Amazon's stock is on a tear in after hours trading after beating analyst estimates across the board and adding to its impressive outperformance of the tech sector over the past year. Despite a price earnings ratio of almost 200, investors continue to be bullish on the company's prospects to invest wisely into promising segments of their business. Growth from international operations such as India, hardware products such as Echo and Dash buttons, Prime Video and Web Services were in focus.
Despite the public relations fallout from last week's viral video of a passenger violently dragged from a flight, United Airlines reassured investors today in their conference call, beating analyst estimates on both earnings and revenue and forecasting top line growth for the first time in two years. The company's stock price broke a 3-day losing streak, bouncing back to recover losses after the controversy. UAL is up 25% over the past year, outperforming the airline industry. Wall Street's "reward" for bad behavior towards customers is reminiscent of Spirit Airlines in 2012, whose CEO initially refused to refund the fare of a dying Vietnam vet on cancer but yet the stock skyrocketed over the next 2 years.
In his annual letter to shareholders this week, the longtime CEO of J.P. Morgan, Jamie Dimon, offers a lackluster assessment of the state of the US economy and political affairs. Once courted by the new administration to take the role of Treasury Secretary, Dimon, who decided to stay pat where he is, nevertheless wrote a politico manifesto of sorts to his audience. He cited a litany of roadblocks holding the country back, including slower economic growth in the 21st century, a shrinking middle class, and declines in real incomes impacting lower earners disproportionately. Rather than spending "trillions of dollars" on foreign wars and taking over student lending in 2010, the US government should invest money more wisely such as increasing infrastructure spending and fixing an unfriendly corporate tax system driving capital away. On a positive note, Dimon echoed optimism that the higher levels of equity capital required by banks have effectively fixed the problem of "too big to fail".
With the tax deadline less than 3 weeks away, now is a great time to meet with your accountant and study up on the myriad of tax deductions available to the US taxpayer. Keep in mind that unless you own a business and filing a Schedule C, the vast majority of itemized deductions are subject to some kind of threshold, whether it 2% AGI for unreimbursed job expenses or 10% for medical, not to mention the AMT that can prevent or reduce many deductions for middle and high income earners. So it pays to research these limitations first. Whether you are overly wary or extremely aggressive with deductions, it helps to understand how your personality could impact your decisions at tax time.
In last week's FOMC meeting, the Board of Governors in Washington consistently forecasted a total of 3 or 4 interest rate hikes in 2017. Rookie member of the voting committee, Neel Kashkari of the Minneapolis office was the lone dissenter of the decision to raise rates on March 15, arguing that there is no rush given the sideways trajectory of core inflation dating back to 2010 (see long-term chart in the Bloomberg article attached). Apart from inflation, the domestic economy has reached nearly full employment with diminished headwinds both abroad and at home. Kashkari oversaw the TARP program under Treasury Secretary Hank Paulson in 2008, then left to work for PIMCO and ran for office as Governor of California before assuming his current office at the Fed in 2016.
Multiple events and data releases this week have ganged up to push the 10-year benchmark bond yield higher as the Fed is nearly certain to raise interest rates next week. On Wednesday, forecasting firms released data showing the most private sector jobs created in nearly 3 years. On Thursday, the ECB optimistically stated that the eurozone economy was improving and no longer required stimulus. Today, the US government announced stronger than expected 235,000 jobs created while the unemployment rate ticked down to 4.7%. Meanwhile, 10-year yield flirts with support at 2.60%. Bill Gross amongst other investment analysts believe that a move higher would portend a secular bear market in bonds.
The rebound in crude oil prices last year have thus far stalled in 2017 as US economic data continue to be benign and the US dollar has rallied. Today, the price of crude fell over 5% to $50 per barrel as US crude inventories continue to climb to new highs. As oil markets look for direction going forward, the attached blog post offers some interesting macro fundamentals to consider for energy analysts.
Facebook stock has been on a tear this year, up 17% on the backs on a tech rally, earnings surprise and multiple new features offered by their subsidiaries. Zuckerberg's strategic decisions on Instagram and WhatsApp appear to be directed at mimicking its competitor Snapchat even as they are preparing to file their IPO and go public next week. The addition of Instagram Stories to mirror Snapchat Stories has slowed their rate of daily active users by 75% since introduced. Meanwhile, WhatsApp recently added a camera and status update, further commoditizing the product offering of Snapchat.
Warren Buffett continues to sell Walmart, reducing his position by 90% as concerns about their e-commerce efforts to catch up with Amazon.com continued to linger. Price charts comparing the two stocks from early 2015 tell the story, showing AMZN outperforming WMT by nearly 200% over the past 2 years. The Oracle of Omaha cites difficulties of retailers to turn misfortunes around given the rapidly changing dynamics of the industry. Walmart CEO admitted that they should have invested much more in their online presence earlier. Meanwhile, Buffett moved billions into airlines such as Southwest and increased his position in Apple.
Forbes put forth an interesting opinion article today on properly interpreting the unemployment rate, or rates for that matter given that there are so many different flavors. We know that the headline UE number is close to full employment, registering at 4.8% currently while the rate adjusted for those who are part-time looking for full-time work is significantly higher at 9%. Today, the Job Openings and Labor Turnover Survey was released, showing a concurrent rise of job openings as hiring has fallen over the past year. From this, economists can infer that businesses are having difficulty finding skilled workers as the labor force tightens, which should eventually lead to wage growth unless there is a structural shift in the education and training of our workforce. Although there are some marginal gains left to be made in the underemployment rate, the job economy is not far from its maximum potential given the current skill set of our workers.