July 25, 2016

The major stock market averages fell at the open (Dow -95 pts; SPX -.5%). The energy sector is leading the market lower as oil slips, but all ten major sectors are down. WTI crude oil is down to about $43/barrel. Most other commodities are lower as well. Despite the selloff, bonds are roughly unchanged. The 5- and 10-year Treasury yields are hovering around 1.13% and 1.56%, respectively.

On Friday we got some disappointing economic data out of Europe. Markit’s Eurozone Composite PMI sank to an 18-month low. In addition, UK PMI declined quite a bit to 47.4. Remember, any PMI reading under 50.0 indicates contracting business activity. CNBC reported the UK reading is consistent with quarterly GDP of -.4%, so economic recession is clearly possible in the near term. The UK pound fell in response to the report. Morgan Stanley (courtesy of David Darst) says Europe and Japan will slow further and could suffer from further political instability; Stay closer to the US and consider emerging markets, which have lagged.

Danaher (DHR) reported a solid second quarter with revenue up 13% y/y and earnings per share up 16%. Dental unit performance was better than expected. The company’s operating cashflow shot up more than 20%. Full-year 2016 earnings guidance is in line with Wall Street expectations. The stock is actually down this morning and I think there may be some confusion with guidance due to the company’s recent spin-off of Fortive (FTV).

Verizon Communications (VZ) announced it has agreed to buy the website assets of Yahoo (YHOO) for nearly $5bil. Clearly, Yahoo’s relevance has waned in recent years and revenue this year is expected to be the lowest since 2004. Indeed, the stock really hasn’t done anything since then. Can you believe Yahoo websites still draw 1 billion monthly users? Verizon plans to integrate Yahoo into its AOL business unit. Arguably the most valuation part of Yahoo, an ownership stake in Alibaba (BABA), won’t go to Verizon. Yahoo as a company will still exist with that asset as well as about $6bil in cash. Remember when Microsoft tried to buy Yahoo for $45bil back in 2008? 

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