October 26, 2016

Stocks opened lower but turned around. The Dow and SPX are currently up 45 pts & .1%, respectively. REITs, transports and gold miners are down the most in early trading. Energy and financials sectors are modestly higher. WTI crude oil opened lower but quickly recovered and is trading around $50/barrel. Bonds are selling off as yields resume their march higher. The 5- and 10-year Treasury yields are trading at 1.31% and 1.79%, respectively. Near-term resistance for the 10-year is 1.8%. 

CNBC reports healthcare insurance premiums for ObamaCare exchange plans are set to increase in 2017 by 25% on average. So people who don’t qualify for financial aid are going to get hit by massive price increases. Ken Langone, Home Depot co-founder, says “We are headed toward a single-payer” and he suspects that’s what the Democrats are aiming for. “I can tell you now, this does not have a happy ending.” 

Apple (AAPL) reported a mixed quarter. Revenue and earnings fell 9% and 15%, respectively. China revenue fell 14%. The good news is that iPhone7 demand is outpacing supply. But the average selling price fell to $619 from $670 a year ago. Guidance wasn’t terrible, and to be fair management never guides aggressively. Gross profit margin guidance is 38-38.5% vs. analysts’ consensus estimate of 38.9%. Total revenue should be $76-78bil vs. consensus $75.4bil. The stock is down 3.5% today and investors want to see a clear path toward reaccelerating growth. By the way, CEO Tim Cook hinted that Apple is working on products in the smart-auto and television areas. Oh, and Apple has $238bil in cash with which to fund new projects. 

Southwest Airlines (LUV) reported a disappointing quarter; revenue and earnings were flat with year-ago levels. July’s tech system outage hurt results. Excluding that event, revenue-per-seat-mile fell about 3.5%. The real problem, however, is that management’s guidance for fourth quarter revenue-per-seat-mile (down 4-5%) was worse than analysts were expecting. Management noted that “while current trends suggest a stabilization of close-in fares, the overall revenue yield environment remains soft.” In a CNBC interview, the CEO suggested growth would return in 2017. The stock is down 11% today.  

New home sales accelerated 3.1% in September to an annualized rate of 593,000. That’s close to a nine-year high. Homebuilding activity has been cautiously slow since the Great Recession and economists say residential construction needs to accelerate just to support population growth. Both existing and new sales activity slowed significantly in August but look to have rebounded. 

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