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Tuesday January 22, 2019



Netflix's Report Sends Shares Soaring to Record High

Netflix, Inc. (NFLX) announced quarterly earnings on Monday, January 22. The streaming video company added more subscribers than expected during the holiday quarter, causing shares to soar 9% and finish at an all-time high on Monday following the report's release.

Revenue for the fourth quarter reached $3.29 billion. This is up from $2.48 billion reported during the same quarter last year and is slightly above the $3.28 billion that analysts predicted.

"We had a beautiful Q4, completing a great year as internet TV expands globally," said the company in a letter to shareholders. "In 2017, we grew streaming revenue 36% to over $11 billion, added 24 million new memberships (compared to 19 million in 2016), achieved for the first time a full-year positive international contribution profit and more than doubled global operating income."

Netflix reported quarterly profit of $185.5 million, up from last year's fourth quarter earnings of $66.75 million. On an adjusted earnings per share basis, the company posted profit of $0.41 per share, in-line with Wall Street's expectations.

The streaming video company added 8.33 million subscribers in the fourth quarter, up 18% from the prior year and marking the company's highest quarter in history in terms of global net adds. In its letter to shareholders, the company attributed the growth to its "original content slate and the ongoing global adoption of internet entertainment." Following the news, Netflix's shares jumped 9% and passed the $100 billion valuation mark for the first time.

Netflix, Inc. (NFLX) shares ended the week at $274.60, up 23.6% for the week.

GE Announces Drop in Earnings and SEC Investigation

General Electric Company (GE) released its latest quarterly earnings report on Wednesday, January 24. The company reported a steep drop in earnings and announced that it is being investigated by the Securities and Exchange Commission (SEC) over its accounting processes.

GE reported quarterly revenue of $31.40 billion. This was a 5% decrease from last year's fourth quarter revenue of $33.09 billion and below the $34.06 billion expected.

"In the fourth quarter, EPS was at the low-end of guidance, excluding insurance-related items, U.S. tax reform and industrial portfolio actions," said GE Chairman and CEO John Flannery. "Cash performance was above expectations and our visibility and execution on cash is improving. Aviation and Healthcare had strong performances in the quarter. Power was down significantly and we expect market challenges to continue."

The company announced a quarterly earnings loss of $9.83 billion, down from earnings of $3.49 billion one year ago. Excluding charges, GE reported operating earnings of $0.27 per share, falling short of the $0.29 predicted.

The stark drop in earnings was the result of a $6.2 billion after-tax charge in the fourth quarter related to weaknesses in GE's North American Life & Health insurance portfolio. On Wednesday, the company announced that it is being investigated by the SEC over its accounting practices. In a phone call with analysts on Wednesday, GE's CFO Jamie Miller said the investigation is in its early stages and that GE is cooperating fully but that she is not "overly concerned" about the investigation.

General Electric Company (GE) shares ended the week at $16.13, up 1.4% for the week.

Procter & Gamble Reports Increased Revenue

The Procter & Gamble Company (PG) reported quarterly earnings on Tuesday, January 9. The consumer goods maker reported a boost in revenue despite increased competition across the retail landscape.

Procter & Gamble announced revenue of $17.40 billion for the second quarter, which was slightly higher than analysts' projected revenue estimates of $17.39 billion. Last year at this time, the company reported revenue of $16.86 billion.

"We accelerated organic sales growth and delivered strong productivity cost savings and cash flow," said Procter & Gamble President and CEO David Taylor. "We remain on track to achieve our fiscal year objectives."

The company reported adjusted earnings of $1.19 per share. This is up 10% from the prior year and above the $1.14 per share expected.

Proctor & Gamble, maker of Tide laundry detergent, Pampers diapers, Gillette razors and Charmin toilet paper, has faced increased competition from retailers in the U.S. that are investing in private brands, including Wal-Mart, Kroger and Amazon. The steepening competition contributed to a 3% decline in Proctor & Gamble's grooming business sales during the second quarter. The company's baby, feminine and family care business also saw a 1% drop in sales. Proctor & Gamble shares fell 3% following the earnings report's release.

The Procter & Gamble Company (PG) shares ended the week at $87.70, down 3.5% for the week.

The Dow started the week of 1/22 at 26,025 and closed at 26,617 on 1/26. The S&P 500 started the week at 2,809 and closed at 2,872. The NASDAQ started the week at 7,338 and closed at 7,506.

Treasury Yields Retreat from Earlier Highs

After dropping earlier in the week after Congress agreed on an arrangement that would keep the government open, the yield on the 10-year Treasury note soared to a three-year high on Thursday as the dollar fell further. On Friday, yields continued moving upward ahead of the release of the fourth quarter's gross domestic product data.

On Friday morning, data released by the Commerce Department revealed that the U.S. gross domestic product rose 2.6%, falling short of economists' 3% predictions. Before the data was released, the yield on the 10-year Treasury note reached 2.654%, up from 2.628% on Thursday. However, following the report's release the yield pared back, falling to 2.634%.

"Although the headline missed expectations by about four-tenths of a percent, the composition of growth was pretty strong for the fourth quarter," said Guy LeBas, Chief Fixed Income Strategist at Janney Montgomery Scott in Philadelphia. "[The GDP number] should give Federal Reserve officials some cover to offer a stronger statement at the January FOMC next week."

On Thursday, the 10-year note rose to 2.676%—its highest point since July 2014—before retreating after President Trump stated that "the dollar is going to get stronger and stronger" and that he ultimately wants to see a stronger dollar. President Trump's endorsement of a stronger dollar pushed the value of the dollar higher and moved yields lower on Thursday. President Trump's statements came one day after Treasury Secretary Steven Mnuchin said that he welcomed a weaker dollar as a mechanism to boost global trade, which spurred a 2% decline in the dollar index and caused Treasury yields to rise.

"Clearly there was some blowback on the Mnuchin 'weak dollar ok' comments and perhaps the President felt the need to calm the waters ahead of his Davos speech tomorrow," said Action Economics in its blog. "Yields are extending their reversal lower as this seems to imply the [foreign exchange] rug won't be pulled out from under foreign investors after all."

Earlier in the week, Treasury yields reacted to the short-lived government shutdown by moving higher after Congress voted to re-open the government after a three-day shutdown. The temporary funding bill passed by 81-18 in the Senate and 266-150 in the House and will keep the government funded until February 8.

The 10-year Treasury note yield finished the week of 1/22 at 2.66%, while the 30-year Treasury note yield was 2.91%.

Mortgage Rates Rise

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, January 25. The report revealed the 15 and 30-year fixed mortgage rates rose for the third consecutive week.

The 30-year fixed rate mortgage averaged 4.15% this week. This represents an increase from last week when it averaged 4.04%. Last year at this time, the 30-year fixed rate mortgage averaged 4.19%.

This week, the 15-year fixed rate mortgage averaged 3.62%. This was higher than last week's average of 3.49%. The 15-year fixed rate mortgage averaged 3.40% one year ago.

"Rates keep climbing," said Len Kiefer Deputy Chief Economist at Freddie Mac. "The 10-year Treasury yield reached its highest point since 2014 reflecting expectations of broad-based economic growth. Mortgage rates, in turn, followed the surge in Treasury yields. The 30-year fixed rate mortgage jumped 11 basis points to 4.15%, its highest level since March of last year."

Based on published national averages, the money market account finished the week of 1/22 at 0.83%. The 1-year CD finished at 1.85%.

Published January 26, 2018
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