>>> US Close Dow +0.23% S&P +0.31% Nasdaq +0.43% Russell +0.86%


Closing Market Summary: Stocks Tick Higher, Boosted by Oil Rebound

The stock market ended the midweek affair on a flat note as investors looked ahead to tomorrow's policy statement from the Bank of England and significant data due out later in the week. The S&P 500 (+0.3%) snapped a two-day losing streak, benefiting from a rebound in crude oil and key sector leadership from the heavily-weighted technology (+0.4%), industrial (+0.4%), and financial (+1.0%) sectors. The Nasdaq Composite (+0.4%) finished slightly ahead of the benchmark index (+0.3%) and the Dow Jones Industrial Average (+0.2%).

Equity indices gyrated at the start of the session as investors responded to a negative bias in global markets. Japan's Nikkei (-1.9%) underperformed for a second session as investors continued to dissect the country's latest stimulus package. Investor apprehension was related to the lack of labor market reforms and limited productivity improvements contained in the new policy measures. Separately, the U.K.'s July Services PMI (47.4; previous 52.3) sparked further growth concerns ahead of tomorrow morning's policy decision from the Bank of England. The central bank is widely expected to offer further easing after holding in July.

The major averages shook off opening weakness as investors poured over the Energy Information Administration's latest stockpile data. The Department of Energy reported that crude oil inventories rose by 1.41 million barrels (estimated: -1.36 million barrels), but that gasoline inventories fell by 3.26 million barrels (estimated: -0.20 million barrels). In response, WTI crude ticked off the $40.00/bbl price level, finishing its day higher by 3.4% ($40.82/bbl; +$1.33).

The S&P 500 (+0.3%) endured a sleepy session, maintaining a meager 11-point trading range. The index finished at its best level of the day as six sectors ended above their flat lines. In front of the pack, the commodity-sensitive energy (+1.8%) sector led financials (+1.0%), industrials (+0.4%), and technology (+0.4%). Conversely, countercyclical utilities (-0.6%), consumer staples (-0.5%), and health care (-0.2%) rounded out the leaderboard.

The financial sector (+1.0%) finished ahead of the broader market as positive quarterly results from Credit Agricole and ING (ING 11.43, +0.87) helped facilitate a rebound among European banking names. On the home front, American International Group (AIG 58.10, +3.96) boosted insurance names after the company beat top- and bottom-line estimates for the quarter and announced an additional $3 billion in share repurchases. Prudential (PRU 76.15, +2.18) and MetLife (MET 43.70, +1.49) gained a respective 3.0% and 3.5% ahead of this evening's quarterly earnings results.

The Dow Jones Transportation Average (+0.8%) outperformed as Avis Budget (CAR 36.89, +2.13) rebounded. The stock jumped 6.1% after posting better-than-expected guidance and mixed quarterly results. Separately, rail names also displayed relative strength as Union Pacific (UNP 92.87, +1.57) and CSX (CSX 28.20, +0.54) jumped 1.7% and 2.0%, respectively.

The heavily-weighted health care sector (-0.2%) ended beneath its flat line as Biogen (BIIB 321.34, -8.77) underperformed in the biotechnology sub-group. The stock finished lower by 2.7% after the company indicated that despite yesterday's reports, it has not received any acquisition offers. Elsewhere, Dow component Pfizer (PFE 35.29, -0.80) rounded out the price-weighted index as investors continue to weigh yesterday's quarterly results and conference call.

The U.S. Dollar Index (95.55, +0.49) finished off its best level of the day as the yen, pound, and euro each gave up ground to the greenback. The dollar/yen pair finished higher by 0.3% (101.20), rebounding from yesterday's 1.5% decline. The pound lost 0.3% against the dollar (1.3312) ahead of tomorrow's Bank of England policy statement while the euro declined 0.7% against the buck (1.1148).

The Treasury complex ended its day on a higher note as yields declined throughout the curve. The yield on the 10-yr note finished lower by two basis points at 1.54%.

Participation was above the recent average as more than 873 million shares changed hands on the NYSE floor.

Today's economic data included the weekly MBA Mortgage Index, the ADP Employment Change Report, and ISM Services for July: 

  • The weekly MBA Mortgage Index showed a seasonally adjusted decrease of 3.5% in mortgage applications after declining 11.2% in the prior week.
  • The ADP Employment Change report was better than expected, showing an estimated 179,000 jobs (consensus 165,000) were added to private sector payrolls.
    • However, those gains weren't as robust as some might have hoped coming off last month's very large increase in nonfarm payrolls.
    • In addition, all of the growth in the ADP number for July came from the service-providing sector (185,000). The goods-producing sector lost 6,000 jobs, according to ADP.
  • The ISM Non-Manufacturing PMI dipped to 55.5 in July from 56.5 in June (consensus 55.8), declining from 59.6 in the same period a year ago.
    • The dividing line between expansion and contraction for the non-manufacturing sector is 50.0. July marked the 78th straight month of growth.
    • The headline disappointment, though, was offset to a large extent by the increases registered in the indexes for new orders (from 59.9 to 60.3), backlog of orders (from 47.5 to 51.0), and new export orders (from 53.0 to 55.5).
    • The biggest drags on the non-manufacturing index in July were the indexes for prices (from 55.5 to 51.9), supplier deliveries (from 54.0 to 51.0), inventories (from 55.5 to 54.0), employment (from 52.7 to 51.4), and imports (from 54.0 to 53.0).
    • It was noted in the report that the past relationship between the non-manufacturing PMI and the overall economy indicates that the 55.5 level for July corresponds to a 2.6% increase in real GDP on an annualized basis.

Tomorrow's economic data will include Challenger Job Cuts for July and weekly initial claims (consensus 264k), which will be released at 7:30 ET and 8:30 ET, respectively. The day's data will be capped off with Factory Orders for June (consensus -1.9%), which will cross the wires at 10:00 ET. 

  • Russell 2000 +6.6% YTD
  • S&P 500 +5.9% YTD
  • Dow Jones +5.3% YTD
  • Nasdaq Composite +3.0% YTD 

>>> Moon Express is the first private company to get regulatory approval to land

Moon Express is the first private company to get regulatory approval to land on the moon

The company plans to launch its maiden mission to the moon in 2017.

It was a sweltering July morning — 93 degrees, to be exact — and yet Naveen Jain sat in the back of a brightly lit coffee shop in midtown New York in his thick plum purple blazer with a rocket ship pin positioned on the left lapel and greeted me with an ear-to-ear smile. He looked me directly in the eyes, barely blinked and said without a tinge of irony, “I want to inspire people to pursue their moon shot.”

Jain, who was speaking at the United Nations before he headed west to meet me, is the co-founder and chairman of a company called Moon Express and he, along with company CEO Bob Richards and their team of 25 employees, plan to launch their maiden mission to the moon in 2017.

In other words, Jain’s “moon shot” — his ambitious life goal — is to literally go to the moon.

“I want people to say, if a boy who grew up poor in India can go to the moon, what can I do?” Jain, who is also the founder of BlueDot, Infospace and Intellius, told Recode. “What is their moon shot?”

Jain and Richards are not alone in their mission to travel beyond earth’s orbit — Elon Musk plans to launch a rocket to Mars in 2018, Jeff Bezos’s company Blue Origin has started testing its own rockets — but as of today, they are leading the only commercial company to ever receive government approval to land on the surface of the moon.

That’s because, in part, until Moon Express pushed for it there was no set process for a commercial company to attain regulatory approval to travel beyond earth’s orbit, much less land on the moon. In fact, there wasn’t even a regulatory agency with jurisdiction over commercial space activities. But with an ambitious goal of landing on the moon in 2017, Jain and his team couldn’t wait for pending legislation the U.S. government is currently considering to go through.

So they took it in their own hands: On April 8, 2016, after ongoing conversations with several agencies including the Federal Aviation Administration, NASA, the Department of Defense, the National Oceanic and Atmospheric Administration, and the Office of Science and Technology Policy that began in January, Moon Express submitted an application to launch the first-ever commercial space trip outside of earth’s orbit in 2017.

“Moon Express proposed in our Mission Approval architecture that a distributed authority among the agencies, managed by FAA [Office of Commercial Space Transportation], should be sufficient for our singular 2017 commercial lunar mission,” Richards told Recode in a statement. “The agencies reached consensus that this would work for our proposal as presented and the FAA issued the determination with the concurrence of the Department of State and other agencies.”

To date, the company has raised more than $30 million from the likes of the Founders Fund, Innovative Fund, Autodesk and a number of individual investors.

But the company, which is preparing for its mission by simulating moon landings in Cape Canaveral, Fla., already has plans for what comes after 2017. Though Richards said it’s a decade away, Moon Express hopes to bring back materials from the moon to be commercialized on earth. The company does, however, expect to begin sample missions where they bring back a few pounds of materials in 2020. And under the Space Exploration Act of 2015, private individuals and companies are allowed to claim ownership of anything they bring back from the moon.

“Space travel is our only path forward to ensure our survival and create a limitless future for our children,” Jain said in a statement. “In the immediate future, we envision bringing precious resources, metals and Moon rocks back to Earth.”

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: SGY -24.3%, RUBI -23.2%, CRAY -18.5%, KATE -18.1%, MXWL -16%,CROX -15.5%, CYH -12.3%, GLUU -10.5%, OESX -10.3%, ECR -9.7%, FARO -8.1%, HFC -7.9%, CALD -7.4%, QRVO -6.4%,HBI -6%, BECN -5.7%, ELGX -5.5%, TSRA -5.4%, CHUY -5.3%, ESIO -5.3%, PRTA -4.7%, REXX -4.6%, SM -4.6%, VRSK-4.4%, DATA -4.3%, DATA -4.3%, CRTO -4.2%, DXCM -4.1%, ZEN -4.1%, (also confirms that the final day of employment for Alan Black, former CFO, will be August 12 ), NFX -3.1%, NYMT -2.5%, QUMU -2%, SLCA -1.9%, (U.S. Silica to acquire Sandbox Enterprises for a combination of $75 million of cash on hand and ~4.2 million its common shares; expected to be modestly accretive to 2016 EPS and generate EPS accretion of $0.20 to $0.30 in 2017), OKS -1.8%, PBPB -1.7%, KLIC -1.6%, EA -1.5%,SBGI -1.5%, CLDT -1.4%, ENBL -1.3%, DVN -1.2%, RGR -1.1%, (also announces Succession Plan), TNAV -1%

M&A news:
  • BIIB -1.3% (follow up to CNBC report that Allergan (AGN) is unlikely to be interested in a Biogen deal)
Other news:
  • VGZ -11.6% (Vista Gold announces $15 million bought deal offering of units)
  • RGC -4.3% (Regal Entertainment announces secondary offering 13 mln shares of Class A common stock by Anschutz Corporation pursuant to the shelf registration statement )
  • NEE -1.8% (agrees to sell $1.50 bln of equity units to Goldman, Sachs & Co., Credit Suisse and Mizuho Securities)
Analyst comments:
  • WDC -2.3% (downgraded to Sell from Neutral at Goldman)
  • TREX -1.7% (downgraded to Neutral from Buy at CL King)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance: SZMK +42.9%, STLY +32.7%, GNW +18.9%, BGFV +14.1%, (also announces new $25 mln share repurchase program), ZAGG +14%, OCLR +11%, BOFI +9.2%, TRUP +8.1%, XCO +7.8%, FIT +7.5%,HDSN +7.1%, XXIA +6.4%, RDCM +5.9%, FUEL +5.8%, (also announces it concurrently entered into a Controlled Equity Offering with Cantor Fitzgerald of up to $30 mln of the $50 mln offering it filed for in May), MEMP +5.8%, ZTS +5.6%, WD+5.5%, XNCR +5%, AVD +4.5%, SHOP +4.4%, WMGI +3.9%, AIG +3.8%, (also adds $3 bln to buyback ), NBR +3.6%,ETSY +3.5%, TWX +3.4%, INSY +3.3%, GORO +3.2%, RIGL +3.2%, FNGN +3.1%, OHI +2.8%, AMSG +2.7%, AR+1.8%, EXK +1.8%, RPXC +1.6%, HLTH +1.5%, CENT +1.4%, CENT +1.4%, BEAT +1.3%, FMI +1.2%, (also announces that the FDA and the Centers for Medicare and Medicaid Services have accepted FoundationOne for Parallel Review), ODP+1.2%, SUPN +1.1%, SE +1.1%, ICE +1.1%, MRCY +1%, ARR +1%, SLRC +1%, FGL +0.9%, OMI +0.8%, NVMI +0.8%

M&A news:
  • STLY +32.7% (Stanley Furniture announces its Board, in its review of strategic alternatives, intends to issue to shareholders two special dividends totaling up to $1.50/share)
  • ENT +8.9% (report from M&A blog Betaville (has mentioned ENT in recent weeks) that China's HNA is mulling a potential takeover bid for the company)
  • CALM +2.5% (Cal-Maine Foods to acquire substantially all of the assets of Foodonics International and its related entities doing business as Dixie Egg Company; terms not disclosed)
Other news:
  • KOOL +39.3% (announces 40-month follow-up results for a number of patients that participated in its earlier feasibility study using its SurgWerks system for the treatment of late stage limb ischemia)
  • SVU +4.2% (Supervalu reaffirmed that it is preparing for a separation of Save-A-Lot business; prepared to consider alternatives and is also evaluating a possible sale of Save-A-Lot)
Analyst comments:
  • ZNGA +6.7% (upgraded to Outperform from Market Perform at Cowen)
  • WMB +1% (upgraded to Outperform from Mkt Perform at Raymond James)

>>> Bill Gross : Aug. Inv. Outlook

There are equally important questions in today’s economy and financial markets, so I thought
I’d condense a few of them to hopefully explain our current situation, perhaps a little more
honestly than my “kittens in a pet store” ruse or what “Victoria’s Secret” really was. They are
as follows:
1) When does our credit-based financial system sputter/break down?
When investable assets pose too much risk for too little return. Not immediately, but at the
margin, low/negative yielding credit is exchanged for figurative and sometimes literal gold or
cash in a mattress. When it does, the system delevers as cash at the core, or real assets like
gold at the risk exterior, become the more desirable assets. Central banks can create bank
reserves, but banks are not necessarily obliged to lend it if there is too much risk for too little
return. The secular fertilization of credit creation may cease to work its wonders at the zero
bound, if such conditions persist.
2) Can capitalism function efficiently at the zero bound?
No. Low interest rates may raise asset prices, but they destroy savings and liability based
business models in the process. Banks, insurance companies, pension funds and Mom and
Pop on Main Street are stripped of their ability to pay for future debts and retirement benefits.
Central banks seem oblivious to this dark side of low interest rates. If maintained for too long,
the real economy itself is affected as expected income fails to materialize and investment
spending stagnates.
3) Can $180 billion of monthly quantitative easing by the ECB, BOJ, and the BOE keep on
going? How might it end?
Yes, it can, although the supply of high quality assets eventually shrinks and causes
significant technical problems involving repo, and of course negative interest rates.
Remarkably, central banks rebate almost all interest payments to their respective treasuries,
creating a situation of money for nothing – issuing debt for free. Central bank “promises” of
eventually selling the debt back into the private market are just that – promises/promises that
can never be kept. The ultimate end for QE is a maturity extension or perpetual rolling of debt.
The Fed is doing that now but the BOJ will be the petri dish example for others to follow, if/
when they extend maturities to perhaps 50 years.
4) When will investors know if current global monetary policies will succeed? Almost all assets are a bet on growth and inflation (hopefully real growth) but in its absence at least nominal growth with some inflation. The reason nominal growth is critical is that it allows a country, company or individual to service their debts with increasing income, allocating a portion to interest expense and another portion to theoretical or practical principal repayment via a sinking fund. Without the latter, a credit-based economy ultimately devolves into Ponzi finance, and at some point implodes. Watch nominal GDP growth. In the U.S. 4-5% is necessary, in Euroland 3-4%, in Japan 2-3%. 5) What should an investor do? In this high risk/low return world, the obvious answer is to reduce risk and accept lower than historical returns. But don’t you have to put your money somewhere? Yes, of course, except markets offer little in the way of double digit returns. Negative returns and principal losses in many asset categories are increasingly possible unless nominal growth rates reach acceptable levels. I don’t like bonds; I don’t like most stocks; I don’t like private equity. Real assets such as land, gold, and tangible plant and equipment at a discount are favored asset categories. But those are hard for an individual to buy because wealth has been “financialized”. How about Janus Global Unconstrained strategies? Much of my money is there