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Wednesday January 16, 2019



JPMorgan Exceeds Earnings Expectations

JPMorgan Chase & Co. (JPM) released its latest quarterly earnings report on Friday, January 12. The bank posted profits and revenue that exceeded expectations despite a 37% drop in earnings related to the new tax bill.

Revenue for the fourth quarter reached $25.45 billion. This is up from $24.33 billion reported during the same quarter last year and is above the $25.15 billion that analysts predicted.

"2017 was a record year on many measures for JPMorgan Chase as we added clients and customers and delivered record EPS," said JPMorgan CEO Jamie Dimon. "We had healthy growth in Treasury Services, Securities Services and Investment Banking - we were #1 in [Investment Banking] fees globally, a record for the firm."

JPMorgan reported quarterly profit of $4.23 billion, down 37% from last year's fourth quarter earnings of $6.73 billion. On an adjusted earnings per share basis, the company posted profit of $1.76 per share, exceeding the $1.69 per share Wall Street expected.

The company attributed the drop in earnings to the enactment of the Tax Cuts and Jobs Act (TCJA) in the fourth quarter, which required the bank to make certain accounting changes. In the bank's earnings release, Dimon praised the new tax law, stating, "The enactment of tax reform in the fourth quarter is a significant positive outcome for the country. U.S. companies will be more competitive globally, which will ultimately benefit all Americans." He went on to say, "We have always invested, even in difficult times, in our employees, customers and communities, and as a result of the tax plan we will be increasing and accelerating some of these investments."

JPMorgan Chase & Co. (JPM) shares ended the week at $112.67, up 4.2% for the week.

Delta Flies Past Earnings Estimates

Delta Air Lines (DAL) announced quarterly earnings on Thursday, January 11. The company reported revenue and earnings that beat Wall Street estimates, causing shares to jump more than 3% after the report's release.

Delta reported quarterly revenue of $10.25 billion. This was an 8% increase from last year's fourth quarter revenue of $9.46 billion and above the $10.13 billion expected.

"Delta people rose to the challenges of 2017 to produce solid financial results, industry leading operational reliability and strong improvements in customer satisfaction, and it's an honor to recognize their achievements with $1.1 billion in profit sharing," said Delta CEO Ed Bastian. "Looking ahead to 2018, we expect to drive solid earnings growth by growing our top line 4% to 6%, improving our cost trajectory and integrating our international partner network."

The company announced quarterly earnings of $572 million, down 8% from $622 million one year ago. On an adjusted earnings per share basis, Delta reported profit of $0.96 per share, exceeding the $0.88 predicted.

On Thursday, Delta raised its 2018 earnings guidance from $6.35 per share to $6.70 per share. Bastian attributed the increase to "additional benefits from tax reform." The company anticipates that revenue generated from the tax changes will help partially offset increasing fuels costs, which jumped more than 20% in the fourth quarter.

Delta Air Lines (DAL) shares ended the week at $59.83, up 7% for the week.

WD-40 Reports Revenue Boost

WD-40 Company (WDFC) reported quarterly earnings on Tuesday, January 9. The maintenance and cleaning products company reported a 9% boost in revenue and better-than-expected earnings for the quarter.

WD-40 announced revenue of $97.6 million for the first quarter, which beat analysts' projected revenue estimates of $93.0 million. Last year at this time, the company reported revenue of $89.3 million.

"Our flagship product, WD-40 Multi-Use Product grew 10% in the first quarter, and our WD-40 Specialist product line grew 29% compared to the prior year quarter," said WD-40 President and CEO Garry Ridge. "Overall we are off to a good start in 2018 and we believe our focus on executing against our strategic initiatives will continue to drive revenue growth, further strengthen our financial foundation, and enhance shareholder value."

WD-40 reported net income of $12.63 million, or $0.90 per share. This is up from $11.76 million, or $0.82 per share reported last year in the second quarter and above the $0.83 per share expected.

The San Diego-based company provides maintenance, homecare and cleaning products to more than 176 countries. This year, WD-40 expects full-year earnings to be between $3.91 and $3.98 per share with revenue of $396 million to $403 million. On Tuesday after earnings were released, the company's shares rose $0.25 to $119.15.

WD-40 Company (WDFC) shares ended the week at $124.05, up 4.9% for the week.

The Dow started the week of 1/8 at 25,308 and closed at 25,803 on 1/12. The S&P 500 started the week at 2,743 and closed at 2,786. The NASDAQ started the week at 7,135 and closed at 7,261.

Treasury Yields Continue Rise

U.S. Treasury yields pushed even higher this week following strong inflation data, despite geo-political uncertainty. Treasury bonds met strong demand in this week's Treasury auctions.

On Tuesday, the benchmark 10-year Treasury yield hit a high of 2.597%, the highest it has been since March 2017. The gain in the yield followed reports that the Chinese government may slow its purchase of U.S. Treasury bonds citing more attractive investments and rising trade tensions. The yield curve steepened to levels not seen since November 2016.

"It's pretty significant," stated Bruce Bittles, chief investment strategist at Robert W. Baird and Co., regarding China's decision to halt the purchasing of U.S. Treasury bonds. "That takes an important buyer out of the market at the same time you're taking the most important buyer out of the market—the U.S. Fed."

During morning trading on Wednesday, the yield on the 10-year Treasury note held steady around 2.58% preceding the planned Treasury auction of the 10-year Treasury note. The auction was met with strong demand from investors. The bid-to-cover ratio reached a high last seen in June 2016, causing the yield to dip to 2.55% at closing due to increased demand.

"We suspect that the strength of the auction was primarily fueled by short-covering," said Thomas Simons, a money market economist at Jefferies & Co. "Normally these are short-term trades that are bearish signals for the market."

On Friday, the U.S. Bureau of Labor Statistics released its core Consumer Price Index (CPI) showing a gain of 0.3%, beating economists' prediction of 0.2%. This was the strongest gain the index has posted in almost a year. Yields were buoyed by the report, with the 10-year Treasury note hitting 2.59% in morning trading. The 2-year Treasury yield was above 2% for the first time since 2008.

"What [has] been driving rates up is this belief in the market that inflation might be returning," said James Bianco, founder of Bianco Research. "The CPI data ran a little hotter than people were expecting."

The 10-year Treasury note yield finished the week of 1/8 at 2.55%, while the 30-year Treasury note yield was 2.85%.

Mortgage Rates Increase

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, January 11. The report revealed the 15 and 30-year fixed mortgage rates were higher than last week's averages.

The 30-year fixed rate mortgage averaged 3.99% this week. This represents an increase from last week when it averaged 3.95%. Last year at this time, the 30-year fixed rate mortgage averaged 4.12%.

This week, the 15-year fixed rate mortgage averaged 3.44%. This was higher than last week's average of 3.38%. The 15-year fixed rate mortgage averaged 3.37% one year ago.

"After dipping slightly last week, Treasury yields surged this week amidst sell-offs in the bond market," said Len Kiefer Deputy Chief Economist at Freddie Mac. "The 10-year Treasury yield, for instance, reached its highest point since March of last year. Mortgage rates followed Treasury yields and ticked up modestly across the board."

Based on published national averages, the money market account finished the week of 1/8 at 0.80%. The 1-year CD finished at 1.72%.

Published January 12, 2018
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