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Saturday October 20, 2018



Netflix Outshines Estimates

Netflix, Inc. (NFLX) released its latest quarterly earnings report on Monday, October 16. The streaming service's profits exceeded the prior year's numbers.

The company reported revenue of $2.98 billion for the third quarter. This is up from $2.29 billion during the same quarter last year and exceeded analysts' estimates of $2.97 billion.

"We are growing nicely across the world and are on track to exceed $11 billion in revenue in 2017," said Netflix CFO David Wells, CEO Reed Hastings and CCO Ted Sarandos in a joint letter to shareholders.

"Internet entertainment is delighting consumers, and we are staying at the forefront of this once-in-a-generation opportunity."

Net income for the quarter was $129.6 million, or $0.30 per share, up from $51.5 million, or $0.12 per share, at this time last year. Netflix added 5.3 million subscribers in its third quarter despite subscription rate increases.

On Monday, Netflix announced that it plans to spend up to $8 billion on original content next year. This would be a substantial increase over its current original content spending, which is estimated to be approximately $6 billion. This year, Netflix won 20 Emmys for its original content.

Netflix, Inc. (NFLX) stock ended the week at $194.16, down 3.9% for the week.

Goldman Sachs Exceeds its Prior Quarter

The Goldman Sachs Group, Inc. (GS) posted quarterly earnings on Tuesday, October 17. The global investment banking company reported stronger than expected revenue and profits.

Revenue for the third quarter was $8.3 billion, ahead of the $7.5 billion projected by Wall Street analysts. This is a 2% increase from $8.2 billion during the same quarter last year.

"Following a more challenging second quarter, rates improved significantly amid better U.S. economic data and expectations for central bank actions," said Goldman Sachs CFO Marty Chavez. "Commodities posted a modest improvement sequentially. Despite the increase, third quarter results still represented a bottom decile performance."

Net income was $2.0 billion for the third quarter, a 3% decrease year-over-year from $2.1 billion. The company reported earnings per share of $5.09, well above the expected $4.17 per share.

Goldman Sachs reported revenue of $1.4 billion in its Fixed Income, Currencies and Commodities Client Execution business. This is a 25% improvement from the second quarter earnings report, but reflected a 26% decrease year-over-year. The company is seeking other revenue building ventures to bolster its balance sheet. The company announced that it is exploring blockchain technology, made famous by Bitcoin. It is currently the fifth most active corporate investor in the budding technology.

The Goldman Sachs Group, Inc. (GS) shares ended the week at $244.73, up 2.6% for the week.

IBM at Record Highs Following Earnings Beat

International Business Machines, Corp. (IBM) released its quarterly earnings report on Tuesday, October 17. The technology company beat Wall Street's estimated revenue of $18.6 billion.

The company reported third quarter revenue of $19.1 billion, down from $19.2 billion during the same quarter last year. IBM's stock had the largest single-day gain since January 2009 after the earnings release, despite 22 consecutive quarters of year-over-year earnings decline.

"In the third quarter we achieved double-digit growth in our strategic imperatives, extended our enterprise cloud leadership, and expanded our cognitive solutions business," said IBM chairwoman, president and CEO Virginia Rometty. "There was enthusiastic adoption of IBM's new z Systems mainframe, which delivers breakthrough security capabilities to our clients."

The company reported net income of $2.7 billion, or $2.92 per share. This was less than the prior year's quarterly net income of $2.8 billion, or $2.98 per share.

Last month, IBM committed $240 million to fund an artificial intelligence research lab in a partnership with the Massachusetts Institute of Technology. The company also announced it would be collaborating to explore blockchain technology usage and applicability in the food sector. The alliance with Dole, Driscoll's, Nestle, Tyson Foods, Unilever, Walmart and many others would enable tracing of foods through every stage of the supply chain, from farm to shelf. The goal of the initiative is to cut down on food borne illnesses by enabling stores to quickly pin point the origins of contamination outbreaks.

International Business Machines, Corp. (IBM) shares ended the week at $162.07, up 10.1% for the week.

The Dow started the week of 10/16 at 22,893 and closed at 23,329 on 10/20. The S&P started the week at 2,556 and closed at 2,575. The NASDAQ started the week at 6,623 and closed at 6,629.

Treasury Yields Rise

U.S. Treasury bond yields rose early this week after Janet Yellen, Federal Reserve Chairwoman, spoke at the Group of 30 International Banking Seminar on Sunday, October 15. The 10-year yield was up to 2.31% Monday, marking its largest single-day increase in nearly a month.

Yields continued their upward trend on Tuesday with the benchmark 10-year note reaching 2.33% following the release of the U.S. import data by the Labor Department. The import data for September showed the largest uptick in prices since June 2016.

"We continue to expect that the ongoing strength of the economy will warrant gradual increases in that [benchmark interest] rate to sustain a healthy labor market and stabilize inflation around our 2% longer-run objective," stated Federal Reserve Chairwoman Janet Yellen. "That expectation is based on our view that the federal funds rate remains somewhat below its neutral level - that is, the level that is neither expansionary nor contractionary and keeps the economy operating on an even keel."

On Wednesday, the Federal Reserve released the Summary of Commentary on Current Economic Conditions, pushing the benchmark yield to a six-day high of 2.35%. The summary noted the economy expanded at a modest to moderate rate, while inflation currently sits at 1.3%, well below the 2% Fed target.

Bond yields lagged on Thursday, the 30-year anniversary of Black Monday, as reports emerged indicating that Jay Powell, a member of the Federal Reserve's Board of Governors, is the frontrunner to replace Janet Yellen as the Federal Reserve Chair.

On Friday, yields surged as the Senate passed a budget, which for many presents signs of hope that tax reform may still occur this year. This news caused the yields to rise to 2.38%, as investors hedge against inflation and additional federal debt.

"There is some momentum selling ahead of these possible tax cuts so that's weighing on Treasuries," said Head of Government & Agency Trading at R.W. Pressprich & Co. Larry Milstein. "We expect that there will be a change but we don't know in which direction. Powell is middle of the road."

The 10-year Treasury note yield finished the week of 10/16 at 2.38%. The 30-year Treasury note yield was 2.89%.

Mortgage Rates Slip

Freddie Mac released its latest Primary Mortgage Market Survey on Thursday, October 19. The report showed that the 15 and 30-year mortgage rate averages fell this week.

The 30-year fixed rate mortgage averaged 3.88% this week. This represents a decrease from last week when it averaged 3.91%. During the same time last year, the 30-year fixed rate mortgage averaged 3.52%.

This week, the 15-year fixed rate mortgage averaged 3.19%, down from 3.21% last week. Last year at this time, the 15-year fixed rate mortgage averaged 2.79%.

"Rates came down slightly this week, ending a brief, two-week streak of increases," said Freddie Mac Chief Economist Sean Becketti. "The 10-year Treasury yield dipped 6 basis points, while the 30-year fixed mortgage rate fell 3 basis points to 3.88%."

Based on published national averages, the money market account finished the week of 10/16 at 0.72%. The 1-year CD finished at 1.51%.

Published October 20, 2017

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