Morning News: December 20, 2018
Posted by Eddy Elfenbein on December 20th, 2018 at 7:06 am

Global Trade Tensions Boil Over at Staid W.T.O. Forum

Trump Tariff War with China Sends U.S. Retailers on Buying Binge

Powell to Markets: Take That

Under New Leadership, the C.F.P.B. Lives On

Hedge Fund Pain Compounded as Surprise Tax Hit Awaits Investors

Wall Street Is Making the Most Money Ever. So Why the Long Face?

Johnson & Johnson Loses Bid to Overturn a $4.7 Billion Baby Powder Verdict

Juul May Get Billions in Deal With One of World’s Largest Tobacco Companies

Micron Just Lowered The Bar

How Much Trust Can Facebook Afford to Lose?

Tilray and Budweiser Maker Will Partner to Research Weed Drinks; Tilray Stock Jumps

FedEx CEO Blames ‘Bad Political Choices’ for the Glum Economic View

Joshua Brown: Well, that could have gone better… & Unforced Errors

Roger Nusbaum: Rough Market & An Awful Sentiment & FIRE Fights Back

Blue Harbinger: Stock Exchange: Is Technical Damage Driving The Market Lower?

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Here are the Blue Dots
Posted by Eddy Elfenbein on December 19th, 2018 at 2:08 pm

Here are the latest economic projections:

Fed members see two more hikes coming next year, another one in 2020 and none in 2021. I still think that’s overly aggressive.

Going by weighted average, in September, the Fed expected 3.2 rate hikes next year. Now they expect 1.9 hikes. The correct answer is zero or maybe one.

This is a bit closer to reality, but they have more room to go.

Today’s Policy Statement
Posted by Eddy Elfenbein on December 19th, 2018 at 2:00 pm

The Fed raised rates. The new target for Fed funds is 2.25% to 2.5%.

Information received since the Federal Open Market Committee met in November indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has remained low. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators 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. The Committee judges that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term. The Committee judges that risks to the economic outlook are roughly balanced, but will continue to monitor global economic and financial developments and assess their implications for the economic outlook.

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2-1/4 to 2‑1/2 percent.

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 maximum employment objective and its symmetric 2 percent inflation objective. 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.

Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Loretta J. Mester; and Randal K. Quarles.

Morning News: December 19, 2018
Posted by Eddy Elfenbein on December 19th, 2018 at 7:14 am

Oil Prices Plummet 7% on Fears of a Glut

Fed Expected To Raise Rates Despite Trump Attacks

The Year in Money

My Goal Isn’t to Buy the Low, but to Buy a Positive Trend

Here’s Who Bought Back the Most Stock in Q3 (Hint: It’s Not Apple)

Pfizer, Glaxo to Create Over-the-Counter Drug Giant

‘It’s Been a Rout’: Apple’s iPhones Fall Flat in World’s Largest Untapped Market

Masa? There’s an Angry Mrs. Watanabe on the Line

FedEx Starts Buyout Program as Express Struggles

An $8 Billion Credit Shop Found Success in America’s Heartland

BP Launches $3 Billion Sale of U.S. Onshore Assets to Fund BHP Deal

Huawei’s ‘Wolf Culture’ Helped It Grow, and Got It Into Trouble

Nick Maggiulli: Expectation vs. Reality

Cullen Roche: Let’s Talk About QE and Assflation

Jeff Carter: NYC Tech

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Market Return By Unemployment Rate
Posted by Eddy Elfenbein on December 18th, 2018 at 3:14 pm

I ran a quick test this afternoon. I took all the monthly unemployment rate figures since 1948 along with the S&P 500’s monthly return. I then sorted them by unemployment.

Here’s the S&P 500’s annualized price return by unemployment rate since 1948:

Under 4%: +4.71%
4% to 6%: +7.83%
6% to 8%: +18.09%
Over 8%: +22.17%

By count, there were 115 months when the unemployment rate was below 4%, 432 months between 4% and 6%, 221 months between 6% and 8%, and 83 months when it was above 8%.

I don’t think you can build a timing strategy here, but it probably confirms Warren Buffett’s dictum, “Be fearful when others are greedy and greedy when others are fearful.”

FactSet Earns $2.35 per Share
Posted by Eddy Elfenbein on December 18th, 2018 at 7:46 am

This morning, we got our final Buy List earnings report of 2018. FactSet (FDS), reported fiscal Q1 earnings of $2.35 per share. That’s a 15.2% increase over last year. It also beat Wall Street’s estimate by six cents per share. Quarterly organic revenue rose 6.4% to $353.1 million.

I’ve looked at the numbers, and they’re pretty good. The key stat for FactSet is Annual Subscription Value, or ASV. At the end of the quarter, ASV increased to $1.42 billion. I was pleased to see that FactSet’s operating margin rose to 28.6%.

“We are pleased with our first quarter results and are encouraged by continued demand for our data and technology offerings. Our strategy to provide open and flexible solutions positions us well for another successful year of growth,” said Phil Snow, FactSet CEO.

At the end of the quarter, FactSet’s client count stood at nearly 5,300 while user count is now over 115,000. Their annual retention rate is over 95%.

When the Q4 earnings report came out three months ago, FactSet gave us guidance for 2019. Today, they reiterated all those projections. The company sees 2019 earnings ranging between $9.45 and $9.65 per share. That’s up from $8.53 per share last year. FactSet also sees organic ASV rising by $75 million to $90 million in 2019, and they see operating margins between 31.5% and 32.5%. That’s quite good.

Morning News: December 18, 2018
Posted by Eddy Elfenbein on December 18th, 2018 at 6:52 am

Take a Hard Look at the Fed’s New Dot Plot, and Then Forget It

Tech Companies Dragged Feet on Russian Interference Data, Reports Say

Fed Rate Hikes Are Extremely Rare When Stocks Are This Beat Up

Even Stan Druckenmiller Doesn’t Know Where Markets Go Next

Sprint, T-Mobile Deal Gets Green Light From U.S. Regulators

New Google Campus Accelerates Tech’s March Into New York

Criminal Charges for Goldman in Malaysia Deepen Crisis for Wall St. Giant

J&J Moves to Limit Impact of Reuters Report on Asbestos in Baby Powder

Huawei to Spend $2 Billion Over Five Years in Cybersecurity Push

Oracle Revenue Flat as Push to Bolster Cloud Business Continues

Jeffrey Gundlach Says Fed Shouldn’t Raise Rates This Week

CBS Says Les Moonves Will Not Receive $120 Million Severance

Michael Batnick: Next Year

Howard Lindzon: Momentum Monday – Nothing But Red and Nowhere to Hide

Michael Batnick: Talk Your Book – International Investing

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Dow -507
Posted by Eddy Elfenbein on December 17th, 2018 at 6:49 pm

I wanted to say a few words about today’s market. Actually, there’s not much to say outside the fact that it was a terrible day for stocks.

Trading started weak and got worse from there. The S&P 500 dropped below several support levels and finally closed at 2,545.94 for a loss of 2.08%. That’s our 13th 2% drop this year after having zero last year. This was the index’s lowest close since October 9, 2017.

On a point level, the Dow lost almost the same amount that it did in the 1987 crash. The base, of course, is about 10 times higher.

The odd part of today’s market is that high-dividend stocks did worse than the overall market. That’s not typical on a big down day. The worst sectors were REITs and Utilities while Financials did the best. Whenever you see a divide like that, it means the market thinks rates are going up.

The Fed meeting begins tomorrow. The futures market currently thinks there’s a 68% chance for a rate hike. That’s too low. I’d say it’s closer to 90%. The futures market currently doesn’t expect any rate increases in 2019. Zero. In fact, there’s even a very tiny chance (0.2%) it sees of a rate cut.

The S&P 500 Materials, Financials and Energy sectors are now in a bear market (down over 20%). Communications, Industrials and Technology aren’t far behind.

Our Buy List had new lows today from Alliance Data Systems (ADS), Torchmark (TMK) and Cognizant Technology Solutions (CTSH).

The Divided Market
Posted by Eddy Elfenbein on December 17th, 2018 at 11:23 am

The movement within the stock market over the past few months has been very revealing. The cyclical based sectors have been doing poorly while defensive areas have done well. Or more accurately, haven’t been punished as much.

Here’s a chart of the S&P 500 Consumer Staples sector (in black) along with the S&P 500 Industrials (blue), Financials (red) and Materials (green).

Notice the gap between Consumer Staples and everyone else. This is the market’s way of expressing doubt about future economic growth.

The S&P 500 Drops to New Correction Low
Posted by Eddy Elfenbein on December 17th, 2018 at 11:02 am

This morning, the S&P 500 got as low as 2,567.44. That’s a new correction low (meaning, since the all-time high was reached on September 20).

That’s the lowest the index has been on an intra-day basis since April 2, when it got to 2,553.80.

On many of the previous intra-day lows, the market rallied later that day. It looks like that may be happening again. If we were to close below 2,581, then it would be our lowest close since November 17, 2017. That could still happen.