HEALTHCARE ROUT

Stocks opened a bit lower this morning (Dow -23 pts; SPX -.2%). The healthcare sector is down nearly 2% today and 5.5% so far this month. The direct cause is fear over the rise of socialism in Congress. See yesterday’s update for more details. The real estate sector is down 1% today and 2.7% this month after having climbed over 17% during the first quarter. Semiconductor stocks are up over 1% after Apple (AAPL) and Qualcomm (QCOM) finally settled their legal battle over intellectual property. The energy sector is up about .5% after a report showing lower than expected crude stockpiles in the US. Commodities are mixed. Copper is now up 14% this year and a good portion of that has to do with China stimulating its economy. WTI crude is flat on the day at $64/barrel. Bonds are trading pretty flat as well. The 10-year US Treasury yield is hovering around 2.59%.

Netflix (NFLX) reported first quarter results yesterday afternoon. Revenue was in line with Wall Street forecasts but earnings beat. The company added 6.9 million new subscribers during the quarter, which was much better than expected. Netflix recently increased prices and it did have some impact on demand. That wouldn’t really matter except that Disney (DIS) just launched its own streaming service at a lower price point. Nonetheless, NFLX doesn’t anticipate a material negative impact from new competitors. Analysts were disappointed with second quarter guidance. Management expects to sign just 5 million new subscribers this quarter vs. 6 million expected. Even so, the stock not only held its 3% gain yesterday, but is up another 1% today.

Morgan Stanley (MS) reported good first quarter results, beating Wall Street forecasts. The numbers don’t look especially inspiring. Revenue fell 7% from year-ago levels and earnings-per-share fell 8%. The bank’s fixed income trading division saw revenue fall 9%. Investment banking revenue fell 24%. However, analysts noted that competitor Goldman Sachs’ fixed income business fell 15%. And the simple fact is that Wall Street analysts had just become too bearish with their forecasts. Further, Morgan Stanley’s wealth management division actually did quite well. The stock is up 2% this morning.

Trucking company JB Hunt (JBHT) reported a very disappointing quarter, with freight volume down 7%. Management was surprised by the deceleration, blaming weather, as well as slower economic growth. Analysts were quick to point out that business inventories have been on the high side since many US companies stocked up on goods in anticipation of much higher trade tariffs that never materialized. So we could see a temporary dip in manufacturing and transportation activity until inventories are sold off. Let’s hope so; the other option is that the transportation industry is seeing the first signs of an economic slowdown.


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