Earnings On Tap as Q1 Closes

Equities found a short-term bottom on Monday and ramped higher into the close of Q1 on Friday. Despite this price action, we are still seeing stocks act in a corrective manner (except for the NASDAQ). The last hour of trading on Friday brought in some selling so we may see a lack of follow-through on the bounce that started on Monday – more on this in the Chart Time section.

Next on tap will be corporate earnings for Q1. Evidence of good profits may realign the indexes to move higher but we will have to wait a few weeks before the entire picture unfolds. Otherwise, consumer confidence remains high as the new administration has a lot of promises to fulfill.

As I have mentioned in earlier Market Updates, the markets are not pricing in a disappointment to the Trump administration failing on its promises. I received updated projections from political consultants, ACG Analytics, and here is their new timeline given that the healthcare legislation didn’t even make it to a vote:

Fiscal Year 2017 Budget: April 28, 2017 (no shutdown, but high drama first)
Debt Ceiling: Sept 10, 2017
Individual Tax Reform: Q3 2017
Repatriation: Q3 2017
Corporate Tax Reform: Q1 2018
Infrastructure: Q1 2018
Health Care: Q1 2019 – Health Care legislation will not be passed in 2018
ahead of the midterm elections.

Earnings next and then back to the above by summer time. Stay tuned.

 

Economic & Central Banking Snippets

• The Conference Board’s consumer confidence index spiked 9.5 points in March and 25 points in the past five months since the election to 125.6! These levels have only been reached in the time periods since 1997-2000. A foreboding signal?
• The final reading of Q4 GDP showed the US economy grew at a rate of 2.1%. This was slightly higher than expectations of 1.9%.
• The Federal Reserve may begin to scale-down its $4.5T balance sheet later this year as the central bank steps further away from financial crisis-era policies, William Dudley said on Friday.

 

Chart Time!

 

 

 

 

 

Market Snippets

• Corporate lending is slowing. One key measure of US corporate borrowing is falling at the fastest rate since the onset of the financial crisis. Data from the US Federal Reserve shows that the $2 trillion market for commercial and industrial loans peaked in December. The sector has weakened abruptly as lenders tighten credit, especially for non-residential property. Credit experts at several big US banks have issued warnings, “We’ve been surprised how little attention the slowdown in US bank lending has garnered,” said Matt King, global credit strategist at Citigroup. Historically, credit has tended to be a good barometer of financial stress before equity markets smell trouble. Net corporate bond issuance has also stalled, indicating that borrowing by US firms as a whole are in decline. Elga Bartsch and Chetan Ahya from Morgan Stanley said the credit squeeze is a warning sign and needs watching closely. “On our estimates, the credit impulse turned negative at the end of 2016. We have not seen such a sharp deceleration in bank lending to US corporates since the Great Financial Crisis,” they said. “Historically, credit downturns have led recessions. The plunge could reignite concerns that a highly leveraged US corporate sector may react strongly to even limited interest rates increases”. Stay tuned! (FT)

 

• Tesla will begin taking orders for its solar roof tiles next month, a product unveiled before the company’s acquisition of SolarCity. Tesla CEO Elon Musk revealed no new details on cost, but previously said the new roof tiles will cost less to manufacture and install than a traditional roof.
• Public pension funds’ unfunded liabilities are up from $292 million in 2007 to $1.9 trillion in late 2016 as they continue to assume unrealistically high rates of return for their portfolios. Bloomberg reports that the reason they do so is that “many cities and states would buckle under the weight of more realistic assumed rates of return. By some estimates, unfunded liabilities would triple to upwards of $6 trillion if prevailing Treasury yields were used.”
• So far in 2017, the roster of store closings runs from J.C. Penney (138) to K-mart (42), Sears (42), Macy’s (68) and Gander Mountain (32). In all, Forbes reports that 21 retailers will close 3,951 stores this year. Thanks, Amazon.

 

• Nine retailers have already filed for Chapter 11 bankruptcy protection in 2017. Throughout all of 2016, a total of nine retailers went bankrupt. According to AlixPartners, the pace of retailer bankruptcies puts the sector on pace to surpass the 18 retailers that went bankrupt in 2009 at the peak of the financial crisis.
• The latest analysis by the Consumer Federation of America brands that the number of Americans defaulting on their student loans jumped by 17% in 2016. By the end of last year, 4.2 million student loan holders were in default.
• Fitch Ratings reports that the 60-day delinquency rate hit 9.1% in January, up from 7.9% a year earlier. Trends in used car prices, which tend to be a leading indicator of defaults, suggest that the problem will intensify.
• McDonald’s will start serving fresh beef with all Quarter Pounders served at a majority of its U.S. restaurants by mid-2018.
• Anthem Insurance is leaning toward exiting a “high percentage” of its Obamacare individual insurance markets in 2018, Jefferies analysts told Reuters after talking with the company. Humana, Aetna and UnitedHealth have already pulled out after reporting hundreds of millions of dollars of losses.
• SpaceX successfully launched a previously used portion of a Falcon 9 rocket, and then once again reclaimed it. “This is a huge day,” Elon Musk told reporters. The next goal is to turn the booster around for relaunch in 24 hours, a milestone he said could be achieved by the end of the year.
• NBCUniversal has reached an advertising deal with Snap for the Winter Olympics that could be worth $50M-$75M, sources told WSJ. The two had partnered last year with a deal regarding highlights for the Rio Olympics, the first time NBC allowed Olympic video off its property. BY the way, NBC recently invested $500M in Snap’s IPO.

 

International Snippets

• Shares in China Southern Airlines hit a 15-month high yesterday after the carrier said it was in talks with American Airlines to invest in the airline. China Southern is one of the biggest airlines in Asia.
• Greece’s beleaguered banking system is struggling as they registered its worst deposit outflow since the height of its debt crisis in the summer of 2015. Cash has begun leaking out of the banking system amid fresh delays in Athens’ bailout talks with its creditors in the EU and International Monetary Fund. The ECB showed that households and businesses pulled €1.1B from the country’s lenders last month and €1.7B in February. Greece could default this summer if the talks fail to get another round for the country. (FT)
• The Mexican peso notched its largest quarterly gain in four decades as the currency staged what is probably one of this year’s most dramatic and improbable comebacks following its nosedive in the wake of Donald Trump’s election victory. The peso is the world’s best performing major currency during the first quarter, clocking in a 10.8% gain against the US dollar during the period. The advance makes this the peso’s best quarter since 1977. (FT)