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Pence Wealth Management Financial Markets Report

US FINANCIAL MARKET

  • U.S. stocks rose at the open on Wednesday after China’s economic growth exceeded expectations and Yahoo shares rallied on the strength of revenue growth in Chinese e-commerce giant Alibaba, in which it has a stake.
  • Yahoo’s growth anemic as turnaround chugs along. Yahoo’s revenue, excluding fees paid to partner websites, came to $1.087 billion in the first quarter, up from $1.074 billion in the year-ago period. Analysts had expected adjusted revenue of $1.077 billion. It had net income of $311.6 million.
    • Alibaba’s surprise surge in revenue and its upcoming IPO present a great opportunity for investors to load up on Yahoo’s shares, analysts said. Yahoo owns 24 % of Alibaba. Japan’s SoftBank owns 37 %. Alibaba’s revenue jumped 66 % to $3.06 billion. It recorded a doubling in net income to $1.36 billion.
    • Alibaba is expected to file prospectus for the share sale as early as next Monday, according to sources, as it prepares for the largest U.S. IPO since Facebook’s 2012 market debut. Speculation about the valuation of Alibaba has reached a fever pitch, with some brokerages pegging it as high as $190 billion.
  • Intel’s quarterly net beats Street, CEO talks up tablets. First-quarter revenue was $12.76 billion, compared with $12.58 billion in the year-ago quarter. Analysts had expected $12.814 billion. First-quarter net earnings was $1.947 billion compared with $2.045 billion a year ago.
    • Last year, Intel shipped 10 million tablet chips and to reach its target for 2014. CFO Smith said: “We mean 40 million tablets with Intel chips in them by the end of this year, with the majority of those being Android-based tablets.”
    • The company also expects a full-year gross margin of 61 %, plus or minus a few percentage points. That is 1 percentage point higher than Intel’s previous forecast.
  • CSX stock falls despite positive earnings and dividend increase of 7 %. Railroad traffic picked up slightly in the first quarter and that resulted in better-than-expected earnings for railroad operator CSX Corporation.
    • Overall volume was up 3% in the first quarter and revenue grew 2% to $3.0 billion. But bad weather throughout the quarter resulted in a 16% decline in operating profit to $739 million, and net income fell 14% to $398 million, down from $462 million in the same quarter of 2013.
    • Coal volume declined 1%, intermodal shipments rose 5%, and merchandise volume added 2%, driven by growth in agricultural products and chemicals shipments.
    • Looking forward, CSX expects modest full-year earnings growth for 2014 on the strength of broad-based merchandise and intermodal gains and an improving domestic coal environment.  In addition, the company remains confident in its ability to sustain double-digit earnings growth and margin expansion for its shareholders in 2015 and beyond. The company expects to sustain a mid-60s operating ratio longer-term.
  • Twitter bought social data provider Gnip for an undisclosed amount, signaling that it would take on a new role of packaging and selling data, a service in demand by business and government. Twitter also announce that it hired Google executive Daniel Graf to be its new vice president of consumer products. The shares jumped 11 % to $45.52 yesterday.
  • Litigation expenses push Bank of America into loss. Bank of America set aside an extra $6 billion to cover litigation expenses. The bank reported net loss of $514 million for the first-quarter compared with a profit of $1.11 billion a year earlier. Revenue fell 3.8 % to $22.66 billion, excluding accounting adjustments, but beat the average analyst estimate of $22.33 billion.
  • Boeing’s 737 turns 8,000: the best-selling plane ever isn’t slowing. Boeing’s 737 aircraft just marked an aviation first: The 8,000th model has rolled off the assembly line, a round-number milestone for the best-selling airplane of all time. Boeing will deliver the aircraft, a 737-900ER, on Wednesday to United Airlines, the buyer of the first 737 sold in the U.S.
  • Why rich people feel poor. Spare a thought for the millionaires this week. The bill from last year’s tax increases has come due. An adjusted gross income of $389,000 puts you in the top 1 % of earners in 2011, according to the latest IRS data. See the chart below for top tax rates in select countries. What this chart doesn’t show is, first, how much Americans end up paying in state and local taxes.

April 16

US ECONOMY & POLITICS

  • U.S. industry shows some vigor, but housing soft. U.S. industrial production rose at a faster-than-expected clip in March. Industrial production to rise 0.5 %. Manufacturing output gained 0.5 %, while production at mines rose 1.5 % and utilities’ output increased 1.0 %.
  • Capacity utilization, a measure of how intensively firms use their resources, was up to 79.2 % from a revised 78.8 % in February. March’s capacity utilization rate was the highest since June 2008.
  • Groundbreaking for new homes also increased but remained well below the post-recession peak hit in November. Groundbreaking activity increased 2.8 % in March to a seasonally adjusted annual rate of 946,000. Economists, however, expected a rise to a 973,000-unit rate.
    • Groundbreaking for single-family homes, the largest segment of the market, surged 6.0 % to a 635,000-unit pace last month. Starts for the volatile multi-family homes segment fell 3.1 % to a 311,000-unit rate.
    • Starts jumped 30.7 % in the Northeast and 65.5 % in the Midwest, but fell in both the South and West.
    • The housing market is under strain from higher mortgage rates and elevated house prices that are sidelining potential buyers.
  • Permits to build homes fell 2.4 % in March to a 990,000-unit pace. Permits for single-family homes rose 0.5 % but fell 6.4 % for the multi-family sector.

 

EUROPE & WORLD

  • Global shares up on China relief, Ukraine strains remain. European stocks rose the most in three weeks as companies from Tesco to Syngenta reported financial results and as data showed American housing and industrial activity increased.
  • UK employment and earnings numbers sent sterling marching back towards its recent highs.
  • China’s economy expanded 7.4 % between January and March, its slowest pace in 18 months. GDP data was slightly stronger than the median forecast of 7.3 %, but still slower than 7.7 % in the final quarter of 2013.
    • Retail sales growth was slightly above forecasts with an annual increase of 12.2 %.
    • The services sector, which includes retail, made up 49 % of GDP in the first quarter, 4.1 percentage points more than the industrial sector.
  • BOJ’s Kuroda maintains positive view on economy. Analysts expect Japan’s economy to contract 0.9 % this quarter due to the tax hike but rebound 0.5 % in July-September.
  • Starbucks will move its European headquarters to London from the Netherlands and pay more tax in the UK as a result. Starbucks said it would open 100 new stores in the UK, creating 1,000 new jobs, after the relocation later this year.
  • South Korea’s government said 284 people are missing after a ferry carrying hundreds of high school students sank en route to the resort island of Jeju, in what may be the nation’s worst ferry accident in two decades. Of the 462 passengers and crew, 174 people have been rescued including 75 students and two teachers.

TODAY in HISTORY

  • Lenin returned to Russia after 10 years in exile in Switzerland (1917)
  • Financier Bernard Baruch coined the term “cold war” in a speech in South Carolina (1947)
  • China sent President Nixon two giant pandas as a gift (1972)

Sources: Reuters, Bloomberg.

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. 

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