October 27, 2017

Stocks opened higher this morning (Dow +43 pts; SPX +.8%) due to positive earnings announcements. Tech (+2.7%) and consumer discretionary (+1.3%) sectors are leading the way. That really just means that Facebook, Amazon, Alphabet, Microsoft, Intel and Apple are up big. Not quite FAANG, but close. The dollar is a bit stronger on the day, and has been moving higher for the last month. WTI crude oil is up 2% to trade around $53.75/barrel—the highest since early March. Saudi Arabia has to prop up prices in advance of Aramco’s IPO. Bonds are rising modestly today after having been hammered since mid-September. The 5-year and 10-year Treasury yields are hovering around 2.04% and 2.43%, respectively. 

Intel (INTC) reported better than expected third quarter results last night. Total revenue rose only 2% from year-ago levels, but earnings per share surged 26%. It looks like revenue growth was held back by Intel’s traditional microprocessor business. But demand for newer chips used in datacenters and cloud computing applications was very strong. And that drove profit margin improvement. Management raised full-year 2017 revenue guidance, and the stock is up 6% today.

Amazon (AMZN) posted 34% y/y growth in sales during the third quarter. In addition, the company managed again to demonstrate accelerating growth in all of its e-commerce segments. Amazon continues to hemorrhage cash on new projects, but investments are paying off and that is what investors care about. The more money Amazon spends on media content & fulfillment, the more prime subscribership increases. The stock is up 12% this morning.

DowDuPont (DWDP) announced preliminary quarterly results that cheered investors. Earnings rose 10% from year-ago levels. Sales rose 7.6%. Demand accelerated in most end markets and the company was apparently able to raise prices. The stock shot up 2.7% yesterday.

Alphabet (GOOGL) blew away earnings estimates as well. Revenue rose 22% y/y and earnings per share rose 32%. In fact, the quarter’s earnings per share set a record. Google ad volume surged and the company’s “other bets” saw revenue rise 39%. In addition, management actually reduced costs by pausing the massive Google Fiber rollout. This is good news for investors tired of the company throwing cash at everything that seems interesting. The stock is up 6% this morning. 

Yesterday, Dow Jones reported that CVS Health (CVS) is preparing to acquire health insurance carrier Aetna (AET). CVS is reportedly willing to pay more than $200/share, which represents a 25% premium over AET’s Wednesday closing price of $160. Neither company would comment on the report. This appears to be an incredibly aggressive and maybe effective defense against Amazon entering the wholesale pharmaceutical business.  

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