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Pence Wealth Management Financial Markets Report

US FINANCIAL MARKET

  • U.S. stocks fluctuate at the open on busiest day of earnings season. Gains that had been building prior to the official open of U.S. exchanges evaporated just after the start of trading.
    • Of the 201 companies in the S&P 500 that have released earnings this season, 76 % have exceeded analysts’ profit estimates, while 53 % have beaten sales projections, according to data compiled by Bloomberg.
    • Analysts predict companies on the benchmark gauge will collectively report a 0.7 % increase in first-quarter profit and a 2.6 % increase in revenue.
    • Some 64 S&P 500 members report today making it the busiest of the period.
    • An agreement to disarm rebels signed last week in Geneva by Ukraine, Russia, the European Union and the U.S. is on the brink of collapse. President Barack Obama said today the U.S. and its allies have additional sanctions against Russia ready to go because Putin’s government has yet to abide by the accord.
  • Apple defies skeptics with sales surge and boosts buyback. Apple sales and profit top estimates as iPhone still strong. Apple reported sales of 43.7 million iPhones in the quarter ended March, far outpacing the roughly 38 million that Wall Street had predicted.
    • High iPhone sales drove a 4.6 % rise in revenue to $45.6 billion – a record for any non-holiday quarter – beating Wall Street’s projections for about $43.5 billion. The company reported net income of $10.2 billion up from $9.55 billion a year ago. Analysts had projected net income of $9.1 billion on sales of $43.5 billion.
    • In addition, Apple said it will expand its shareholder payout program, increasing its share repurchase authorization to $90 billion from $60 billion and announcing a seven-for-one stock split. The company also increased its dividend.
    • Split-adjusted trading will start on June 9th. It raised dividend 8% to $3.29/share.
    • Gross margin, a measure of Apple’s profitability, was 39.3 %, up from 37.5 % a year ago. Revenue from what Apple calls the greater China region rose 13 % to $9.3 billion from $8.2 billion a year ago.
    • Yet while iPhone sales increased 17 % from a year ago, iPad sales fell 16 %, its steepest drop on record. As lower-cost tablets flood the market, the iPad isn’t the growth driver for Apple that it once was.
    • Apple also reiterated there are new products in the pipeline.
    • Apple stock split removes obstacle to inclusion in Dow. At $75, Apple would be roughly tied with UnitedHealth Group for the 18th-biggest weighting in the Dow. The index’s biggest portion is held by Visa, whose shares closed yesterday at about $209. Cisco Systems is the smallest at $23.50.
    • The company’s cash and equivalents stood at $150.6 billion as of the end of March, down from $158.8 billion in the prior quarter and the first sequential decline since early 2006.

Apple by numbers April 2014Apple by unit price April 2014

  • Facebook leaves mobile concerns in dust with sales surge. Facebook revenue and profit exceed estimates. Revenue rose 72 % to $2.5 billion, beating the average analyst estimate of $2.36 billion. Net income almost tripled to $642 million from $219 million a year earlier.
    • Mobile promotions accounted for 59 % of ad sales, up from 53 % in the prior period.
    • Facebook has 1.28 billion monthly active users, or almost half the world’s Internet population, up from 1.23 billion last quarter.
    • WhatsApp will bring 500 million consumers of its texting app, though the company generates minimal revenue.
    • Facebook is expected to capture 22% of the $31.5 billion mobile ad market in 2014, up from 18% last year. That’s second to Google, whose share is likely to fall to 47 % from 49 %, according to EMarketer.
    • Zuckerberg is also pushing the 10-year-old company into new businesses. Last month, the company released a video product to some of its partners, aiming for a slice of TV’s $66.8 billion ad budget.
  • General Electric can dip into the $57 billion of cash it has amassed overseas to buy France’s Alstom in its biggest acquisition ever.
    • GE is in talks to buy Alstom, the French builder of trains and power plants, people with knowledge of the matter said. The U.S. company may pay more than $13 billion for Alstom, one of the people said. That would be about 25 % above Alstom’s current market value.
  • Verizon beats estimates by staying on sidelines of price war. Verizon EPS fall short of Wall Street estimates. The No. 1 U.S. mobile provider earned $5.98 billion in the first quarter, compared with $4.86 billion in the year-ago quarter.
    • Revenue increased to $30.82 billion from $29.42 billion a year earlier. Wall Street expected $30.698 billion.
    • The company’s wireless business added 549,000 subscribers in the quarter, compared with the 528,000 adds estimated by Wall Street. Verizon’s subscriber additions were less than the 677,000 gained a year earlier, and also fewer than the 665,000 new monthly users that AT&T added in the quarter.
  • 3M profit misses estimates as emerging markets drag sales. The maker of products from Scotch tape to auto insulation reported that the first-quarter net income rose 6.9 % to $1.21 billion from $1.13 billion. 3M’s sales rose 2.6 % to $7.83 billion. Analysts had predicted $7.96 billion.
    • 3M gets about 35 % of its revenue from emerging markets.
  • UPS profit misses estimates as winter storms boost costs. Profit fell 12 % to $911 million. The unseasonably harsh weather caused operating profit to be trimmed by $200 million. UPS reported total revenue climbed 2.6 % to $13.8 billion.
    • UPS handled an average 4.2 % more packages in the U.S. during the quarter as consumers stuck at home during storms shopped online.
  • Qualcomm’s quarterly revenue growth dwindles. The chipmaker reported fiscal second-quarter revenue of $6.37 billion, up 4 % from the year-ago period. Analysts on average had expected $6.479 billion. That was the smallest year-over-year percentage increase since the June quarter of 2010. Qualcomm had second-quarter net income of $1.96 billion, up 5 %.
    • Global smartphone shipments are likely to grow 19 % this year, far less than the 39 % increase in 2013, according to IDC. Founded in 1985, Qualcomm has become the top chip supplier for smartphones, and its stock value has surpassed that of Intel.
    • Qualcomm also said it received a notice from the SEC advising the company of a preliminary determination recommending enforcement action in connection with a previously disclosed China-related bribery investigation.
    • Qualcomm is also being investigated by China’s anti-monopoly regulator, which says it suspects the U.S. company of overcharging and abusing its market position, allegations which could lead to fines of more than $1 billion.
  • Amazon grabs rights to stream older HBO shows. This is the first time HBO, owned by Time Warner Inc., has licensed its award-winning programming to an online subscription streaming service. HBO shows are not available through Netflix.
    • The partnership with HBO helps Amazon build a stronger case for its Amazon Prime service.
    • Prime subscribers will have access to the HBO programming on May 21. Most will be older shows such as “The Sopranos” and “The Wire,” or earlier seasons from current series such as “True Blood.”
    • HBO’s top program, “Game of Thrones,” is not part of the deal. Older hit series “Sex and the City,” “Entourage” and “Curb Your Enthusiasm” are also excluded because they are tied up in syndication deals on cable.
    • Amazon likely agreed to pay $200 million to $400 million a year for the rights to HBO programming, Cantor Fitzgerald analyst Youssef Squali estimated.
  • Lilly matches Wall Street profit estimates. Sales were $4.68 billion, below the $4.8 billion analysts predicted. Lilly has said 2014 will be its worst in a wave of sales losses as patents expire on its top drugs.
  • Caterpillar posts higher first-quarter profit and raises outlook. The company posted a first-quarter net profit of $922 million compared with $880 million a year earlier. Revenue at the company, which also makes locomotives and diesel and turbine engines, was little changed at $13.24 billion.
  • Raytheon falls most since 2012 as sales decline. Raytheon, the world’s largest missile maker, reported a 6.3 % decline in first-quarter sales. Raytheon was the last of the top five U.S. government contractors to release quarterly earnings this week, and it had the biggest drop in revenue. Sales fell to $5.51 billion.
    • Net income from continuing operations rose 20 % to $589 million, or $1.87 a share, in the quarter, which included $80 million for a one-time tax benefit. That compared with $490 million a year earlier.
    • Pentagon spending is slowing as the U.S. withdraws combat troops from Afghanistan and the military absorbs automatic federal budget cuts.
    • Raytheon is seeking to boost international and cybersecurity sales. Overseas business accounted for 39 % of first-quarter bookings, which included a $655 million contract to provide fire units for a Patriot air- and missile-defense system in Kuwait.
  • Time Warner Cable profit beats as demand for data services rises. The company said it added 269,000 residential high-speed data subscribers on a net basis – highest since the first quarter of 2008.
    • The company, which is in the middle of a $45.2 billion acquisition by Comcast, quarterly profit jumped 19.5 % to $479 million. Revenue rose 2 % to $5.58 billion. Analysts were expecting $5.64 billion.
  • American Airlines posts first quarter profit. American Airlines Group, the world’s largest carrier formed in a late 2013 merger, reported a profit of $480 million for the first quarter. Quarterly revenue was nearly $10 billion.
  • JetBlue posts lower quarterly profit as expenses rise. Net income came to $4 million for the first quarter, compared with $14 million a year earlier.
  • GM’s rises after profit beats estimates on truck prices. GM’s revenue rose to $37.4 billion from $36.9 billion a year earlier, missing the $37.9 billion estimate of six analysts.
    • GM took a $1.3 billion charge in the quarter for recalls of about 7 million vehicles so far this year. It spent about $700 million related to the ignition switches and cylinders in the 2.59 million small cars, including about $300 million for loaner cars.
  • Dunkin’s results miss as cold weather puts hole in U.S. sales. Dunkin’s net income fell to $23 million in the quarter from $23.8 million a year earlier. Revenue rose 6.2 % to $171.9 million but fell short of the average analyst estimate of $172.2 million.
  • E-Cigarettes to fall under FDA review as popularity grows. Consumer groups have said e-cigarette companies use candy flavors, TV ads and music festival sponsorships to target youth, who doubled their use of the products in 2012 from a year earlier.
    • Industry sales may reach $5 billion in 2015, according to Bloomberg Industries, which had previously predicted $6 billion in sales but lowered the figure to reflect growing bans on where they can be smoked.
  • Buffett: moving oil by rail safely major industry concern. “We’re going to move a lot of crude in this country, and we have to learn how to do it very safely,” he added. Earlier this year BNSF said it plans to buy its own fleet of up to 5,000 new crude oil tank cars with safety features that exceed the latest industry standards.
    • Oil by rail has surged in recent years, helped by a boom in North Dakota. Traffic is now running 10 % ahead of last year at this time, with BNSF accounting for roughly a third of U.S. oil-by-rail traffic.
    • Buffett also said that he would buy few tech stocks currently. “There’s very few tech stocks I would want to buy at the prices they sell for, but it’s not remotely like the bubble that existed 15 years ago.”

US ECONOMY & POLITICS

  • Strong durable goods orders buoy U.S. growth outlook. Durable goods orders increased 2.6 % as demand rose across all categories. Economists had forecast orders rising 2.0 % last month.
    • Core capital goods shipments rose 1.0 % last month. Shipments of core capital goods are used to calculate equipment spending in the government’s GDP measurement.
  • Initial claims for state unemployment benefits rose 24,000 to a seasonally adjusted 329,000 for the week ended April 19.
    • The second straight week of gains, which exceeded economists’ expectations for a rise only to 310,000, probably reflected difficulties adjusting the data for seasonal fluctuations given a late Easter this year.

EUROPE & WORLD

  • Canon nudges up profit forecast on higher office equipment sales. Canon, the world’s biggest camera maker, expects an operating profit of 365 billion yen ($3.56 billion) for the year.
  • Hyundai Motor first-quarter profit misses estimates, hurt by slow U.S. sales. The automaker reported net profit of 1.93 trillion won ($1.86 billion), compared with the 2.19 trillion won mean estimate of 13 analysts. Revenue rose 1 % to 21.65 trillion won.
  • Unilever hurt by personal-care slowdown as margins set to shrink. Underlying revenue in emerging markets rose 6.6 % in the quarter, slowing from 8.4 % in the previous three months.

TODAY in HISTORY

  • Library of Congress was established (1800)
  • Spain declared war on the U.S. (1898)
  • Winston Churchill was knighted by Queen Elizabeth II (1953)
  • The shuttle Discovery blasted off with the Hubble Space Telescope (1990)

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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