October 24, 2017

Stocks gapped up at the open this morning (Dow +118 pts; SPX +.17%). And in fact, the SPX has gone 242 trading days without even a minor 3% correction. Industrials are leading after 3M (MMM) reported earnings. Semiconductors, banks and retailers are also higher in early trading. On the other hand, biotechs, gold miners, utilities and real estate are in the red. Most commodities are trading higher. Copper is now up over 25% this year; WTI crude oil is up slightly to trade around $52/barrel inf(highest since April). Bonds are selling off again. The 5-year Treasury note yield is up around 2.03% and the 10-year yield is back up to 2.41% (highest since May). Short-term rates are rising because the Fed has signaled increased hawkishness, but long-term rates are rising more slowly because they are tied to inflation expectations. 

3M (MMM) reported third quarter results that easily beat Wall Street forecasts. Revenue rose 6% from year-ago levels and earnings per share rose 8%. Clearly, the weaker dollar helped 3M, as it did every other exporter. About 60% of the company’s total revenue is driven by overseas markets. And the CEO noted better sales in all major geographic regions. Management raised fourth quarter earnings guidance, and the stock is up 6% this morning. 

Sherwin Williams (SHW) reported a solid quarter despite negative impact from recent hurricanes. Revenue (up 37% y/y) and earnings per share (up 12%) narrowly exceeded Wall Street forecasts. These growth rates look high because Sherwin just closed its acquisition of Valspar. Earnings would have been about 5% higher without storm-related disruptions. The best news in the report was that paint store sales in the US rose 5.2% y/y and Latin America bounced back with 5% sales growth. Unfortunately, management guided fourth quarter earnings per share down to account for costs related to the Valspar acquisition. So the stock is up only slightly this morning. 

Cisco Systems (CSCO) announced a deal to purchase BroadSoft (BSFT) for $1.9bil in cash. BSFT is a competitor in communications software & services and its client list includes AT&T, Verizon and Deutsche Telekom. And it appears Cisco is trying to boost sales to major service provides and also continue to diversify away from basic switching and routing. This is Cisco’s second major acquisition this year. In January it announced a $3.7bil acquisition of AppDynamics. 

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