US FINANCIAL MARKET

S&P 500 Treads Water After Its $2.7 Trillion Rally: Markets Wrap – Bloomberg, 11/17/2023

• Stocks wavered after a $2.7 trillion rally in November that was fueled by bets the Federal Reserve will end its hiking cycle to prevent an economic recession.
• The dollar erased its 2023 advance.
• The S&P 500 was little changed, while still heading toward its longest streak of weekly gains since July.
• The Nasdaq 100 fell 0.1%. The Dow Jones Industrial Average was little changed.
• Piles of derivatives contracts tied to stocks and indexes mature Friday — which could amplify market instability.
• Applied Materials sank on a report it faces a US criminal probe for allegedly violating export restrictions to China.
• Homebuilders rose as new US home construction unexpectedly picked up.
• The dollar fell and was on course for its biggest monthly drop in a year, with softer-than-expected economic data reinforcing expectations the Fed is done with its tightening cycle and amid bets the US currency has already peaked.
• The yield on 10-year Treasuries advanced two basis points to 4.46%.
• West Texas Intermediate crude rose 2.7% to $74.84 a barrel.
• Spot gold was little changed.
• Traders also kept a close eye on the latest Fedspeak. Fed Vice Chair for Supervision Michael Barr reiterated officials are likely at or near the end of their tightening campaign.
• Fed Bank of San Francisco President Mary Daly said policymakers aren’t certain inflation is on a path to their 2% target.
• Her Boston counterpart Susan Collins noted that an increase in labor force participation can ease imbalances between demand and supply and allow for strong growth that doesn’t necessarily fuel inflation.
• The valuations of high-quality stocks — those with high profitability and low leverage — are currently significantly more expensive compared to both the overall market and their low-quality counterparts, an analysis by Bloomberg Intelligence found.
• Amazon.com is cutting hundreds of employees in the division responsible for its voice-activated Alexa assistant, according to a memo sent to employees.
• Gap reported profit that exceeded forecasts and a smaller-than-expected drop in comparable sales.
• Moody’s Investors Service on Thursday lowered its outlook for Tyson Foods as it expects the largest US meat producer to keep burning cash in the coming 12 to 18 months.
• The Stoxx Europe 600 rose 1%.

Applied Materials Falls Most in Almost a Year on Reported Probe – Bloomberg, 11/17/2023

• Applied Materials, the largest US maker of chipmaking machinery, plunged by the most in almost a year on Friday following a report that it faces a US criminal investigation for allegedly violating export restrictions to China.
• The company is being probed by the Justice Department over dealings with China’s biggest chipmaker, Semiconductor Manufacturing International, according to Reuters.
• The department is looking at whether Applied Materials sold hundreds of millions of dollars of equipment without the proper licenses, the news outlet reported, citing unidentified people familiar with the situation.
• Sales were little changed in the quarter, which ended Oct. 29, at $6.72 billion.
• Earnings in the period amounted to $2.12 a share, excluding some items, the company said.
• Analysts estimated earnings of $1.99 a share and revenue of $6.54 billion.
• Fiscal first-quarter sales will be about $6.47 billion, the company said.
• That compares with an average analyst estimate of $6.34 billion.
• Excluding some items, profit will be $1.72 to $2.08 a share in the period, which ends in January.
• The average projection was $1.84 a share.

BJ’s Wholesale’s stock falls as same-store sales miss estimates and outlook is lowered – Market Watch, 11/17/2023

• Shares of BJ’s Wholesale Club Holdings took a dive Friday, after the membership-based warehouse retailer reported a surprise dip in fiscal third-quarter same-store sales and cut its full-year outlook, citing “shifts in consumer behavior” driven by the broader economic environment.
• Total revenue grew 2.9% to $4.925 billion, to top the FactSet consensus of $4.899, as sales increased 2.8% to $4.82 billion and membership fee income rose 6.6% to $106.1 million.
• Excluding nonrecurring items, adjusted earnings per share slipped to 98 cents from 99 cents but beat the FactSet consensus of 95 cents.
• Meanwhile, same-store sales excluding gasoline sales declined 0.1%, while the FactSet consensus called for a 1.0% rise.
• The company reiterated its adjusted EPS guidance range for fiscal 2023 of $3.80 to $3.92, which surrounds the current FactSet consensus of $3.85.
• But for same-store sales, BJ’s now expects a decline of 2% to an increase of 1%, compared with previous guidance of growth of approximately 2%.

Gap Is Righting the Ship With Old Navy – Wall Street Journal, 11/17/2023

• The company, which also owns Old Navy, Banana Republic and Athleta, on Thursday reported that comparable sales fell 2% in its quarter ended Oct. 28.
• That was much better than the 7.4% decline that Wall Street analysts polled by Visible Alpha had expected.
• Old Navy saw comparable-store sales increase 1% over last year compared with analysts’ expectations for a 7.6% drop.
• Its second largest brand—the namesake Gap—also recovered nicely, with comparable-sales falling just 1%—much better than the 7.1% decline analysts expected.
• Gap’s gross margin improved to 41.3%, up 3.9 percentage points from the year-ago period.
• Net income of $218 million was more than three times the number analysts had penciled in.
• Inventory is down 22%, which means it isn’t likely to repeat the steep discounts that it resorted to last year.
• Its balance sheet looks stronger than it has in a while too, with $1.4 billion of cash—nearly double what it had a year ago.

Amazon Is Laying Off Hundreds of People in Alexa Division – Bloomberg, 11/17/2023

• Amazon.com is cutting hundreds of employees in the division responsible for its voice-activated Alexa assistant, according to a memo sent to employees on Friday.
• Daniel Rausch, an Amazon vice president who leads teams working on Alexa and the company’s Fire TV streaming franchise, said the company was “shifting some of our efforts to better align with our business priorities,” including focusing on building capabilities powered by generative artificial intelligence.
• “These shifts are leading us to discontinue some initiatives, which is resulting in several hundred roles being eliminated.”
• Rausch said employees in the US and Canada set to be laid off would be informed Friday morning Seattle time.
• Employees in India will find out next week, and cuts in other countries may follow other timelines to allow for consultations with employee groups or other factors.

Elon Musk’s X Loses Bid to Scrap FTC Privacy Order – Wall Street Journal, 11/17/2023

• A federal judge denied X’s request to modify or terminate a consent order between the social-media company acquired by Elon Musk last year and the Federal Trade Commission over how the platform handled users’ information.
• In a decision Thursday, U.S. Magistrate Judge Thomas Hixson in the Northern District of California said his court lacked the power to grant X relief from another tribunal’s orders.
• The judge also denied X’s request to stop a deposition of Musk by the FTC.
• In May 2022, the platform then known as Twitter agreed to new oversight by the FTC and a $150 million penalty to settle a federal privacy suit.
• The government said the increased requests for information were because Musk “directed at least five rounds of terminations, layoffs or other reductions in X’s workforce, which affected the security, governance, risk and compliance team,” according to a legal filing.

PG&E Wins Approval to Bury More Than 1,200 Miles of Power Lines – Wall Street Journal, 11/17/2023

• California regulators on Thursday gave PG&E approval to bury hundreds of miles of power lines to reduce wildfire risk in coming years, but the amount fell short of the company’s full request.
• The California Public Utilities Commission voted to allow the company to bury 1,230 miles of power lines between 2023 and 2026 in a process known as undergrounding.
• The company, whose power lines have ignited numerous deadly fires in recent years, had requested permission to bury roughly 2,000 miles over that period to essentially eliminate fire risk on those circuits.
• The commission greenlighted the undergrounding as part of a broader spending plan that would allow PG&E to raise rates to make a range of investments in its gas and electric systems.
• The company estimates that average residential bills will increase by 3.6% a year on average through 2026.

Eli Lilly Will Build $2.5 Billion Plant With Weight-Loss Demand Booming – Bloomberg, 11/17/2023

• Eli Lilly will build a $2.5 billion manufacturing site in Germany to help expand production capacity for injected medicines like its weight-loss shot Zepbound.
• The new plant will help “diversify the growing Lilly presence in Europe,” the company said in a statement.
• Construction is set to begin next year and Lilly expects it to be operational in 2027.
• Lilly also said it will invest up to $100 million in Germany’s early-stage biotech ecosystem.

UAW members ratify new contract with Chrysler owner Stellantis – CNBC, 11/17/2023

• United Auto Workers members at Chrysler owner Stellantis have ratified a new labor contract following a historically contentious round of bargaining between the union and company, according to preliminary results posted Friday by the union.
• The deal is the second this week for the Detroit automakers.
• A deal with General Motors received 54.7% support from UAW-GM members who voted, according to preliminary results.
• UAW members with Ford Motor are on pace to also ratify their agreement, but are continuing to vote Friday.
• A majority of Stellantis facilities overwhelmingly approved the deal, which, like GM and Ford, includes at least 25% wage increases.
• It also includes the reopening of an Illinois plant that had been indefinitely idled.
• According to the UAW’s vote tracker, the deal was supported by 68.4% of the more than 26,000 autoworkers at Stellantis who voted.
• There were still a few smaller facilities left to finalize voting, but there aren’t enough employees at those locations to offset the roughly 9,650-vote margin.
• he Stellantis deal received notable objection at the automaker’s Jeep plants in Toledo, with 55% of workers there opposing the deal.

US ECONOMY & POLITICS

New US Home Construction Increased Unexpectedly in October – Bloomberg, 11/17/2023

• New US home construction unexpectedly picked up in October, indicating builders continue to benefit from a limited supply in the resale market.
• Residential starts increased 1.9% last month to a 1.37 million annualized rate, the highest in three months, government data showed Friday.
• Construction of single-family houses edged up 0.2%, also to the highest level since July.
• Applications to build — a proxy for future construction — rose to 1.49 million.
• Permits to build one-family homes increased to the highest level since May 2022, while multifamily authorizations also rose.
• The advance in starts reflected a 12.5% jump in the West and a 28.4% surge in the Midwest.
• New construction in the Northeast fell to the lowest level in more than two years.
• In the South, the largest US region, starts were the weakest this year.

Fed’s Collins Says Further Rate Hikes Not Off the Table – Bloomberg, 11/17/2023

• Federal Reserve Bank of Boston President Susan Collins said policymakers should not take further tightening off the table despite welcome progress on inflation.
• “In order to get back down to 2% in a reasonable amount of time we need to be patient and resolute and I wouldn’t take additional firming off the table,” Collins said Friday during an interview with CNBC.
• “A key point is we really need to stay the course.”
• Collins said she is seeing some evidence that restrictive interest rates are helping to realign supply and demand in the economy.
• But she pointed out that long-term Treasury yields have come down a bit since the Fed’s last policy meeting.
• She said there was “promising news” in the latest inflation report, but added that core inflation is still running higher than the Fed would like, meaning officials still have more work to do.
• “Data is so noisy right now and the progress that we’ve seen is pretty uneven,” she said.
• “I think we’re positioned to be patient.”

Fed’s Barr Says Recent Data Reinforce View That Rates Are Near Peak – Bloomberg, 11/17/2023

• Federal Reserve Vice Chair for Supervision Michael Barr said policymakers are likely at or near the end of their campaign to raise interest rates as inflation continues to cool, echoing remarks he made last month.
• “We’re likely at or near the peak of where we need to be in terms of having a sufficiently restrictive stance of monetary policy that will sustainably bring inflation down to 2%,” Barr said Friday during a moderated discussion with Bloomberg’s Tracy Alloway and Joe Wiesenthal at an event in New York hosted by The Clearing House.
• “I think the recent economic readings reinforce my view that that is probably correct,” Barr said.

EUROPE & WORLD

Israel Says It Is Close to Dismantling Hamas Military System in Northern Gaza – Wall Street Journal, 11/17/2023

• Israel’s military said it was close to dismantling Hamas’s military system in the north of the Gaza Strip, as the enclave was plunged into a communications blackout when fuel ran out.
• As the war stretches to six weeks, the Israeli military said Friday “there remains work to be completed” in northern Gaza, but that it would target more areas in the strip.
• In the south of the enclave, where Israel had told people to go in October as it prepared to mount a ground offensive in the north, displaced families crowded in homes and shelters worried that the Israeli military would expand operations there.
• Israel has already scored a symbolic victory for itself by entering Gaza’s Al-Shifa Hospital, where it says Hamas hides underground complexes and a key command center.
• It is facing international pressure to provide evidence of significant Hamas operations at the hospital, however, given that thousands of people including doctors and patients were sheltering there when it entered.
• The Israeli military said it found the bodies of Cpl. Noa Marciano, who was abducted by Hamas, in an unspecified structure next to Al-Shifa, and Yehudit Weiss, a woman who had been taken from a kibbutz on Oct. 7.

Factmonster – TODAY in HISTORY

• Queen Elizabeth I of England ascended to the throne upon the death of her half-sister Queen Mary. – 1558
• Congress met in Washington, DC, for the first time. – 1800
• The Suez Canal opened in Egypt. – 1869
• The beginning of the “Velvet Revolution,” which led to the downfall of communism in Czechoslovakia. – 1989
• Arnold Schwarzenegger was sworn in as governor of California. – 2003

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