Market Outlook – April 24, 2018

S&P 500 Posts Longest Run in Correction Territory

 

According to the WSJ Market Data Group, the S&P 500 index just recorded a peculiar milestone on Monday. The broad-market benchmark has put in its longest run in correction territory since May 1, 2008. Stocks fell too.

The S&P 500 index has been in correction territory for 51 trading sessions, including yesterday’s lackluster closing as U.S. stocks fall. Correction territory is defined as a decline of at least 10% from a recent peak. It was on February 8 when the S&P 500 slipped into correction territory.

The Dow Jones Industrial Average notched its first four-day losing streak since March. The Nasdaq Composite Index retreated 0.3% for its third straight decline. Shares of Alphabet Inc. (GOOGL), Amazon.com Inc. (AMZN), Facebook Inc. (FB), and Netflix Inc. (NFLX) closed lower.

Nasdaq Mulls Easier Trading of Stocks

 

On Monday, Nasdaq Inc. (NDAQ) said it will ask regulators if it is possible to give the thinly-traded companies that list on its main U.S. stock exchange the choice as to whether their shares can be traded on other exchanges. The aim is to make it easier for investors to buy the stocks.

Currently, there are 13 U.S. stock exchanges and regardless of where a company is listed, its shares trade on all of them. There are also around 40 private broker-run trading venues.  Some who are opposed to the idea say the move fragments trading activity. It would be difficult for buyers and sellers to find each other.

Nasdaq’s chief economist, Frank Hatheway said, “Our markets are no longer able to support small growth companies.”  Hatheway was referring to the U.S. markets overall. He was attending a roundtable discussion hosted by the SEC in Washington. The topic of discussion is how to improve the markets for thinly-traded companies.

Alphabet Reports Impressive 1st Quarter Earnings

 

On Monday, Web giant Alphabet Inc. (GOOGL) reported earnings of $13.33 per share during the first-quarter. According to FactSet, that is 43% more than analysts’ expectations. The billions added to Alphabet’s bottom line is due largely to the change in accounting methods used for reporting.

The parent company of Google disclosed all gains and losses to its bottom line from its equity investments, including its stake in Uber. The accounting change added $3.40 per share to the company’s earnings during the period.

Alphabet would still beat analysts’ expectations for earnings and revenue even without the new rule. Their revenues climbed 26% year over year, to $31.1 billion. The surge was because of Google’s continued its dominance and growing advertising business. About 85% of its revenue in the first-quarter came from advertising.

Wells Fargo Aims to Rebuild Trust

 

The executives of beleaguered Wells Fargo & Co. (WFC) plans to convey a message of atonement to shareholders during the bank’s annual meeting in Des Moines, Iowa on Tuesday. The bank wants to convince investors and regulators that the scandals that rocked the financial institution are a thing of the past.

Wells Fargo said it would pay regulators $1 billion over mortgage and auto lending abuses. It added to issues like acceding to calls for more shakeups at the third-largest U.S. bank.

Chief Executive Tim Sloan wrote in a letter introducing the bank’s proxy statement, “Our top priority remains rebuilding the trust of our shareholders, customers, team members, communities, and regulators.”

The letter was also signed by Elizabeth Duke, former Federal Reserve governor and now chairman of Wells Fargo also signed the letter.

Hasbro Blames Weak Earnings on Toys ‘R’ Us Bankruptcy

 

On Monday, the largest toy maker in the world in terms of market value reported worse-than-expected results for the first three months of 2018. Hasbro Inc. (HAS) is blaming the bankruptcy of Toys ‘R’ Us for the decline in revenue. However, the American toy and board game company promised the worst would be over in the first half of this year. The price of HAS dropped 8% due to poor profit and revenue numbers but later recovered to trade about 2.2% higher.

Hasbro managers said the impact of the collapse of one of their biggest retail customers would be over in the second half of the year. Their growth will come in 2019 and analysts were impressed by their projected operating margin figures for this year.

Chief Executive Officer Brian Goldner said, “We anticipate the revenue impact will be most pronounced in the first half of the year with a lesser impact in the third and fourth quarters, including the important holiday season.”

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