Mar 2-6: Bulls and bonds

DJIA 17875 // S&P 2073 // NASDAQ 4412 // 10-YR TRE 2.20% //

EURO 1.086 // OIL 49.53 // GOLD 1173 // BIT 280

The Federal Reserve (whose headquarters, called the Eccles Building in Washington DC, is pictured here) just finished its annual stress tests designed to assess the strength of the US banking system. The Fed was founded in 1913 after the Panic of 1907 demonstrated a need for a government financial entity to preserve market liquidity. The Fed has 3 primary goals: maximize employment, stabilize prices, and and moderate long-term interest rates.

676

The value of the S&P 500 index exactly 6 years ago--the lowest level that it hit during the bear market associated with the financial crisis. The index has rebounded by several hundred percent since then, hitting record highs over the past several trading sessions.

The bull market is 6 years old, now what? CNN Money

After hitting a bottom of 676 exactly 6 years ago this Monday, the S&P has returned more than 200% amid the 4th-longest bull market in history. Two market analysts made names for themselves by "calling the bottom," citing that the market losses in 2009 exceeded even the market turmoil from the 1929 market crash. Soon afterwards, the central government and Federal Reserve took emphatic steps to reassure investors, triggering the beginning of the bull market.

Fed stress tests find banks adequately capitalized, WSJ

The Fed's annual stress test of financial health confirmed that all 31 banks tested had resources available to continue lending in the midst of economic shock. This is the first time all 31 banks passed, although it noted Goldman Sachs and Zions Bancorp had certain capital ratios that approached minimum required levels. Banks who pass the test are now permitted to return value to shareholders in the form of dividends and share buybacks.

Faith falters in S&P 500 as $17 billion outflow precedes selloff, Bloomberg
Despite hitting 50 record highs in the past year, investors in 2015 have pulled $17 billion from the S&P index and devoted that money to investments in fixed income and bonds. That change in investment represents the biggest quarterly divergence since 2000. The movement of funds is being attributed to talks that, following continued strong employment numbers, the Federal Reserve will begin raising rates later this summer.



European stimulus sparks bond blitz, WSJ
With rates in Europe being kept low and even negative as the economy continues to recover, some European firms are taking advantage by issuing bonds paying zero interest. The purchase of zero interest bonds indicates that investors believe capital gains--an appreciation in the price of the bond itself--will provide gains. American companies such as Berkshire Hathaway and Coca Cola have issued $26 billion of euro bonds so far this year.

Foreign takeovers see US losing tax revenue, WSJ
Recent government outrage pushed regulators to limit "tax inversions," when US companies purchased companies abroad in order to capture reduced tax in foreign countries. But the law doesn't regulate the opposite: foreign countries purchasing US companies. For example, instead of acting as a predator, Salix Pharmaceuticals has chosen to be the prey in a recent deal to be acquired by Valeant, a competing pharmaceutical firm.

Vocabulary:

• market bottom
• tax inversion
• stress test
• zero coupon bonds
• JOLTS
• bear market

Calendar Mar 9-13

• Mn Mar 9: Labor market conditions; URBN
• Tu Mar 10: NFIB small business index, JOLTS; BKS, HABT
• We Mar 11: EIA petroleum status, Treasury budget; BOX, KKD, SHAK
• Th Mar 12: Retail sales, Import prices, Inventories; DG, TKMR, MTN
• Fr Mar 13: PPI, Consumer sentiment

Predictions from last week: 2/3 All-Time: 15/24

• Costco beats estimates: CORRECT
• Trade gap widens: WRONG
• Caesars Entertainment misses: CORRECT

Weekly Predictions:

1. Stock market drops as Fed signals summertime rate hike
2. Apple shares spike on enthusiasm for Apple Watch
3. Dollar General (DG) beats earnings forecast

Feb 2-6: I'm lovin' it

DJIA 17327 // S&P 2021 // NASDAQ 4189 // 10-YR TRE 1.673% //

EURO 1.138 // OIL 50.85 // GOLD 1271 // BIT 240

With Seattle driving for a game-winning touchdown, New England cornerback Malcolm Butler (21) comes up with perhaps the greatest plays in Patriots history, securing the win with an interception. The thrilling Super Bowl ended up being the most watched television event in history, with a record 114.4 million people tuning in.

$18,000

Current price of a 500ml bottle of McDonald's Big Mac Special Sauce, being auctioned on eBay by McDonald's Australia. This is equivalent to about $23,000 Australian dollars. There are still 8 days left in the auction.

Super Bowl breaks record for US TV viewing, WSJ
Nielsen has reported that this year's Super Bowl, a nail-biter that saw the New England Patriots defeat the Seattle Seahawks with less than a minute left, was the most watched US television event ever, attracting 114.4 million viewers. Super Bowl XLIX is the seventh straight Super Bowl to draw over 100 million viewers, and the 4th bowl game in 5 years to set an all-time record.

Shake Shack more than doubles its IPO price in market debut, DealBook
Shake Shack's IPO, with a stock price that more than doubled on it's first trading day from $21 to more than $45, revealed tremendous excitement for the current trend in investment in "fast casual" restaurants, including Zoe's Kitchen, El Pollo Loco, Chipotle, and Habit Restaurants. The public offering expanded the wealth of famous New York restauranteur Danny Meyer to $340 million. Meyer helped start Shake Shack to provide extra jobs to employees outside nightly work hours.

McDonalds will now accept selfies and hugs as payment, Business Insider
Starting on February 2nd and running until the 14th, McDonalds will allow customers to "pay with lovin'" (expressions of love including selfies and hugs) during predetermined times at certain stores. The company announced the Valentine's Day ad campaign during a commercial spot on the Super Bowl.

Chipotle is an expensive burrito, WSJ
Chipotle, which has provided a 632% return to investors since its IPO nine years ago, is set to report earnings on Tuesday amid a torrent of news and investment in other food chains. Chipotle, which was once almost entirely owned by McDonalds, stopped selling carnitas for a time after poor treatment of pigs by a supplier was revealed. Among other things, McDonald's is currently reeling from a beef scandal in China, which it said played a part in in EPS falling by 1% last quarter.

Why food prices won't fall as fast as gas prices, MarketWatch

Commodities traders are anticipating that lower fuel prices spell a continued fall in food commodity prices including fruits and meats. Oil prices have plummeted this summer, with other commodities struggling to keep up with the fall. Falling input costs could mean continued high margins at restaurant chains including Shake Shack and Habit Restaurants, both of which recently started trading publicly.

Vocabulary:
Fast casual
Nielsen
Danny Meyer
Malcolm Butler

Calendar, Dates: (Nasdaq Economic Calendar)

• Mon Feb 2: PMI Manufacturing, Construction spending; FLWS, RCII
• Tues Feb 3: Factory orders; ADM, AN, BP, CMG, NYT
• Weds Feb 4: ADP Employment, ISM Non-manufacturing index; UHAL, CLX, EVR, GM
• Thur Feb 5: International trade, Jobless claims, Productivity and costs; ATVI, BEBE, BWLD
• Fri Feb 6: Employment situation; MCO, MSG, WETF

Predictions from Jan 26-30: 1 / 3   All-Time: 5 / 9

• AAL beats: CORRECT
• CVX misses: WRONG
• Bitcoin up: WRONG

Predictions for Feb 2-6:

• Chipotle (NYSE: CMG) misses earnings on pork supplier problems
• Buffalo Wild Wings (NYSE: BWLD) beats forecasts on falling commodity prices
• Non-farm payrolls continue to increase as US economy improves

Participants: K. Meenan