Closing Market Summary: Equities Jump as FOMC Holds Steady[BRIEFING.COM] The stock market ended its Wednesday affair on a mixed note as the major indices moved higher following the March policy statement from the Federal Open Market Committee. Other contributing factors to today's trade included below-consensus quarterly results from Apple (AAPL 97.82, -6.53), the underperformance of the technology sector (-0.8%), and a rally in crude oil. The Nasdaq Composite (-0.5%) ended its day behind the S&P 500 (+0.2%) and the Dow Jones Industrial Average (+0.3%).
The stock market opened its day on a lower note as disappointing results and guidance from the likes of Apple (AAPL 97.82, -6.53) and Twitter (TWTR 14.86, -2.89) pressured the heavily-weighted technology sector (-0.8%) and the tech-heavy Nasdaq. However, the major averages were able to lift from their opening levels as investors eyed an uptick in oil and the impending rate decision from the FOMC.
The stock market carved out session lows mid-morning as participants weighed the latest stockpile data from the Department of Energy. The weekly inventory report showed a smaller-than-expected build in crude inventories (1.99 million barrels; est. 2.36 million), but a larger-than-expected build in gasoline stockpiles (1.60 million barrels; est. -0.40 million). WTI crude initially tumbled following the data, but reversed off its low ($43.88/bbl). The energy component ended its day higher by 2.9% at $45.21/bbl.
The latest policy directive from the FOMC struck a dovish tone and in turn helped the averages continue their advance off their lows. The FOMC voted 9-1 to leave its key interest rate unchanged. Furthermore, the committee voiced its concern for slowing economic conditions and diminishing inflation expectations in the near term.
Seven sectors ended above their flat lines as countercyclical telecom services (+1.9%) led energy (+1.7%) and utilities (+1.4%). Conversely, heavily-weighted technology (-0.8%), consumer discretionary (-0.1%) and health care (-0.1%) rounded out the board.
The energy space (+1.7%) demonstrated broad-based strength as pipeline companies, oilfield services names, and independent oil and gas companies gained. Conversely, ConocoPhillips (COP 48.11, +0.03) underperformed the broader market ahead of tomorrow morning's quarterly report. Meanwhile, Baker Hughes (BHI 46.94, +1.14) jumped 2.5% after reporting below-consensus results for the first quarter. In its report, Baker Hughes also estimated that its U.S. rig count would not stabilize until the second half 2016.
Influential technology (-0.8%) ended well off its low as the high-beta chipmakers outperformed. To that point, the PHLX Semiconductor Index ended higher by 1.0%. Meanwhile, Apple (AAPL 97.82, -6.53) finished off its lows as investors weighed a 10.0% increase to the stock's dividend and a $175 billion addition to the company's share buyback program. Separately, Facebook (FB 108.89, +0.13) ended higher by 0.1% ahead of this evening's quarterly earnings report.
In the health care space (-0.1%), Anthem (ANTM 144.76, -2.31) displayed relative weakness after disappointing investors with its 2016 guidance. However, the company did beat top- and bottom-line estimates for the first quarter. Elsewhere, biotechnology underperformed, evidenced by the 1.4% decline in the iShares Nasdaq Biotechnology ETF (IBB 277.49, -3.91).
The U.S. Dollar Index (94.50, -0.07) ended near its flat line as participants look ahead to the latest policy statement from the Bank of Japan. The euro/dollar pairs ended at 1.1313 (+0.2%) while the dollar finished higher by 0.2% against the yen (111.52).
The Treasury complex ended its day near its high with the yield on the 10-yr note falling seven basis point to 1.86%.
Today's participation was above the recent average with more than 971 million shares changing hands on the NYSE floor.
Today's economic data included March Pending Home Sales:
- Pending home sales for March climbed 1.4% while the consensus expected an uptick of 0.3%. Meanwhile, the February reading was revised l to 3.4% from 3.5%.
Tomorrow's economic data will include the advance reading of Q1 GDP (consensus +0.9%) and weekly initial claims (consensus 259k), which will each cross the wires at 8:30 ET.
- Dow Jones +3.5% YTD
- S&P 500 +2.5% YTD
- Russell 2000 +1.6% YTD
- Nasdaq -2.9% YTD
Facebook beats by $0.15, beats on revs
* Reports Q1 (Mar) earnings of $0.77 per share, $0.15 better than the Capital IQ Consensus of $0.62; revenues rose 51.8% year/year to $5.38 bln vs the $5.26 bln Capital IQ Consensus.
- Advertising revenue increased 57% y/y to $5.2 bln.
* Daily active users (DAUs)- DAUs were 1.09 billion on average for March 2016, an increase of 16% year-over-year.
- Mobile DAUs- Mobile DAUs were 989 million on average for March 2016, an increase of 24% year-over-year.
* Monthly active users (MAUs- MAUs were 1.65 billion as of March 31, 2016, an increase of 15% year-over-year.
- Mobile MAUs- Mobile MAUs were 1.51 billion as of March 31, 2016, an increase of 21% year-over-year.
* Mobile advertising revenue- Mobile advertising revenue represented approximately 82% of advertising revenue for the first quarter of 2016, up from 73% of advertising revenue in the first quarter of 2015.
*Capital expenditures- Capital expenditures for the first quarter of 2016 were $1.13 billion.
* Free cash flow for the first quarter of 2016 was $1.85 billion.
Facebook reporting: Q1 $0.77 vs $0.62 Capital IQ Consensus Estimate; revs $5.38 bln vs $5.26 bln Capital IQ Consensus Estimate
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Samsung’s Gear 360 camera is going on sale in 2 days and we still don’t know how much it costs
Samsung unveiled the Gear 360 virtual reality camera last month at Mobile World Conference. People were generally impressed, but without a price tag most withheld judgment. Well today onstage at the Samsung Developer’s Conference, the company revealed that the 4K 360-degree cameras will be going on sale April 29 in select countries and….. we still don’t know the price.
We do know the device is retailing for 350 euros in Europe, which is about $400 USD. If Samsung can stick in that general $350-$400 area than this could be a big development.
Now, $350-$400 for a little racquetball sized camera sounds pretty expensive (and let’s be honest, it is), BUT that amount for a 4K 360-degree camera is actually a pretty great deal these days. Add in the fact that the Gear 360 plays so nicely with Samsung handsets and the Gear VR, which is the most popular decently-powered VR headset on the market, and you’re left with pretty killer potential for a great VR ecosystem from Samsung.
The 153-gram camera hosts a pair of fisheye F2.0 lenses that can capture near-4K (3840 x 1920) quality video or 30 megapixel photos. It can hold up to 128GB of content on its internal microSD slot and can record for up to 140 minutes of active use.
The camera has some cool playback features that play well with the new Galaxy S7 and S7 Edge smartphones. You can live-preview content captured on the Gear 360, and, after recording it, you can opt to save footage to a phone over WiFi for 2D viewing on the mobile app or a true 360 experience through the Gear VR. Past that, you can also share your captured content directly to 360 video-compatible services like YouTube or Facebook.
This thing comes out in two days so hopefully we find out the price soon. Given the emphasis Samsung has placed on marketing VR in the US, I wouldn’t be shocked to see Samsung drop the price a bit lower than $350-$400 and give all of those new Galaxy owners sporting Gear VR headsets one more reason to buy into virtual reality.
From personal loans to buying stock, billionaire leader of Tesla, SpaceX and SolarCity has provided help even though it could be risky
Since October 2014, SolarCity Corp. has tried to lure individual investors to the solar-power business by pitching $214 million of what it calls “solar bonds” through the company’s website.
The biggest buyer by far, though, was rocket maker Space Exploration Technologies Inc., including $90 million of $105 million sold last month.
The bonds were an “excellent investment,” billionaire entrepreneur Elon Musk said in an interview. And he knows more about the companies than anyone. Mr. Musk is their largest shareholder, the chairman of SolarCity and chief executive of SpaceX.
Mr. Musk, 44 years old, has built a business empire like no other in the world, fueled by his voracious appetite for risk and unyielding confidence. The three companies he leads—SolarCity, SpaceX and car maker Tesla Motors Inc.—are worth nearly $50 billion combined.
He has transformed every industry he has touched, speaking without irony about retiring to Mars after SpaceX successfully launches rockets there.
Along the way, Mr. Musk has helped financially support his companies in ways that are as unconventional as he is.
In addition to the bond purchases, he has taken out $475 million in personal credit lines, buying shares of SolarCity and Tesla when they needed capital, securities filings show.
The credit lines are secured with about $2.52 billion of Mr. Musk’s shares in SolarCity and Tesla, based on their closing prices Tuesday.
Few top executives use their shares as collateral for personal loans because it can be risky to other shareholders and also raises concerns that the executive’s personal interests could conflict with the company’s interests.
If the stock price slides, that could trigger a margin call requiring the executive to sell the shares or put up more collateral to repay the loan.
In securities filings, Tesla has disclosed the possibility of margin calls related to Mr. Musk’s loans, which it said “may cause the price of our common stock to decline further.”
Last year, Valeant Pharmaceuticals International Inc. shares fell 14% in one day after CEO Michael Pearson received a margin call on $100 million in loans backed by some of his shares in the drug company. Mr. Pearson’s lender sold 1.3 million of his shares to meet the margin call.
Some corporate-governance experts and analysts say it is even more questionable for Mr. Musk to borrow large amounts of money backed by chunks of stock now that SolarCity and Tesla are big public companies.
“As an analyst, it is often a red flag for me when companies and management direct loans between entities they have personal or financial interests in,” said Nathan Weiss, founder and senior analyst at independent research firm Unit Economics LLC in East Greenwich, R.I.
Mr. Musk said it is “valid” to question his large personal borrowings and the financial shuffling between SolarCity, SpaceX and Tesla.
“There were a few cases where one company was doing considerably better than another, and I borrowed money,” he said in the interview.
Mr. Musk defends the moves as consistent with his philosophy that “if I ask investors to put money in, then I feel morally I should put money in as well,” Mr. Musk said. “I should not ask people to eat from the fruit bowl if I have not myself been willing to eat from the fruit bowl.”
Mr. Musk said it is “important that there not be some sort of house of cards that crumbles if one element of the pyramid of Tesla, SolarCity and SpaceX falters.”
He said his loans aren’t risky to shareholders because they add up to less than 5% of his total net worth, which exceeds $10 billion. That figure doesn’t include Mr. Musk’s large stake in SpaceX, which is private. He said he could easily put up more SpaceX or Tesla shares as collateral if needed.
“The odds that a margin call cannot be addressed are almost zero,” Mr. Musk said in the interview.
He has had a string of triumphs lately. Tesla unveiled its Model 3 sedan to rave reviews and said 325,000 people pledged $1,000 each in the first seven days to reserve cars. Tesla shares are up 77% since Feb. 10. Tesla is the first successful major U.S. auto-company startup since 1925.
On April 8, SpaceX managed to land a rocket in the middle of the Atlantic Ocean on a floating, Global Positioning System-controlled platform for the first time in the company’s history.
According to Tesla’s latest proxy statement, Mr. Musk owns 37 million shares of Tesla, or roughly a 27% stake worth about $9.38 billion as of Tuesday’s close.
Mr. Musk holds a 22% stake in SolarCity, another securities filing shows. Those 21.8 million shares were worth about $719 million as of Tuesday.
SpaceX was valued at $12 billion in a funding round earlier this year. His ownership stake in SpaceX isn’t public, and he declined to disclose it.
At Tesla, Mr. Musk is chairman and chief executive but takes no salary. His total compensation last year was valued at $37,584, reflecting minimum wage requirements in California, but he has never accepted the money.
Mr. Musk got $1.2 million in total compensation from SolarCity, almost all in the form of stock options that vest over three years.
His compensation at SpaceX is about $2.4 million, according to a government website that lists company contracts. A person familiar with the matter said the total includes a salary of $38,000 and the rest in equity.
A study in February by ISS QuickScore, part of proxy adviser Institutional Shareholder Services Inc., found that executives or directors at just 13% of the 3,000 largest publicly traded U.S. companies have pledged shares for loans.
SolarCity and Tesla shares are volatile. SolarCity, which is based in San Mateo, Calif., and installs solar panels at residences across the U.S., has seen its stock price fall about 35% since the start of this year. Tesla fell 40% from the end of December to February, but has since erased those declines.
Mr. Musk said he has “made it clear to shareholders that I subscribe to the notion that the captain is the last person off the ship.” In the interview, he said he has no intention of ever selling any Tesla shares and could even add some of his SpaceX stake to the collateral.
Stephen Jurvetson, a founding partner of venture-capital firm Draper Fisher Jurvetson, an early and large investor in SpaceX, Tesla and SolarCity, said the moves by Mr. Musk aren’t cause for concern.
Mr. Musk’s “passion is breathtaking,” said Mr. Jurvetson, a director at SpaceX and Tesla. He praised what he called Mr. Musk’s dedication and vision.
Asked if Mr. Musk’s personal loans are in the best interest of shareholders and if directors have discussed the matter, Mr. Jurvetson replied: “I don’t have a desire to take on that question.”
Mr. Jurvetson added: “You want to look at it as a percentage of his holdings.” As long as Mr. Musk ties up less than 5% of his holdings, “you don’t have much to talk about,” though it is “something that should be watched,” said Mr. Jurvetson. Mr. Musk said he set the 5% threshold himself.
Mr. Musk helped spawn SolarCity, SpaceX and Tesla using $165 million reaped from the 2002 sale of his stake in online-payments processor PayPal Holdings Inc.
From the start, he was willing to use money from one fledgling company to help another.
In late 2008, Tesla faced a potential financial collapse because of tightened access to funding, as well as manufacturing delays related to its newly launched Roadster electric car.
Mr. Musk pledged to invest $20 million of his own money into Tesla as part of a $40 million funding round for the company.
Around the same time, SpaceX, of Hawthorne, Calif., was struggling to develop its rocket-launch business and was running low on cash. Then it won a $1.6 billion contract from the National Aeronautics and Space Administration to send 12 unmanned cargo capsules to help resupply the international space station, according to news releases.
In early 2009, Mr. Musk personally borrowed $20 million from SpaceX. In the interview, he said the loan was “to help fund Tesla.”
Tesla went public in June 2010. Mr. Musk said he repaid the SpaceX loan with interest by selling 1.4 million shares of Tesla for about $23.8 million. He said that was the only time he has ever sold any shares in the auto maker.
In early 2013, Tesla was running out of cash as it struggled to produce Model S sedans, and the cars were plagued by faulty drive motors and other issues. SolarCity needed cash to help run its solar-panel leasing business.
Musk increased his credit lines to a total of $300 million from the previous $85 million, securities filings show. His lenders, Goldman Sachs Group Inc. and Morgan Stanley, declined to comment.
Securities filings show that 9.5 million Tesla shares, or 29% of his total holdings, were pledged as collateral on the credit lines. He also put up six million SolarCity shares, or 29% of his overall stake.
From May 2013 to October 2013, Mr. Musk used some of the money he tapped from the credit lines to buy $100 million of Tesla shares and $10 million of SolarCity shares in stock offerings that injected both companies with capital, according to securities filings.
A SolarCity spokesman said Mr. Musk’s investment “represented a relatively small percentage of the $398 million raised in the transaction.”
Last year, Tesla burned through more than $1.5 billion in cash reserves, according to analysts. Some analysts fretted about delays in deliveries of the auto maker’s new Model X sport-utility vehicle.
SolarCity stumbled as its costs rose and it cut an important growth target by half. Investors also worried that SolarCity could lose the benefit of some tax credits, though that didn’t happen.
A SolarCity spokesman said the target was cut because the company wanted to focus on profitability.
Tesla disclosed last year that Mr. Musk had boosted his personal credit lines to a total of $475 million. He bought $20 million of Tesla shares and $17.7 million of shares in SolarCity, securities filings show.
In the interview, Mr. Musk said his stock purchases show that he is aligned with investors in both companies. He said he has borrowed less than 65% of the money available from the two credit lines.
SolarCity’s solar-bond offerings have gotten three separate boosts from SpaceX. Securities filings show SpaceX bought $90 million of the bonds in March 2015, $75 million last June and another $90 million last month.
Gordon Johnson, an analyst at Axiom Capital Management in New York who follows Tesla, said most retail investors weren’t interested enough in the solar bonds to buy them. SolarCity said the bond offerings have attracted investors from all 50 U.S. states.
Last November, an entity affiliated with Mr. Musk bought $10 million of a $113 million convertible SolarCity bond issue. Lyndon Rive, who is SolarCity’s chief executive and a cousin of Mr. Musk, bought $3 million of the remaining $103 million, according to the company.
Mr. Rive said the bonds are a “good investment.” He added: “If you take a five-year view on the stock, I think it will have a great return.”
SpaceX’s purchase of $90 million of SolarCity bonds from the $105 million offering in March will be used to retire the bonds SpaceX bought last year, according to Mr. Musk. He said the latest deal offered SpaceX a “decent return” on about 10% of its roughly $1 billion cash position.
The financial transactions have raised questions on Capitol Hill, where some lawmakers are concerned that money from federal contracts with SpaceX could be used to help SolarCity.
SpaceX has received $3.2 billion for its rocket program from government contracts, according to a person familiar with the matter. The lawmakers want to make sure none of that money winds up at SolarCity.
Rep. Doug Lamborn (R., Colo.) this week proposed an amendment that would prohibit Mr. Musk from using SpaceX money to buy SolarCity bonds. The provision is intended to send a message to Mr. Musk that congressional Republicans are watching him.
“It’s more for messaging it than debating it and bringing it to an actual vote,” Mr. Lamborn said Wednesday. “It’s enough to raise the message about it.”
Mr. Musk declined to comment. A SpaceX spokesman said the company’s “cash balances are not ‘government money.’ They are SpaceX funds that originate from a broad combination of commercial customer contracts, government contracts and private investor funds.”
Last year, another lawmaker offered a similar amendment to the defense-spending bill, though it was quickly withdrawn. A House committee plans to take up this year’s defense-spending bill today.
Daniel Loeb warns of hedge fund ‘killing field’
One of the most powerful US hedge fund managers believes that the industry is in “first innings of a washout” after a string of disastrous market calls inflicted steep losses on many funds.
Daniel Loeb’s stark comments, in his first-quarter letter to investors in his fund Third Point, come as institutions such as pension funds are questioning the value of investing in hedge funds.
The first quarter was “one of the most catastrophic periods of hedge fund performance that we can remember since the inception of this fund,” in December 1996, Mr Loeb said. “There is no doubt that we are in the first innings of a washout in hedge funds and certain strategies.”
Mr Loeb recounted a litany of recent woes for hedge funds. Many have been caught on the wrong side of market swings, such as those related to the Chinese economy and its currency, he pointed out.
Successful bets from 2015 on Facebook and Netflix have soured, and turns in the fortunes of Valeant and Allergan — two companies where hedge funds piled into their shares — “decimated” portfolios, Mr Loeb said.
Third Point has not been spared mistakes and has lost 2.3 per cent this year, compared with a gain of 1.3 per cent for the S&P 500, according to the letter. Since the fund started 20 years ago, it has returned an annualised 15.8 per cent, more than the S&P’s 7.3 per cent, the letter said.
Third Point was among hedge funds knocked after new tax rules derailed Allergan’s planned $160bn takeover by US-based Pfizer was jeopardised by the US administration’s crackdown on “inversion” tax deals.
An index of hedge fund performance lost 0.7 per cent in the first quarter, and clients pulled $15bn from the industry, the worst quarter in seven years, according to Hedge Fund Research. Many of the industry’s largest and highest profile funds suffered the worst losses, including Bill Ackman’s Pershing Square and funds from Lansdowne.
Funds that had moved into market-neutral strategies at the end of last year were still running high-risk portfolios, Mr Loeb wrote, and when risk assets sold off this year, “market neutral became a hedge fund killing field.”
Event-driven fund management strategies such as Mr Loeb’s were among the hardest hit by outflows in the first quarter, with a net outflow of $8.3bn, according to HFR data. More than half of that was pulled from activist strategies.
An index tracking performance of those types of funds was unchanged for the quarter, recovered from a drop in January of 3.2 per cent, HFR data show.
Poor performance has perturbed investors already disgruntled with their hedge fund investments and worried that they have failed to justify their cost. New York City Employees’ Retirement System this month cut its hedge fund programme, citing a lack of transparency and exorbitant fees.
With many funds taking a more cautious approach to investing, and some facing disruptions from client redemptions, there are opportunities for those who can take advantage, Mr Loeb wrote.
“As most investors have been caught offsides at some or multiple points over the past eight months, the impulse to do little is understandable,” Mr Loeb wrote. “We are well-positioned to seize the opportunities borne out of this chaos and are pleased to have preserved capital through a period of vicious swings in treacherous markets.”
ECB's Draghi: ECB is doing everything to restore inflation to the right level - press interview
- We are well aware of the situation for savers
- There are alternatives in investing savings
- A polite and constructive debate is actually welcome and helps us to explain our policies.
- One thing is clear: the ECB obeys the law, not the politicians.
- Any perception that the ECBs independence is under attack can unsettle businesses and consumers
- ECB policy is working, but we must be patient; investor confidence has not yet been fully restored
- Interest rates will rise again when the economy is growing more strongly again and inflation rises closer to our objective. Low interest rates today will lead to higher rates tomorrow.
- The majority of governments are acting, albeit too slowly for my personal taste. All of them would be well advised to do more. But that is not primarily dependent on the ECB and its policies.
- Greece's challenges have little to do with the euro.