July 27, 2017

The stock market continues to grind slowly higher on the back of positive second quarter earnings announcements. The Dow is currently up 53 pts and the SPX is up .13%. Telecoms are leading again today after Verizon reported. Retailers and banks are also up modestly. On the other hand, transports, gold miners and REITs are trading lower. The VIX Index is trading down to 9.3 and VIX August futures are trading around 11. The dollar is a bit stronger—but still down 8% so far this year—and commodities are mostly higher today. WTI crude oil has rebounded all the way back to nearly $49/barrel. Bonds are lower in price, higher in yield. The 5-year Treasury yield ticked up to 1.86% and the 10-year yield is trading at 2.32%. 

The Federal Reserve completed its monthly policy meeting yesterday and declined to raise interest rates. Not much changed in the accompanying press statement. Fed officials believe economic conditions will likely improve and will warrant further interest rate normalization over time. But the outlook for inflation is acknowledged to be running below the 2% target so the implication is that rate hikes will be very gradual and the “normal” level for rates is lower than in past cycles. The Fed is turning its attention to balance sheet “normalization,” which will begin “relatively soon.” This means the Fed will begin selling some of the Treasury bonds it bought during its quantitative easing program. The effect should be higher long-term interest rates and perhaps a steeper yield curve. 

Edwards Life Sciences (EW) beat Wall Street expectations for revenue and earnings. The company reported 11% y/y revenue growth and 42% growth in earnings per share. Management noted an ongoing shift from open heart surgery to transcatheter valve replacement, and that’s helping the company’s newer product lines. Profitability is improving; the gross profit margin climbed to 74.9% from 73.3% a year ago. Management raised current quarter earnings guidance as well. The stock is up 4% this morning. 

Verizon Communications (VZ) followed AT&T (T) in pulling a rabbit out of the hat with its quarterly announcement. The carrier said it managed to add 614,000 new wireless customers in the quarter—more than 10 times what Wall Street analysts expected. Wall Street analysts have been very negative on Verizon as price competition has intensified in the industry. Consequently, revenue growth is flat with year-ago levels. But this surge in new customers should buy the company time to transform itself with acquisitions in the media space. Verizon has already purchased AOL and Yahoo, and is reportedly open to larger deals. The stock is up over 6% this morning.    

Facebook (FB) posted better than expected revenue and earnings for the second quarter. In fact, revenue rose 45% from year-ago levels. Monthly active users surged to 2 billion for the first time. In addition, the company saw increased pricing for advertisements on its social media platforms. Instagram was a standout. The stock is up 5% this morning. 
 


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