July 28, 2017

Stocks are choppy in early trading (Dow flat; SPX -.27%). Gold miners, biotechs and real estate are up modestly, but most everything else is lower. Individual earnings announcements are the big stories of day. However, we note the US Senate voted down the Republicans’ ObamaCare “skinny repeal” bill, and also North Korea just conducted another ballistic missile test. Most commodities are higher in early trading. WTI crude oil is up around $49.70/barrel. Bonds are slightly higher on the day. The 10-year Treasury yield is trading at 2.29%. 

Amazon (AMZN) announced that total revenue grew 25% y/y in the second quarter, slightly higher than analysts were expecting. The company’s web services division saw 42% y/y revenue growth, also a bit better than expected. Some analysts reacted negatively to the announcement because profits were lower than most forecasts. Amazon is spending more money to ramp-up new growth projects, damping profit margins. That’s the perennial story with the company: phenomenal success despite the fact that it has never maximized profits. Anyway, the stock is down 3% this morning.  

Starbucks (SBUX) reported 8% revenue growth and 12% earnings per share growth during the second quarter. That’s good, but the company’s same-store-sales growth was 4% vs. analysts’ consensus forecast for 4.9%. The shortfall was largely due to China, which saw same-store-sales of just 1%. Unfortunately, the CFO had this say about his outlook for the future: “…the combination of trends in the quarter and ongoing macro pressures impacting the retail and restaurant sectors has us a bit more cautious going into Q4.” In addition, the company announced it will close all Teavana stores due to falling retail mall traffic. The stock is down 8% this morning on a panic sell.

Chevron (CVX) reported encouraging second quarter results this morning. Revenue rose 18% from year-ago levels and free cashflow was stronger ($800mil) than expected. The company continues to control capital spending in a low oil price environment. Spending for oil exploration fell 20% y/y. And at the current rate, the company will spend significantly less this year than they’ve previously predicted. At the same time, Chevron managed to increase its oil production, whereas competitor Exxon could not. The stock is up 2.4% this morning. 

Tobacco stocks are down big this morning after the Food & Drug Administration (FDA) announced its intent to cut the amount of nicotine in cigarettes to non-addictive levels. FDA Commissioner Scott Gottlieb said the FDA will come up with a roadmap to regulate “product standards” so that nicotine levels are reduced over time. The statement was fairly vague but caused panic among investors. Altria (MO) is down 9%, Vector Group (VGR) is down 4%, British American Tobacco (BTI) is down 8% and even Phillip Morris International (PM) is down 2.5%. 

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