DOW – 58 = 19,862
S&P 500 – 6 = 2267
NAS – 35 = 5538
RUT – 19 = 1352
10 Y – .05 = 2.33%
OIL + .13 = 52.50
GOLD + 12.80 = 1216.40
Major market indices dropped at the open this morning and couldn’t recover. In a Friday interview with The Wall Street Journal, President-elect Trump said the U.S. currency, which touched a more-than 14-year high about two weeks ago, has gotten “too strong,” especially considering the China’s yuan is “dropping like a rock.”
Trump told the Wall Street Journal, “Our companies can’t compete with them now because our currency is too strong. And it’s killing us.” The stock market has been taking its cue from the dollar, and the dollar has been saying the US economy is strong and growing, and the prospects of the Fed raising rates only confirms the strength of the economy.
This is not the first time we’ve talked about the strong dollar, and the long dollar trade is already crowded, followed by short Treasuries. And there is another problem – while stocks have enjoyed a strong dollar, with money flowing in, dollar strength is generally bad for the rest of the world; which in turn makes US goods and services tougher to sell.
So, the markets are pricing in a strong dollar. And that brings us round to earnings season. Companies in the S&P 500 are expected to report their bottom lines grew by 6.2% in Q-4, the latest data shows, the strongest growth since a 7.0% increase in Q-1 of Y 2014. And that has already been baked into the cake.
One thing is for sure, with a pricey market – the S&P 500 is trading at almost 17 times forward earnings estimates – investors need to be cautious as any miss or weak forward guidance will probably be punished with some steep selling.
Morgan Stanley (NYSE:MS) said its quarterly earnings climbed 83% and beat analyst expectations as the bank logged its strongest fourth-quarter profit since the financial crisis. Morgan Stanley reported a profit of $1.6 billion, or 81 cents a share, in a quarter that included a surge of post-election trading activity. Revenue grew 17% to $9 billion.
Comerica (NYSE:CMA) reported fourth quarter earnings of 99 cents per share, 4 cents better than estimates. Comerica posted revenues of $722 million, which missed estimates. However, it compared favorably with the year-ago number of $699 million. Comerica, for instance, is up a tidy 85% Y/Y, including a 38% run over the last three months. And it looks like more than a 4-penny beat was anticipated.
MS down 3.7%. CMA down 6.5%. Most of the financials down today, including Bank of America Corporation (NYSE:BAC), JPMorgan Chase & Co (NYSE:JPM), Citigroup Inc (NYSE:C), Goldman Sachs Group Inc (NYSE:GS). And the banking ETFs SPDR S&P Regional Banking (NYSE:KRE) is down 3.6% and the SPDR S&P Bank (NYSE:KBE) down 3.4%. Bank earnings have been running hot, but having bid the sector sharply higher for nearly all of 2016, and particularly since the election, investors are selling the news.
UnitedHealth Group (NYSE:UNH) earned an adjusted $2.11 per share for the fourth quarter, 4 cents a share above estimates. Revenue also beat forecasts. UnitedHealth saw strength in its pharmacy benefit management business and noted a large increase in medical benefits customers during 2016.
Tiffany & Co (NYSE:TIF), The luxury goods retailer reported a 4 percent drop in holiday-period same-store sales, pointing to a decline in consumer spending. It also said sales at its flagship New York location were hurt by traffic disruption near Trump Tower.
Forget about a “soft Brexit”. U.K. Prime Minister Theresa May said Britain will leave the EU’s single market when it exits the European Union. May said she would seek an equal partnership with the EU but that she would not adopt models already used by other countries that have free trade agreements with the bloc. The EU says it won’t consider single-market access for the U.K. unless it accepts the “four freedoms”—goods, capital, services, and people.
She also warned the EU against taking punitive actions against the U.K. for leaving the bloc. Her announcement that she will put the final Brexit deal to a vote in both houses of parliament comes ahead of a court decision on whether she has the power to start the process of withdrawing without parliamentary approval. The British pound sterling posted big gains after May’s speech.
Making the first appearance by a Chinese leader at the World Economic Forum in Davos, Switzerland, President Xi Jinping said the world’s most important task is to revive the global economy and pressed his case for free trade. “Protectionism is like locking oneself in a dark room,” he declared. “No one will win a trade war.” He said economic globalization has become a “Pandora’s Box” for many, but that it was not the cause of many global problems. He added that international financial crises were caused by the excessive pursuit of profits, not globalization.
Deutsche Bank (DE:DBKGn) has reached a final settlement with the U.S. Justice Department over its handling of mortgage-backed securities before 2008, resolving one of its biggest litigation risks. The bank agreed to pay $7.2 billion and admitted to misleading investors. The penalty was in line with the bank’s Dec. 23 announcement that it had reached an agreement in principle in the matter. It will pay a $3.1 billion civil penalty and provide $4.1 billion in relief to homeowners. It is believed the settlement will leave Deutsche Bank thin in capital reserves.
The bank still faces investigations into whether it manipulated foreign-currency rates and precious metals prices and whether it facilitated transactions that helped investors illegally transfer billions of dollars out of Russia. And today, the U.S. Supreme Court refused to stop antitrust lawsuits that accuse some of the world’s biggest banks, including Deutsche Bank, of conspiring to rig the London Interbank Offered Rate, known as Libor.
British American Tobacco (LON:BATS) has agreed a $49 billion takeover of U.S. rival Reynolds American (NYSE:RAI), creating the world’s biggest listed tobacco company after it increased an earlier offer by more than $2 billion. BAT already owned 42 percent of Reynolds. The deal, which values the whole of Reynolds at around $86 billion, will mark the return of BAT to the lucrative and highly regulated U.S. market after a 12-year absence, making it the only tobacco giant with a leading presence in American and international markets.
Exxon Mobil (NYSE:XOM) said it will buy companies owned by the Bass family of Fort Worth, Texas in a deal worth up to $6.6 billion that would more than double its output from the Permian basin. The acquired companies hold about 275,000 acres of leasehold that produces more than 18,000 net oil equivalent barrels per day.
Saudi Arabia says OPEC is on track to wrap up its production curbs by the middle of the year. Twenty-four nations signed up to a joint cutback of 1.8 million barrels a day on Dec. 10. OPEC and Russia won’t need to prolong output cuts beyond June because the agreed reductions will have already ended the oversupply in world crude markets. However, it is doubtful the production cuts will eliminate the existing supply glut.
General Motors (NYSE:GM) announced long-held plans to invest about $1 billion in its U.S. factories. The investment will help GM create or retain more than 1,000 jobs; at least that was the initial report – now GM says it will add 5,000 jobs over several years. GM will also move production of some truck axles from Mexico to the United States, creating another 450 jobs.
Another 1,500 jobs will be created or “retained” from other investments; or 7,000 jobs in total. GM recently said it plans to lay off 2,700 US workers at plants in Ohio and Michigan that build slow-selling models such as the Chevy Cruze and the Cadillac ATS. So, let’s drop it down to 4,300. Still, that’s good, and you must give credit to GM – they have deflected a tweet-storm for now.
Hyundai Motor Co (DE:05380) said it will invest as much as $3.1 billion in its existing U.S. manufacturing facilities, and is considering a new plant. Hyundai’s latest investment plan represents a nearly 50% increase from $2.1 billion the group invested in the U.S. during the previous five-year term. Hyundai currently has a factory in Montgomery, Alabama, while Kia runs a factory in Georgia.
Walmart (NYSE:WMT) plans to add about 10,000 retail jobs in the U.S. as it opens new stores and expands existing locations. The company plans $6.8 billion in capital investments in the U.S. in the coming fiscal year, which begins on Feb. 1. There will be 59 new, expanded and relocated Walmart and Sam’s Clubs locations. Walmart says there will also be about 24,000 construction jobs generated by its expansion plans.
Lowe’s Companies Inc (NYSE:LOW) the home improvement retailer, plans to cut about 3,000 jobs, or about 1% of its workforce.
Gene Cernan, a U.S. Navy captain, veteran of three spaceflights, and the last man to walk on the moon, has died. He was 82. In December 1972, Cernan spent 3 days on the moon. At the end of the mission, Cernan scrawled his daughter’s initials into the lunar dust and climbed into the Challenger module behind his fellow crewmates; saying: “We leave as we came and, God willing, as we shall return, with peace and hope for all mankind.” No one has returned to the moon since.