Barn Cleaning – Financial Review

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DOW – 41 = 17,581
SPX – 5 = 2065
NAS – 4 = 5030
10 YR YLD – .03 = 2.03%
OIL – .78 = 43.20
GOLD + 4.10 = 1168.00
SILV + .03 = 15.97

Congressional leaders have reached a tentative budget deal with the White House in a breakthrough that would set government funding levels for the next two years and extend the nation’s debt limit through 2017. The bill would raise the spending caps set in place in 2011 that would result in deep cuts to both defense and non-defense spending, called sequestration.  This deal would provide $80 billion in sequester relief.

The bipartisan agreement would include long-term entitlement reforms to the Social Security Disability Insurance (SSDI) program, the first major reform to Social Security since 1983. The Social Security Disability Insurance program would be amended, in part to tighten and standardize eligibility requirements that now vary by state. That change was projected to save the government $5 billion. It also prevents a spike in Medicare B premiums for millions of seniors. The increases would have been caused by the rare absence of a cost-of-living increase in Social Security benefits, because of unusually low inflation.

The deal still needs Congressional approval, but for outgoing House Speaker John Boehner this was a matter of wrapping up unfinished business before his departure, or as Boehner described it “cleaning the barn.” Representative Paul Ryan, the likely successor to House Speaker said he would likely vote for the deal but he said “the whole process stinks.”

The U.S. plans to sell millions of barrels of crude oil from its Strategic Petroleum Reserve from 2018 until 2025 to pay for spending in that budget bill. The proposed sale equates to more than 8% of the 695 million barrels of reserves. Sales are due to start in 2018 at an annual rate of 5 million barrels, rising to 10 million by 2023 and totaling 58 million barrels by the end of the period.

Also, the two-year budget deal produces savings from one of the most popular programs in farm country, federally subsidized crop insurance, and farm state lawmakers are furious. Senators and House members said they weren’t notified of the cut before the deal was struck. Budget-writers in Washington have long eyed the crop insurance program, which costs more than $9 billion annually, as a pot of available money. But farm-state lawmakers have fought to protect it, saying it makes more sense than other farm subsidies since it pays out when farmers suffer losses.

Meanwhile, 62 Republicans have joined 184 Democrats to pass a “discharge petition” to renew the Export-Import Bank’s charter. Monday’s vote means that, barring any other last-minute obstacles, a vote on reauthorizing the bank should pass the House shortly. The bill would then go to the Senate, where it awaits an uncertain fate.

The U.S. Federal Reserve kicks off its two day monetary policy meeting today, with their decision to be announced at 11 AM tomorrow. There’s virtually no chance that the Fed will hike interest rates this week, certainly not if they want to claim they are data dependent. Figures on U.S. jobs, retail sales, manufacturing, inventories and exports all disappointed, while new jobless claims and housing data — for the most part — have showed continued strength. The challenge for policy makers will be to keep their options open for a move this year, while acknowledging weak data that could tilt the tone of the statement toward liftoff in 2016.We had another batch of tepid data today.

Orders for long-lasting or durable goods fell a seasonally adjusted 1.2% in September; a sign of widespread softness in the manufacturing sector. The auto industry was one of the few bright spots again, with orders snapping back 1.8% after a decline in August. Orders for core capital goods – a proxy for business investment – declined 0.3% to mark the second straight drop.

The Conference Board said that consumer confidence in October fell to a reading of 97.6, down from a revised 102.6 in September.

Service sector output growth fell to a nine-month low in October. The Markit Flash U.S. services purchasing managers index fell to 54.4 in October from 55.1 in September, which means it’s still above the 50 mark indicating growth. Markit attributed the slowdown to slowing new business growth and more cautious spending patterns.

Home prices rose 0.4% in August to stretch year-on-year gains to 5.1%, according to the S&P/Case-Shiller 20-city composite. Eighteen out of 20 cities reported monthly gains. That’s not unusual for the summer, and after seasonal adjustment, five were down, 11 were up, and four were unchanged. Portland and Denver had the strongest monthly gains, while only fast-growing San Francisco saw a decline, of 0.1%. Phoenix posted a monthly gain of 0.6%, and a 4.9% gain for the past 12 months.

After the closing bell, Apple reported higher-than-expected quarterly revenue and profit as sales of iPhones increased 35%, driven by the launch of the 6S and 6S Plus models last month. Apple’s (AAPL) sales in China nearly doubled to $12.52 billion, accounting for nearly a quarter of its total revenue. Apple’s net income for the quarter rose to $11.1 billion, or $1.96 per share, from $8.4 billion, or $1.42 per share, a year earlier. Net sales rose about 22% to $51.50 billion.

Apple offered holiday guidance that is a little light of expectations, about 4% growth at the high end of the range, but remember that Apple never seems to miss guidance. Apple shares were up about 2.5% in after-hours trade.

Meanwhile, Chase (CCFCCF) is launching its own competitor to Apple Pay that will allow consumers to pay retailers using their smartphones in stores, and it has already won the endorsement of a major group of companies. For merchants, it’s promising fixed pricing and no additional fees for network, processing or fraud liability, and will work not via NFP (tap-and-pay) but by using existing gift-card scanners. Chase Pay will be available mid-2016.

Also, after the closing bell, Twitter reported earnings. Revenue was up 58% to $569 million, beating estimates. Earnings per share were 10 cents, twice as good as estimates. Twitter (TWTR) missed estimates on the number of users they added over the quarter, only 4 million new Twitterers. Shares down 11%.

Despite a slowdown in China, Alibaba, (BABA) the Internet giant, experienced a surge in revenue in the latest quarter, driven by strong growth in mobile. Alibaba reported that sales rose 32 percent in the latest quarter to $3.5 billion. Earnings per share increased 30 percent.

Ford Motor (F) reports third-quarter profit that rose sharply but still fell short of estimates as higher taxes reduced the payoff from its aluminum-bodied F-Series pickups. Earnings excluding some items were 45 cents a share, compared with the 47-cent average of estimates. Net income more than doubled to $1.9 billion from $835 million a year earlier when Ford was changing over to the new F-150 pickup. Shares were down 5% today. Go figure.

Novartis (NVS) has agreed to pay $390 million to resolve a lawsuit claiming the company paid kickbacks to increase sales of several prescription medicines. Novartis reported that third quarter net income fell 42% to $1.8 billion.

Pfizer (PFE) reported better-than-expected third-quarter results and raised its full-year outlook. Earnings fell to $2.13 billion, or 34 cents a share, from $2.67 billion, or 42 cents a share, in the same period a year ago.

BP’s (BP) earnings in the third quarter were nearly cut in half compared to a year earlier, as low crude prices and charges related to its 2010 Gulf of Mexico spill weighed on its financial performance.

United Parcel Service (UPS) beat third-quarter profit expectations, but missed on sales. A decline in international package revenue offset increases in domestic and supply chain and freight revenue.

IBM fell to its lowest price in five years after disclosing that the Securities and Exchange Commission is conducting an investigation related to the technology seller’s revenue recognition. IBM last week cut its full-year profit forecast and reported its 14th straight quarter of shrinking sales. No doubt another stock buyback announcement is in the offing.

Walgreens Boots Alliance (WBA) will acquire Rite Aid (RAD); at least that was the rumor floating about today. That was enough to send Rite Aid share prices up 39%, which would value the company at about $8.9 billion. The actual announcement came after the close of trade, and it values the company at $9.4 billion. Still, it sounds like somebody leaked some important news.

Starwood Hotels & Resorts Worldwide (HOT) jumped the most in six years after the Wall Street Journal reported that at least three big Chinese companies are competing to buy the company. Chinese investors have been pretty aggressive in the hotel market over the last year or so. Starwood has some pretty powerful brands, and they announced in April that it was exploring
strategic options including a possible sale.

Walmart (WMT) has applied to the FAA for permission to test drones for home delivery, curbside pickup and checking warehouse inventories, a sign it seeks to compete with Amazon (AMZN) in using drones to fill and deliver online orders. A Walmart spokesperson said: “There is a Walmart within five miles of 70% of the U.S. population, which creates some unique and interesting possibilities for serving customers with drones.”

In about one month, Black Friday will descend on American retailers and shoppers will be whipped into a frenzy. One retailer thinks there are better ways to spend the day after Thanksgiving. Outdoor sporting goods company REI will shut its stores on Black Friday, no online sales either, and it is paying employees to take the day off. 

The CEO of REI issued a statement: “Black Friday is the perfect time to remind ourselves of the essential truth that life is richer, more connected and complete when you choose to spend it outside. We’re closing our doors, paying our employees to get out there, and inviting America to OptOutside with us because we love great gear, but we are even more passionate about the experiences it unlocks.”