January 12, 2018

Stocks surged at the open (Dow +197 pts; SPX +.46%) on better than expected earnings announcements. Nine of eleven major market sectors are in the green, led by consumer discretion (+.8%) and industrials (+.8%). The KBW Bank Index (BKX) is up about .6% after several big banks reported earnings this morning. Utilities are flat and real estate is down another .7%. The dollar is weaker (now down 1% on the year) and commodities are mixed. WTI crude oil is trading down .5% to $63.50/barrel, but has been rising for the past four weeks. Bonds are selling off again. The 5-year Treasury is up around 2.35% and the 10-year is back up to 2.56%. 

Delta (DAL) reported strong fourth quarter results yesterday. Revenue rose 8.3% y/y, which was higher than expected. Management noted improving fares and strong demand (especially for business travel). Revenue is expected to rise 4-6% this year, in line with analysts’ projections. It looks like the company will be focused on cost control and keeping capacity growth low. The stock shot up 4.7% yesterday and took the entire industry with it. 

Blackrock (BLK) reported better than expected fourth quarter revenue (up 20% y/y) and profits (up 21% y/y). Total assets under management passed $6 trillion for the first time. The company’s popular iShares ETF funds attracted substantially more capital. In addition, the CEO said tax reform will cut Blackrock’s effected tax rate to 23% from 31% and tax savings should encourage investors to put more money into investments. Additionally, Blackrock’s board of directors increased its quarterly dividend by 15%. The stock is up 2.7% at the moment and is up 7.5% so far this year. 

PNC Financial Group (PNC) reported revenue and earnings that exceeded Wall Street forecasts. In the fact, revenue rose 10% from year-ago levels, the fastest quarterly pace in several years. Total loans grew 5% y/y and deposits were up 1.7%. The bank’s net interest margin (i.e. average profitability of loans) edged slightly lower to 2.88%. Management said it sees stable credit conditions across the economy. By the way, PNC owns about 21% of Blackrock (BLK), discussed above. PNC’s stock is flat this morning, but has appreciated about 5% so far this year. 

The Consumer Price Index (CPI) rose 2.1% y/y  in December, exactly in line with economists’ forecasts. This is a slightly better result than we’ve seen with other inflation gauges recently. That is, consumer inflation is holding steady whereas wholesale inflation decelerated in December. Core CPI, which excludes food & energy, rose 1.8% vs. 1.7% expected. Remember, at this point inflation is very low so a modest increase should be greeted as a sign that economic growth is firming. Digging into the details, housing and medical costs, which are half of the CPI calculation, rose whereas energy and clothing prices fell during the month. 

US retail sales rose 5.4% from year-ago levels in December, but economists were expecting a slightly higher figure. Barron’s writes, “It was a very good holiday shopping season but perhaps not a great one.” Non-store retail sales (i.e. online) were considerably stronger in terms of growth, as expected. The bottom line is that the US consumer is spending money. 
 


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