a growing gap on Wall Street lately between the winners and losers. The market has been driven by a very small number of stocks doing very, very well. Everybody else is just bouncing along. This phenomenon was especially acute on Friday, but we saw it again today.

    By my count, 311 stocks in the S&P 500 underperformed the index today. On Friday, more than 71% of the stocks in the index couldn’t keep up.

    Check out this chart between the S&P 500 (gold line) and the S&P 500 equal weighted index (black line):

    The wider the gap, the greater the dispersion. In other words, a rising tide is not lifting all boats.

  • WSJ: “Akzo Nobel, Axalta Confirm Merger Talks”
    Posted by on October 30th, 2017 at 1:37 pm

    They’re really talking. Again, this doesn’t guarantee a deal will come. But they are serious.

    Akzo Nobel, Axalta Confirm Merger Talks

    Akzo Nobel NV and U.S. rival Axalta Coating Systems Ltd. AXTA said Monday they are in talks to join forces in a merger of equals that would create a multibillion-dollar coating and paints giant.

    The deal would involve the Dutch paint company first proceeding with its existing plan to spin off its specialty chemicals business and distribute the bulk of the proceeds to shareholders. Akzo said that plan, which is unaffected by the Axalta talks, remains on track for April 2018.

    The announcement of a potential merger of equals of Akzo’s paints and coatings business with Axalta’s operations confirms a Wall Street Journal article on the possible deal structure.

    The combined company would have added scale to generate better pricing for raw materials, eliminate overlapping operations and gain new customers to help revive profit growth. Coatings are used to prevent corrosion and improve durability across sectors including the automotive, electronics, mining and marine industries.

    Axalta cautioned that the talks might not lead to completion of a deal.

    A merger of equals typically involves companies with a similar market value. The deals are structured through a share swap and shareholders of the companies don’t receive any significant premium for their stock. This type of structure would be crucial for Akzo’s attempt to win support from its shareholders, some of whom have been concerned that the Amsterdam-based company could seek a large acquisition, potentially paying a significant premium, to protect itself against an unwanted suitor.

    Earlier this year, Elliott Management Corp., a well-known activist investor and one of Akzo’s biggest shareholders, mounted a public-relations and legal campaign to force Akzo into unwanted sale talks with its U.S. paints rival PPG Industries Inc. The $28 billion takeover attempt ultimately failed. In August, Elliott and Akzo reached a truce over the Dutch company’s alternative plan to separate its specialty-chemicals business and distribute the proceeds to shareholders to generate value for investors.

    An Elliott spokeswoman declined to comment on Monday.

    Currently, Akzo has a market value of about $22.6 billion, compared with Axalta’s value of about $8.1 billion. That gulf in valuation precludes a merger of equals and would instead require Akzo paying a takeover premium to acquire Axalta. By selling or spinning off the specialty chemicals business first as a condition to a deal with Axalta, Akzo’s market value would likely fall more closely in line with its Philadelphia-based rival. Some analysts estimate the specialty-chemicals business could be valued at as much as $10 billion, which would no longer be reflected in Akzo’s market capitalization after the spinoff.

    Even with the spinoff of the specialty-chemicals business, Akzo could face difficulty getting its shareholders to support an Axalta deal because the merger would make it more expensive than it otherwise would be for a potential suitor.

    On Friday, Swiss chemicals company Clariant AG and U.S.-based Huntsman Corp. ended their proposed $15 billion merger after Clariant’s largest shareholder, activist investor White Tale Holdings, opposed the deal. That led some analysts to speculate that Clariant is now a prime takeover target in the consolidating chemicals sector.

    That said, talks of a possible merger between Akzo and Axalta might appeal to shareholders as the companies seek ways to boost slumping profits, allowing a combined company to cut costs and potentially broaden its customer base.

    For the third quarter, Akzo reported a 13% drop in adjusted operating profit, hurt in part by higher raw-material costs and sluggish demand from the marine industry. Axalta’s adjusted net income fell 20% over the same period amid lower volumes in North America and higher raw-material costs.

  • Consumer Spending Biggest Jump Since 2009
    Posted by on October 30th, 2017 at 11:45 am

    Today we got the personal income and spending reports for September. These reports usually come the business day after the GDP report. This is a key report since consumer spending represents about two-thirds of the U.S. economy.

    The report said that consumer spending rose 1% last month. That was the biggest monthly increase since August 2009. Personal income rose by 0.4%.

    This report also includes an inflation report. The core version of this report, the core PCE, is the Fed’s favorite inflation measure. It’s risen by 0.1% for the last five months in a row.

  • Morning News: October 30, 2017
    Posted by on October 30th, 2017 at 7:04 am

    A Missing Piece of the Global Growth Jigsaw Starts to Fall Into Place

    Party’s Over? Chinese Markets Battered After Bout of Artificial Calm

    France, Land of Croissants, Finds Butter Vanishing From Shelves

    Russia Uses Its Oil Giant, Rosneft, as a Foreign Policy Tool

    Bitcoin Just Reached Another New All-Time High

    The Biggest Stock Collapse in World History Has No End in Sight

    In Choice of Fed Chairman, Trump Downgrades Deregulation

    U.S. Regulator Wants to Loosen Leash on Wells Fargo

    Akzo Rebuffed PPG’s Advance—Now It Wants to Take Over Axalta

    Strayer Education, Capella Education Near Merger Deal

    HSBC’s Asia Push Bearing Fruit for Gulliver Before Hand-Off

    Nomura’s Overseas Blip

    Kobe Steel Seeks Loan, Shareholder Offers Support After Data Scandal

    Jeff Miller: Fed Chair, Tax Proposal, Data Avalanche, Earnings – A Pundit’s Paradise

    Cullen Roche: Vegas Presentation – The State of the Markets

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