• Today’s ADP Report = 234,000
    Posted by on January 31st, 2018 at 12:28 pm

    This morning’s ADP report showed that 234,000 private sector jobs were made last month. The government report will come out on Friday. Here’s a comparison of the ADP report (blue) and the government report (red).

    Note that the blue bar isn’t the regular NFP report. It’s the private sector jobs portion of NFP.

  • The Bond Market’s Impact on Stocks
    Posted by on January 31st, 2018 at 10:04 am

    At the WSJ, Ben Eisen highlights the impact of higher bond yields.

    Rising bond yields are starting to compete with stocks that pay some of the biggest dividends, leaving these companies behind even as the stock market has rallied to new highs.

    The S&P utilities sector is down about 10% since the end of November and the real-estate sector has fallen 4.9%, sharply underperforming the S&P 500’s 6.6% rise. Companies in both groupings typically pay out big dividends relative to their stock prices, giving them high dividend yields.

    For years, investors poured money into high-dividend stocks as they sought investment income that outpaced superlow yields in the bond market, which were held down by the Federal Reserve’s low-rate policy. But the central bank is reversing course, leading to a rise in bond yields that has accelerated in recent days.

  • Check Point Software Earns $1.58 per Share
    Posted by on January 31st, 2018 at 9:46 am

    The stock market is bouncing back this morning. Check Point Software (CHKP) reported Q4 results of $1.58 per share which topped estimates by eight cents per share. The company had projected earnings between $1.45 and $1.55 per share. For the year, CHKP made $5.33 per share which was an increase of 13% over 2016.

    “Fourth quarter revenues were in line with our projections while EPS exceeded the top end of our range. As we move into 2018, the cyberattacks that organizations are experiencing today are now Gen V (5th Generation) while most enterprise security protections deployed are still below Gen III (3rd Generation)” Said Gil Shwed, Founder and CEO of Check Point Software Technologies. “To enable customers to bridge the gap we have launched Infinity Total Protection – a revolutionary security consumption model that is designed to enable organizations of all sizes to close the gap and prevent Gen V cyberattacks.”

    Here are some financial highlights for the quarter.

    • Total Revenue: $506 million compared to $487 million in the fourth quarter of 2016, a 4 percent increase year over year.

    • Security Subscriptions Revenues: $130 million compared to $110 million in the fourth quarter of 2016, an 18 percent increase year over year.

    • GAAP Operating Income: $267 million compared to $241 million in the fourth quarter of 2016, representing 53 percent and 50 percent of revenues in 2017 and 2016, respectively.

    • Non-GAAP Operating Income: $292 million compared to $266 million in the fourth quarter of 2016, representing 58 percent and 55 percent of revenues in 2017 and 2016, respectively.

    • GAAP Taxes on Income: $40 million compared to $30 million in the fourth quarter of 2016.

    • GAAP Net Income and Earnings per Diluted Share: GAAP net income was $239 million compared to $222 million in the fourth quarter of 2016. GAAP earnings per diluted share were $1.46 compared to $1.31 in the fourth quarter of 2016, an 11 percent increase year over year.

    • Non-GAAP Net Income and Earnings per Diluted Share: Non-GAAP net income was $259 million compared to $247 million in the fourth quarter of 2016. Non-GAAP earnings per diluted share were $1.58 compared to $1.46 in the fourth quarter of 2016, an 8 percent increase year over year.

    • Deferred Revenues: As of December 31, 2017, deferred revenues were $1,187 million compared to $1,066 million as of December 31, 2016, an 11 percent increase year over year.

    • Cash Flow: Cash flow from operations of $248 million compared to $183 million in the fourth quarter of 2016.

    • Share Repurchase Program: During the fourth quarter of 2017, the company repurchased approximately 2.4 million shares at a total cost of approximately $250 million.

    AFLAC is due to report later today.

  • Morning News: January 31, 2018
    Posted by on January 31st, 2018 at 6:59 am

    Euro-Area Inflation Slowdown Highlights ECB’s Uphill Battle

    Federal Reserve Expected to Leave Rates Unchanged

    Fujifilm Buying Control of Xerox to Form $18 Billion Company

    The ‘Amazon Effect’ Is About To Hit Healthcare

    Bitcoin Is the New Gold

    How Bitfinex, Tether are Raising Eyebrows in the Cryptocurrency Market

    Facebook Bans Ads Associated With Cryptocurrencies

    Line Expands Into Cryptocurrency Trading Amid Surprise Loss

    AMD Earnings Show Crypto and PC Strength, Stock Bounces Around

    Surging Samsung Electronics Takes Intel’s Chipmaking Crown

    Tackling the Internet’s Central Villain: The Advertising Business

    Blackstone Bets Big on Wall St. Information Business with Thomson Reuters Deal

    Cullen Roche: Do Bond Prices Have Momentum?

    Roger Nusbaum: Four Weeks of Gains to Start 2018? Don’t Mind If We Do

    Howared Lindzon: Wag Baby!

    Be sure to follow me on Twitter.

  • Worst Day in Five Months
    Posted by on January 30th, 2018 at 4:54 pm

    The S&P 500 lost 1.09% today. This was the worst day since August 17, 2017.

    Our Buy List lost 0.71% today.

    The VIX rose 6.9% today to reach 14.79. That may sound high but bear in mind that the VIX was above this level every day from July 2007 to April 2011.

  • Stryker Earns $1.96 per Share
    Posted by on January 30th, 2018 at 4:38 pm

    After the bell, Stryker (SYK) reported Q4 earnings of $1.96 per share. That was one penny more than expectations. For the year, Stryker earned $6.49 per share.

    Consolidated net sales of $3.5 billion and $12.4 billion increased 10.0% and 9.9% as reported in the quarter and full year and 8.7% and 9.8% in constant currency, as foreign currency exchange rates positively impacted net sales by 1.2% and 0.1%. Excluding the 0.7% and 2.7% impact of acquisitions, net sales increased 8.1% and 7.1% in constant currency, including 9.1% and 8.2% from increased unit volumes partially offset by 1.0% and 1.1% in lower prices.

    Orthopaedics net sales of $1.3 billion and $4.7 billion increased 8.1% and 6.6% as reported in the quarter and full year and 6.8% and 6.5% in constant currency, as foreign currency exchange rates positively impacted net sales by 1.3% and 0.1%. There was no impact of acquisitions in the quarter and 0.3% impact of acquisitions in the full year. Net sales increased 6.8% and 6.2% excluding acquisitions and in constant currency, including 9.3% and 8.6% from increased unit volumes partially offset by 2.5% and 2.4% in lower prices.

    MedSurg net sales of $1.6 billion and $5.6 billion increased 10.9% and 13.6% as reported in the quarter and full year and 9.8% and 13.4% in constant currency, as foreign currency exchange rates positively impacted net sales by 1.1% and 0.2%. Excluding the 1.3% and 5.6% impact of acquisitions, net sales increased 8.5% and 7.8% in constant currency, including 8.0% and 7.5% from increased unit volumes and 0.5% and 0.2% from higher prices.

    Neurotechnology and Spine net sales of $0.6 billion and $2.2 billion increased 11.5% and 8.2% as reported in the quarter and full year and 10.3% and 8.3% in constant currency, as foreign currency exchange rates positively impacted net sales by 1.2% in the quarter and nominally for the full year. Excluding the 0.4% and 0.7% impact of acquisitions, net sales increased 10.0% and 7.6% in constant currency, including 11.7% and 9.1% from increased unit volumes partially offset by 1.7% and 1.5% in lower prices.

    Here’s their outlook for 2018:

    We expect 2018 organic sales growth to be in the range of 6.0% to 6.5%. For 2018, we will adopt ASU 2014-09 Revenue from Contracts with Customers, which impacts the timing of revenue recognition and requires the presentation of certain costs previously reported as selling expenses as a reduction of revenue, both of which are not anticipated to be material. The reclassification of selling costs will result in a reduction of net sales, but has no impact on operating income or net earnings. We expect adjusted net earnings per diluted share(3) to be in the range of $1.57 to $1.62 in the first quarter and $7.07 to $7.17 in the full year. If foreign currency exchange rates hold near current levels, we expect net sales to be favorably impacted by approximately 1.0% for the full year. When considered along with our hedging program, we expect modest favorability in net earnings per diluted share in the first quarter and full year.

  • Janet Yellen’s Fed Chair Tenure in Charts
    Posted by on January 30th, 2018 at 12:33 pm

    The Federal Reserve begins its meeting today and this will be the final one with Janet Yellen as Fed chair. Let’s look at some charts detailing the last four years.

    First up, the S&P 500. Not bad.

    Here’s the 10-year Treasury yield:

    90-day yield. This one gets interesting:

    The VIX:

    Gold:

    Dollar/Euro

    Unemployment:

    Nonfarm payrolls:

    Headline CPI:

    Core CPI:

    Oil:

    Fed’s balance sheet:

    2-10 Spread:

    Dollar Index:

    Real GDP:

    Real Fed funds based on core CPI:

  • The Super Bowl Indicator Has Failed Recently
    Posted by on January 30th, 2018 at 10:10 am

    From Gary Alexander at Navellier Market Mail:

    Whether you favor the AFC’s New England Patriots or the NFC’s Philadelphia Eagles in Super Bowl LII, most investors are aware of the Super Bowl Indicator, which basically says that the market will go down in a year in which the AFC team wins, and it will go up if an “old-line NFL” team wins the Super Bowl.

    Like any artificial retro-fit coincidental indicator, the Super Bowl Indicator worked pretty well for a very long time. From 1968 to 1982, the market mostly declined at a time when the AFC won most Super Bowls. Then, from 1983 to 1997, when the market mostly rose, the NFC won most of the Super Bowls.

    The Super Bowl Indicator worked for 30 of the first 31 Super Bowls, missing the mark only in 1990. So: If a coin flip comes up heads 30 of 31 times, what are the chances it will come up heads the next time? The correct answer is 50%, but some will bet the trend (heads) while others will say, “Tails is overdue.” A whole industry (gaming) is built on the war between casinos filled with trend-followers vs. contrarians.

    The Denver Broncos ended the Super Bowl Indicator’s 31-year 97% winning streak. In both 1998 and 1999, Denver won the Super Bowl, but the bull market of the late 1990s just kept charging higher. Then, in 2000, the St. Louis Rams (NFC) won, and the market fell. Then, in 2001, the Baltimore Ravens (an old-line NFL team) won, but the market kept on falling. In 2008, the NFC New York Giants won the Super Bowl, but 2008 turned into the worst market year since the 1930s. The Indicator had flipped!

    One of the big problems with the Super Bowl Indicator is the slippery definition of “old-line NFL.” Some recent Super Bowl winners are currently aligned with the AFC, but they are also old-line NFL teams: The Indianapolis Colts (2007 winners) were once the Baltimore Colts, while the Baltimore Ravens (the 2013 champs) were once the Cleveland Browns. The AFC Pittsburgh Steelers (2006 and 2012 winners) are also from the old-line NFL. The market went up in all four of these years, but are these teams AFC or NFL?

    I’m sure that much of this Super Bowl lore is pure entertainment. I’m not sure if anyone ever believed it, but some newspapers are desperate to fill their news pages in winter, so the Super Bowl Indicator was first offered (perhaps in jest) in 1978 by a New York Times sports reporter named Leonard Koppett, who mocked some other silly sports statistics in his Sporting News article, “Carrying Statistics to Extremes.”

    For the next two decades, several more tongue-in-cheek articles came out, saying that NFC teams (like Washington or San Francisco) “saved investors” by pulling out last minute wins in the Super Bowl. In 1989, the staid Financial Analysts Journal stooped to ask: “Did Joe Montana Save the Stock Market?”

    The secret of the original Super Bowl correlation is that the stock market goes up more than it goes down and NFL teams won more often than AFC teams. Since Super Bowl #1 in 1967, the Dow has risen in 37 of 51 years. In the first 51 Super Bowls, old-line NFL teams won 34 times, so there was a lot of overlap.

    The reason that these two historical theories worked for a time, then didn’t work, is that retro-fit theories are manufactured to fit historical data, while the future is random. You can apply this lesson to the length of bull markets, the length of recoveries, the trading range of stocks, and many other market variables. Just because something happened in the past, there is no logical reason the same thing will repeat in the future.

  • Three Charts for this Morning
    Posted by on January 30th, 2018 at 10:07 am

    Here are some charts I wanted to pass along.

    The S&P 500 fell 0.67% yesterday. That was its biggest drop since September 5, which was the Tuesday following Labor Day.

    It looks like we may pass that today.

    This shows the S&P 500’s dividend yield in black, being surpassed by both the 10-year (blue) and 2-year Treasury yields (red).

    Yesterday, the VIX rose by 25%. It’s up again today.

  • Danaher Earns $1.19 per Share for Q4
    Posted by on January 30th, 2018 at 9:57 am

    Dananher (DHR) had a very good quarter for Q4. The company earned $1.19 per share. They had given us a guidance range of $1.12 to $1.16. Later, the CEO said earnings would be in the upper end of that range. What Danaher called “non-GAAP core revenue” rose by 5.5%.

    For the whole year, Danaher made $4.03 per share. That’s up 11.5% over 2016. Non-GAAP core revenues grew by 3.5%. Danaher had operating cash flow of $3.5 billion.

    The Company generated strong operating cash flow of $3.5 billion for the full year 2017.

    Thomas P. Joyce, Jr., President and Chief Executive Officer, stated, “We are very pleased with our strong fourth quarter results. The team delivered 5.5% core revenue growth, solid margin expansion, and double-digit adjusted earnings per share growth. As we reflect back, 2017 was a year of accelerating revenue growth, solid margin improvement, continued growth investment, and great performance at our more recently acquired larger businesses. In addition, mid-teens growth in free cash flow helps position us for more significant capital deployment in 2018.”

    Joyce continued, “As we look ahead, we believe that the strength of our portfolio, combined with the power of the Danaher Business System, provide us with the foundation for long-term shareholder value creation.”

    For Q1, Danaher sees earnings range between 90 and 93 cents per share. For all of 2018, they’re projecting $4.25 to $4.35 per share. Wall Street had been expecting 93 cents and $4.35 per share.