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Stocks Climb Toward New Highs

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US FINANCIAL MARKET | US ECONOMY & POLITICS
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US FINANCIAL MARKET

Stocks Climb Toward New Highs

  • U.S. stocks rose toward new highs, powered by fresh signs of economic strength that have followed a calm in trade tensions.
  • All three stock indexes closed at new highs Thursday, the latest in a series of records after the U.S. and China agreed last week to a preliminary trade truce, dialing back a major source of economic concern.
  • U.S. Treasury Secretary Steven Mnuchin said on Thursday the long-awaited trade deal had been penned down and would be signed in early January, dispelling fears of another escalation in the tariff dispute.
  • In the latest sign the economy was on firm ground heading into the holiday shopping season, the Commerce Department said Friday that the pace of U.S. growth in the third quarter was unchanged from its previous estimate.
  •  GDP rose at a 2.1% seasonally and inflation-adjusted annual rate from July through September, the agency said.
  • Consumer spending rose 0.4% last month, in line with expectations, as households stepped up purchases of motor vehicles and spent more on healthcare.
  • Lawmakers approved Prime Minister Boris Johnson’s Brexit bill, clearing an important hurdle in the Brexit process and allowing the U.K. to exit from the European Union by the end of January. Investors are now focused on Mr. Johnson’s proposal that the transition period should end at the close of 2020, regardless of whether the U.K. has struck a free-trade agreement with the EU.

Nike quarterly results beat, but North America disappoints

  • Nike’s quarterly revenue and profit blew past expectations on strong sales in China, but lower-than-expected growth in North America, its biggest market, overshadowed the beat.
  • Overall revenue rose 10.2% to $10.33 billion, beating the average analyst estimate of $10.09 billion.
  • Nike’s revenue from North America rose 5.3% to $3.98 billion, compared with the previous year’s 9% rise, but missed expectations of $4 billion.
  • The company’s gross margin of 44% was also slightly below estimates of 44.1%, hurt by higher product costs due to incremental tariffs in North America.
  • Nike’s net income jumped 31.6% to $1.12 billion in the quarter, well ahead of estimates on a per share basis.

Carnival forecasts 2020 profit above estimates, shares rise

  • Cruise operator Carnival forecast 2020 profit largely above expectations and posted better-than-expected fourth-quarter profit and revenue, helped by higher on-board spending.
  • The company’s net revenue increased 7.3% to $4.78 billion, beating the average analyst estimate of $4.57 billion.
  • Revenue from on-board spending, which accounts for nearly a third of total revenue, rose about 30% to $1.52 billion.
  • Net income fell to $423 million, compared to a profit of $494 million in the same period a year ago.
  • Carnival expects fiscal 2020 adjusted profit between $4.30 and $4.60 per share, the mid-point of which is above the average analyst estimate of $4.39, according to IBES data from Refinitiv.

Boeing supplier Spirit AeroSystems to suspend production of 737 MAX parts

  • Boeing’s top supplier Spirit Aerosystems said on Friday it would stop making fuselages for the grounded 737 MAX jets, the first major indication of disruption spreading to the planemaker’s suppliers facing thousands of potential layoffs.
  • Spirit has been churning out parts for the jet at a rate of up to 52 units per month, even as Boeing cut its own production to 42 per month earlier this year.
  • Spirit said on Friday it was evaluating “all potential actions to align its cost base with lower production levels expected in 2020”.
  • Shares of Spirit, which gets about 50% of its annual revenue from the 737 MAX, were down nearly 3% in early trading.

Shell writes down up to $2.3 billion on weaker economic outlook

  • Royal Dutch Shell said on Friday it expected to write down up to $2.3 billion in the fourth quarter, the latest major energy company forced to shrink estimates for sector values due to a weaker economic outlook.
  • Shell said it expected to take post-tax impairment charges in a range between $1.7 billion and $2.3 billion for the quarter “based on the macro outlook”. It did not say which assets the impairments relate to.
  • Shell, which had beaten third-quarter profit expectations on strong oil and gas trading, also warned that higher taxes would hit earnings by about $500 million to $600 million in the fourth quarter.
  • Shell gave guidance for oil product sales of 6.5 million to 7 million barrels per day (bpd) in the fourth quarter, compared with its earlier estimate of 6.65 million bpd to 7.05 million bpd.

U.S. Steel Plans to Idle Michigan Mill

  • United States Steel plans to idle most of a mill near Detroit as the company’s losses mount in a weak domestic steel market.
  • Steel production at Great Lakes Works will cease around April 1 and the rolling mill for making sheet steel will close later next year, the company said. Layoff notices were issued to more than 1,500 employees at the mill.
  • Ceasing Great Lakes’ steelmaking operations will help the company lower costs to help pay for modernizing or replacing equipment at its flagship mills.

IAC to Buy Care.com in $500 Million Cash Deal

  • IAC/InterActive agreed to buy Care.com, the online marketplace for caregivers, for about $500 million in cash.
  • The deal comes months after a Wall Street Journal investigation earlier this year showed that Care.com provided limited vetting of its caregivers, sometimes with tragic results.
  • The investigation led to the company overhauling its screening practices, weighed on its stock price, contributed to the chief executive resigning and prompted an activist investor to urge the company to pursue a sale.
  • IAC, which operates media platforms Dotdash and Vimeo, on Thursday said it has agreed to fully separate dating-services provider Match Group Inc. from IAC’s remaining businesses.

ViacomCBS to take 49% stake in film studio Miramax for $375 million

  • ViacomCBS said it would take a 49% stake in film studio Miramax, owned by Qatar’s BeIN Media Group, for $375 million.
  • Miramax, founded in 1979 by Bob and Harvey Weinstein, is the producer behind cult movies such as “Pulp Fiction” and owns the rights to hundreds of Hollywood films including “Bridget Jones’ Diary” and “The English Patient”.
  • ViacomCBS said the deal includes upfront cash payment of about $150 million, along with a commitment to invest $45 million annually over the next five years, which will be used for new film and television productions, as well as for working capital.
  • Paramount Pictures also entered an exclusive, long-term distribution agreement for Miramax’s film library on Friday.

Amazon to deliver 3.5 billion packages through own network in 2019

  • Amazon said it was on track to deliver 3.5 billion customer packages globally this year through its in-house delivery network.
  • FedEx this summer ended its relationship with the world’s biggest online retailer.
  • UPS continues to deliver millions of packages for Amazon, which said it now handles the delivery of about half of its own packages around the world.
  • Amazon said it now has 150 U.S. delivery stations employing more than 90,000 people.

Apple Held Preliminary Talks with Pac-12 Conference, MGM

  • Apple has been exploring opportunities to strengthen its upstart TV service, including deals for James Bond franchise-owner MGM Holdings and college sports rights, according to people familiar with the matter.
  • Though the conversations with MGM and the Pac-12 were preliminary and have yet to reach an advanced stage, the talks show Apple’s openness to striking a multibillion-dollar content agreement in support of its TV service—even as it forges ahead with a preferred strategy of developing its own shows, these people said.
  • A deal with the Pac-12 would be Apple’s first foray into live sports.

Uber Hit with Fresh German Ban

  • A regional court in Germany frustrated Uber’s efforts to mount a comeback in the country, adding to regulatory pressure on the ride-hailing company, particularly in Europe.
  • On Thursday, the Frankfurt court ruled that Uber could no longer submit ride-hail requests received on its app to car-hire companies because, among other things, it didn’t own a car-hire license itself, as required in Germany.
  • Thursday’s ruling by a regional court in Frankfurt marks a fresh setback for the transportation company, which is trying to repair its reputation among regulators after expanding rapidly and challenging local transport laws where it operated.
  • Among the countries that have been the most resistant to Uber is Germany, where the company had been experimenting with ways to overcome a nationwide ban imposed in 2015.

France Fines Google for Mistreating Search Advertisers

  • France’s competition authority fined Google €150 million ($167 million) for unfairly suspending advertisers that placed allegedly deceptive ads, the latest in a series of antitrust probes and decisions against big tech firms in both Europe and the U.S.
  • The French authority on Friday said Google abused its dominance of the market for ads displayed in search results by suspending those advertisers in France in a random and unpredictable fashion, imposing significant losses on those sites.
  • The authority ordered Google to pay a fine and to stop the “brutal and unjustified” suspensions of search advertisers and to clarify its rules for advertisers.
  • The authority also said that Google should have a system to alert advertisers when they risk suspension from its ads system.

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US ECONOMY & POLITICS

U.S. third-quarter growth unrevised

  • Gross domestic product increased at a 2.1% annualized rate, the Commerce Department said on Friday in its third estimate of third-quarter GDP. That was unrevised from November’s estimate.
  • Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, was raised to a 3.2% rate in the third quarter from the previously reported 2.9% pace.
  • Inventories rose at a $69.4 billion pace instead of the $79.8 billion rate reported last month, meaning inventories were neutral to GDP growth last quarter, instead of adding 0.17 percentage point as previously reported.
  • The trade deficit increased at a $990.1 billion rate instead of the previously reported $988.3 billion pace. The wider trade gap, which reflected higher imports, subtracted 0.14 percentage point rather than the 0.11 percentage point estimated last month.
  • Business investment dropped at a 2.3% rate in the third quarter, rather than contracting at a 2.7% pace as previously reported.
  • Spending on nonresidential structures such as mining exploration, shafts and wells declined at a 9.9% rate instead of the previously reported 12.0% pace.
  • Growth in residential investment was lowered to a 4.6% rate from the 5.1% pace estimated last month.
  • Government spending growth was raised to a 1.7% rate from a 1.6% pace.

U.S. Consumer Spending Rose 0.4% in November

  • U.S. households spent more in November, a sign the economy remained solid headed into the end of the year.
  • Personal-consumption expenditures, or household spending, rose a seasonally adjusted 0.4% in November from October.
  • The increase in spending came alongside a rise in personal income, which was up 0.5%.
  • Economists expected a 0.4% rise in household spending and 0.3% increase in personal income.
  • The price index for personal-consumption expenditures, the Federal Reserve’s preferred gauge for inflation, rose 1.5% in November from the same month last year, versus a 1.4% year-over-year rise in October.
  • The core PCE index—a closely watched measure because it excludes food and energy prices, which are often volatile—advanced 1.6% in November from the same month in 2018.

House Passes North American Trade Pact with Bipartisan Support

  • The House of Representatives approved President Trump’s amended North American trade pact on Thursday in an overwhelmingly bipartisan fashion, a rare instance of legislative cooperation in an era of intense political divisions.
  • The House approved legislation to implement the U.S. Mexico Canada Agreement, or USMCA, by a 385 to 41 vote, with 193 Democrats and 192 Republicans backing the pact.
  • The Senate is expected to pass the legislation early next year, after which the president would sign it into law.
  • USMCA’s broad political appeal stems from measures to place limits on the interests of U.S. multinationals, to hold Mexican labor to higher standards, and to make domestic U.S. manufacturing more competitive.
  • USMCA even includes provisions allowing for the free formation of unions in Mexico.

Senate Passes Spending Bills to Avert Government Shutdown

  • The Senate passed two, broad spending packages to fund the government after Friday, sending the nearly $1.4 trillion spending agreement to President Trump, who is set to sign the measures.
  • The spending deal funds dozens of government agencies through the rest of the federal fiscal year, which ends Sept. 30, 2020.
  • It pays for a 3.1% increase in pay for military and civilian federal employees, $425 million in election-security grants, and roughly $1.38 billion to build a barrier along the U.S.-Mexico border, among other spending.
  • Beyond the $1.38 billion for building new barriers—less than Mr. Trump’s request for $8.6 billion—the spending legislation doesn’t curb the president’s ability to transfer money between government accounts.

Pete Buttigieg, Strong in Iowa, Comes Under Attack from Democratic Rivals

  • Pete Buttigieg faced withering criticism over his high-dollar fundraising practices and his level of experience in Thursday’s presidential debate, as his Democratic rivals sought to blunt his momentum ahead of the Iowa caucuses.
  • The seven Democrats on stage also showed fissures on trade, free college and tax policy but joined forces in accusing Mr. Trump of leaving behind working-class Americans seeking economic prosperity.
  • In the final debate of the year, Democrats argued that regardless of low unemployment rates and other positive signs for the economy, too many working families have been left behind, struggling to afford medical bills and other costs.
  • The debate also offered a look at an internal party disagreement over trade as Mr. Sanders and Ms. Klobuchar expressed differing views on Mr. Trump’s amended North American trade agreement.

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EUROPE & WORLD

BlackBerry beats revenue estimates on licensing, security software sales

  • Canada’s BlackBerry beat quarterly revenue estimates, boosted by sales from its licensing and cybersecurity businesses.
  • The company’s adjusted revenue rose 23% to $280 million, beating average analysts’ estimate of $275.7 million.
  • BlackBerry reported a revenue of $40 million from recently acquired Cylance, a California-based cyber security business whose software uses machine learning to avoid security breaches.
  • The company reported a net loss of $32 million for the third quarter, compared with a profit of $59 million, a year earlier.

U.K. Parliament Backs Boris Johnson’s Brexit Deal, Clearing Major Hurdle

  • Britain’s new Parliament voted overwhelmingly Friday to back Prime Minister Boris Johnson’s Brexit accord, a significant step toward the country’s departure from the European Union on Jan. 31.
  • The vote isn’t the final endorsement that will be needed to pass the agreement into law—that is set to happen next month—but it symbolizes the end of years of political infighting over Brexit.
  • Lawmakers voted 358 for and 234 against the deal Mr. Johnson negotiated with the EU back in October, which stipulates how the U.K. will end its 46-year membership of the bloc.
  • It covers issues such as citizens’ rights, a financial settlement the U.K. has agreed to pay the EU and an arrangement aimed at avoiding a physical border in Ireland.
  • There are challenges ahead. Friday’s vote only sets in train Britain’s split with the EU. It doesn’t define what kind of relationship the country will have with its biggest trading partner after Brexit.

Huawei and Deutsche Telekom held advanced talks over 5G network deal – sources

  • Deutsche Telekom was in advanced talks to retain China’s Huawei as its main supplier of radio equipment for new mobile networks before it put the negotiations on hold for political reasons, according to three sources familiar with the matter.
  • Deutsche Telekom, Europe’s largest telecom, announced last week that it was not entering into 5G equipment contracts as it awaited the resolution of a political debate in Berlin over whether to restrict Huawei’s access to the German market.
  • Before that announcement, Deutsche Telekom had held discussions with Huawei in Paris and hammered out terms for a possible deal, though no contract was signed, said the sources, who declined to be named due to the sensitivity of the matter.
  • Before the talks were put on hold, the two sides had discussed key terms which envisioned that Huawei would provide 70% of radio transmission gear for Deutsche Telekom’s upcoming ultra-fast 5G networks for a price of 533 million euros ($587 million).

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TODAY in HISTORY

  • War broke out in Indochina when Ho Chi Minh attacked the French. (1946)
  • Britain and China signed an accord returning Hong Kong to Chinese sovereignty on July 1, 1997. (1984)
  • President Bill Clinton impeached on two counts by the House of Representatives. (1998)

This information has been prepared from sources believed to be reliable, but no representation is being made as to its accuracy or completeness. The information provided should be used only as general information and is not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth in the material may not develop as predicted. All indices, such as the S&P 500, are unmanaged and may not be invested into directly. Sources: Reuters, Bloomberg, the Wall Street Journal.

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