Hi Again,
For all the noisy drama in Washington, the stock market remains a picture of impenetrable calm. So far this year, there has been only four trading days when the S&P500 Index closed up or down more than 1%. That is just 3% of the time-well below the historical average near 24%, notes Mike O’Rourke. Jones Trading Chief Market Strategist (7/28/17).
The stocks market had a strong first half (2017), with the S&P500 index gaining 8.2%-but less well known is that mutual fund managers cleaned up too. Some 54% of large cap managers beat their benchmarks in the first 6 months, the best showing in years, according to Bank of America Merrill Lynch. In fact, June 2017 marked the 4th consecutive month in which more than half the fund managers outperformed, the longest streak since BofA began tracking this data in 2009. The managers did it by overweighting 2017’s highflying sectors-technology, consumer discretionary, and healthcare. (Barron’s, 7/17/17).
As tocks keep dancing around record highs, and the CBOE Volatility Index remains historically low, some investors are preparing for a violent end to one of the world’s most popular trades-shorting volatility. A one day S&P 500 correction of 3% to 4% correction could force some funds that short futures on the index, to cover their positions. That could make the Volatility Index (VIX) skyrocket. A chain reaction would likely explode across the volatility spectrum, and ultimately the stock market, pushing down share prices and boosting volatility further. (Steven M Sears, Dangerous Game: Shorting the VIX, 7/29/17).
GSK (Glaxo Smith Kline)- Britain's two big drug makers face very different challenges but they share a common problem: how to convince investors that their dividends are safe. With both stocks offering a dividend yield of more than 5 percent, AstraZeneca and GlaxoSmithKline provide islands of decent income in a sea of low returns. The chief executives of both companies faced a barrage of questions from analysts about future payouts and were forced to defend their dividend strategies at post-results meetings this week. AstraZeneca was grilled on the topic four times and GSK five times by analysts from lead Fears for AstraZeneca's dividend have been driven by its bombshell lung cancer setback on Thursday, while GSK's decision on Wednesday to overhaul drug research and move to a new dividend policy has raised doubts about its payouts.ing banks, including Goldman Sachs, UBS, Citigroup, Morgan Stanley and Deutsche Bank. For GSK shareholders the challenge is coping with a move back to the uncertainty of quarterly dividend declarations from 2019. In recent years, investors have enjoyed the safety net of a steady 80 pence a share annual payout, under a system put in place following the big $20 billion asset swap with Novartis that completed in 2015. GSK still plans to pay 80p in 2018 but thereafter payouts are uncertain and will be tied to free cash flows, after allowing for any acquisitions. M&A could become a more significant feature at GSK as it bolsters its pipeline in priority areas.(Helen Reid, Reuters,7/28/17).
Twitter – Twitter looked like it had turned a corner since pushing close to an all-time low earlier this spring. However, its most recent earning report seemingly took away all the positive momentum. Analysts weren’t exactly positive about Twitter following the report. The company said that it had $0.08 in earnings per share (EPS) and $574 million in revenue, which compared with consensus estimates from Thomson Reuters $0.05 in EPS and revenue of $536.62 million. In the same period of last year, the social media company posted EPS of $0.13 and $601.96 million in revenue. Twitter is an investment in increasing social and mobile Internet usage, and could become the leading platform for real time multi-media distribution. However, slower user and ARPU growth than peers suggests Twitter's product strategies are not driving anticipated improvements. Also, video may prove to be a more competitive market for the company and growing EBITDA margins over product investment may cause company to fall behind competitors.(Chris Lange,24/7 Wall Street,7/29/17).
GE- Shares of General Electric Co. (GE) continued their slide last week, losing about 1.5% on top of the 2.9% the stock lost in the prior week after a disappointing second-quarter earnings report. GE's year-to-date share price decline is now 19.21%, the worst performance of any of the Dow Jones Industrial Average's (DJIA) 30 components. Last week marks GE's second consecutive visit to the bottom of the DJIA rankings. Long-time worst stock, Verizon Communications Inc. (VZ) reported earnings last week and showed growth in subscriber numbers. That led to a weekly gain of 3.8% in the stock price. GE's headaches center around three issues: free cash flow, a weak forecast for sales in its Power segment, and remaining weakness in the oil and gas sector.(Paul Aisick,24/7 Wall Street,7/29/17).
GM- Through the first half, U.S. auto sales were down 2 percent from a year ago, to about 8.5 million, analysts said. That's not too bad, considering last year was an all-time sales record. U.S. automakers have also shrugged off the decline in sales in part because most of the slowdown this year has been in less-profitable sales to fleet customers, including daily rent-a-car companies. While that’s true, it isn’t only fleet sales that have declined. According to J.D. Power and LMC Automotive, new-vehicle retail sales, not counting fleet sales, are expected to fall in July for the fourth month in a row. That’s a more accurate measure of true consumer demand, the research and consulting firms said. General Motors said it reduced rental car sales by 69,000 units in the second quarter, in its second-quarter report on July 25. “Consolidated wholesales for Q2 decreased 99,000 units, primarily driven by decreased wholesales in North America related to the strategic reduction in daily rental car sales,” the company said.(Jim Henry, Forbes,7/29/17).
Ford- Through the first half, U.S. auto sales were down 2 percent from a year ago, to about 8.5 million, analysts said. That's not too bad, considering last year was an all-time sales record. U.S. automakers have also shrugged off the decline in sales in part because most of the slowdown this year has been in less-profitable sales to fleet customers, including daily rent-a-car companies. While that’s true, it isn’t only fleet sales that have declined. According to J.D. Power and LMC Automotive, new-vehicle retail sales, not counting fleet sales, are expected to fall in July for the fourth month in a row. That’s a more accurate measure of true consumer demand, the research and consulting firms said. Ford Motor Co. also cited lower fleet sales as a factor in slightly lower global market share in the second quarter, in a report on July 26. Ford’s global market share was 7.4 percent for the quarter, down from 7.5 percent a year ago, the company said. “Market share was down one-tenth [of 1 percent]. That was explained by the U.S., and that was explained by lower fleet, and that was explained by cars,” Ford CFO Bob Shanks said in a conference call.(Jim Henry, Forbes,7/29/17).
Apple- Credit Suisse issued an “Outperform” rating on Apple on 7/21/17. Their message, “Our fiscal 3rd quarter 2017 revenue/earnings per share estimates are $45.4Billion/$1.60. We continue to see a high degree of pent up demand from the iPhone installed base, continuing in to the major iPhone 8 super cycle, with calendar 2018/2019unit estimates at 248 million/268 million, as well as a continued mix shift toward the highest end market. On the lower estimates, our calendar 2017, 2018, 2019 EPS go to $9.10, $11.89, $13.11 (from $9.50, $11.95, $13.16), respectively, but we reiterate our Outperform rating and price target of $170”.
Have a great month!
Fernando