Friday, August 18, 2017

China's Lenovo posts first-quarter loss on higher costs, sluggish PC market

China's Lenovo posts first-quarter loss on higher costs, sluggish PC market

A product of Lenovo is displayed during a news conference on the company's annual results in Hong Kong May 26, 2016.   REUTERS/Bobby Yip/File Photo A product of Lenovo is displayed during a news conference on the company's annual results in Hong Kong Thomson Reuters
HONG KONG (Reuters) - Chinese personal computer maker Lenovo Group Ltd posted a first-quarter loss on Friday citing higher costs and slower growth in the personal computer market, and said the outlook was challenging due in part to supply constraints.
The $72 million loss the company reported for the three months ended June was its first quarterly loss since September 2015, and compared with a profit of $173 million for the same period last year.
It lagged forecasts for a profit of $5.29 million, according to the average of 8 analyst estimates in a Thomson Reuters poll.
Supply constraints of key components as well as cost increases weighed on its bottom line and would continue to do so in the short term, the company said.
Revenue was flat at $10.01 billion, in line with an estimate of $10 billion.
PC shipments dropped 6 percent year-on-year, compared with a 3 percent decline for the industry, Lenovo said in a filing to the Hong Kong Stock Exchange.
Lenovo lost its position as the world's largest PC maker to HP Inc in the quarter, according to data from Gartner.
(Reporting by Sijia Jiang and Donny Kwok, Editing by Anne Marie Roantree and Stephen Coates)
Read the original article on Reuters. Copyright 2017. Follow Reuters on Twitter.

STOCKS GET CRUSHED: Here's what you need to know

STOCKS GET CRUSHED: Here's what you need to know

gary cohnGary Cohn Chip Somodevilla/Getty Images
Stocks sold off Thursday as false rumors swirled that Gary Cohn, President Donald Trump's top economic adviser, was resigning. The concern on Wall Street was that Cohn's departure could stifle some of the administration's business-friendly plans including tax reform. 
The major equity indexes lost more ground after a van plowed into a crowd in Barcelona, Spain, in what authorities said was a terrorist attack. 
By the market close, the S&P 500 had logged its second largest one-day decline of the year. 
Safe haven trades like Treasurys and gold rallied as stocks sold off. The benchmark 10-year yield fell more than 3 basis points to 2.18%, and was hovering near its lowest level since the end of June. Meanwhile, gold climbed about $5 an ounce to near $1,288.
Here's the scoreboard: 
  • Dow: 21,750.73, -274.14, (-1.24%)
  • S&P 500: 2,430.01, -38.10, (-1.54%)
  • Nasdaq: 6,221.91, -123.19, (-1.94%)
  1. Walmart reported second-quarter earnings and revenue that topped Wall Street estimates, boosted by an increase in foot traffic and by strong online sales. Walmart said food categories delivered their strongest comparable-store sales performance in five years, as food inflation boosted performance by "approximately 30 basis points."
  2. Alibaba , China's top e-commerce firm, crushed analysts' estimates with a 56% rise in first-quarter revenue. The results were driven by growth in online sales, which make up most of its business.
  3. Activist investor Bill Ackman says shares of payroll-processor ADP could double in five years, and the company needs to improve its profit margins and integrate its business lines. Ackman's hedge fund Pershing Square disclosed earlier this month an 8% holding in ADP. Pershing Square's disclosure of its stake sparked a testy-back-and-forth between the activist fund and the company which handles many Americans' paychecks.
Additionally: 

The stock market's safety net is working better than ever


Soccer Net Benjamin Kuscevic Universidad Catolica ChileREUTERS/Ivan Alvarado
There's no denying that corporate share buybacks are the fuel that keep stock prices rising during lean times. But while they help the broader market, they've been a drag on the performance of the companies most active in executing them.
That's all changing.
Over the past two months, the corporations with the most share repurchases have been beating the S&P 500. It's a remarkable turnaround for the group, which had been underperforming the benchmark by a whopping 13 percentage points since late 2013, according to data compiled by Bank of America Merrill Lynch.
The reason ultimately boils down to which corporations are carrying the load. Historically, these stocks have been expensive based on a handful of valuation measures. So while buybacks have been beneficial to company share prices, the required capital investment can weigh on profits, which pushes measures like price-to-earnings ratio even further out of whack.
But the companies most active in doing them now are the cheapest on record, according to several metrics, BAML says. It finds that the 13.6 times median relative forward P/E for the group is 25% below the market median, which is well below the historical average discount of 10%. The group is also seeing record lows on a price-to-book basis, as well as relative to free cash flow, according to the firm's data.
Screen Shot 2017 08 17 at 2.08.39 PMThe companies doing the most share buybacks are the cheapest they've ever been. Bank of America Merrill Lynch
Throughout the eight-year bull market, repurchases have been an invaluable source of share appreciation. They're a win-win for corporations that want to push their stock higher by reducing shares outstanding while also signaling to the market that their stock is cheap. And, perhaps most important, it's a tactic that can generate returns during lean times, as it did during the S&P 500's five-quarter earnings slump, a period that saw the index still grind out a 1.5% gain.
Breaking it down by sector, financial and consumer discretionary are where much of the buyback activity is clustered. Financials in particular are being aided by loosening regulations that allow them to increase cash payouts to shareholders.
Bank stocks as a whole have been identified by Goldman Sachs as an excellent opportunity for stock investors because of their attractive prices — the same low valuations that have helped buyback-heavy companies outperform in recent months.
Goldman foresees Federal Reserve tightening coming more quickly than expected, and those higher rates will have a large impact on net interest income for banks across Wall Street. Goldman also notes that financial firms are trading 0.5 standard deviations below their 10-year average relative valuation, and says financials rank "among the most attractively-valued S&P 500 sectors."
A final piece of Goldman's bull case hinges on, you guessed it, the likelihood of further buybacks that could goose share prices higher. So ultimately, as long as repurchases don't make bank stocks too expensive, they're not just going to aid investor returns — they'll also help the corporate buyback community continue outperforming the market.

US pension funds are suing 6 of world's largest banks for allegedly colluding on a $1 trillion market

US pension funds are suing 6 of world's largest banks for allegedly colluding on a $1 trillion market

wall street bull policeThe world's biggest banks are coming under fire from pension funds.Flickr / David Shankbone
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Three U.S. pension funds sued six of the world's largest banks on Thursday, including Goldman Sachs Group Inc and JP Morgan Chase & Co, accusing them of conspiring to stifle competition in the more than $1 trillion stock lending market.
In the lawsuit filed in a Manhattan federal court, the funds accused the banks of boycotting start-up lending platforms by threatening and intimidating their potential clients. The defendants include Bank of America Corp, Credit Suisse AG, Morgan Stanley, UBS AG, Goldman and JP Morgan.
The Iowa Public Employees' Retirement System, Orange County Employees' Retirement System and Sonoma County Employees' Retirement Association said in the lawsuit that the banks have cornered the market on stock lending in violation of federal antitrust law.
“Through various improper means, the likes of Goldman Sachs and Morgan Stanley have for years colluded to maintain their power over this little-known-but-lucrative corner of Wall Street," said Michael Eisenkraft, a lawyer for the funds and partner with Cohen Milstein.
Representatives of Bank of America, Goldman Sachs and JPMorgan declined to comment. The other banks did not immediately respond to requests for comment.
The pension funds said collusion by the banks harms investors and retirees by forcing them to pay high fees to engage in stock lending.
Stock lending is related to short selling and involves lending a stock to an investor or firm through a broker or dealer. Pension funds and other institutional investors frequently lend stock to hedge funds.
In short selling, a security that is not owned or has been borrowed is sold with the idea that it can be bought at a future date at a lower price.
The funds claimed in the lawsuit that the defendants conspired to take down upstart stock lending platforms AQS, which was developed by Quadriserv Inc, and SL-x, which would have allowed lenders and borrowers to interact directly.
The lawsuit claimed that in 2012 Goldman Sachs threatened to stop doing business with Bank of New York (BNY) Mellon if it continued to support the AQS platform and that the bank agreed to stop using it. BNY Mellon declined to comment.
The lawsuit said that through a joint project called EquiLend LLC, the banks purchased SL-x's intellectual property and shelved it, according to the lawsuit. The funds accused the banks of establishing EquiLend in 2001 to safeguard their interests in the stock lending market.
A spokesman for EquiLend, which is also named as a defendant in the lawsuit, declined to comment. (Reporting by Daniel Wiessner in Albany, New York; Editing by Marcy Nicholson)
Get the latest Bank of America stock price here.
Read the original article on Reuters. Copyright 2017. Follow Reuters on Twitter.

The Fed just fired off a stark warning — and it highlights one of the biggest risks for stocks

The Fed just fired off a stark warning — and it highlights one of the biggest risks for stocks

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The Federal Reserve is done pulling punches. It thinks the stock market is too expensive, and it wants investors to take note.
In the minutes of its July meeting, the central bank explicitly highlighted stretched equity valuations, sharpening its tone compared with previous comments. Here's the key segment (emphasis ours):
"Since the April assessment, vulnerabilities associated with asset valuation pressures had edged up from notable to elevated, as asset prices remained high or climbed further, risk spreads narrowed, and expected and actual volatility remained muted in a range of financial markets."
In other words, the Fed is basically saying that it warned you about high valuations, but prices continued to climb, and — guess what — now the situation is even worse.
Later in the minutes, several participants said these extended stock prices, combined with continued low interest rates, had led to an easing of financial conditions. However, they were split on what that means for the market going forward.
One camp argued for tighter monetary policy, saying the Fed's efforts to remove accommodation had been "offset by other factors," limiting their effectiveness.
Another faction said, "Recent rises in equity prices might be part of a broad-based adjustment of asset prices to changes in longer-term financial conditions." And, as such, increasingly expensive stocks might not provide "much additional impetus to aggregate spending on goods and services."
These extended valuations are also a source of worry for other market experts, like John Hussman, the president of the Hussman Investment Trust. By his count, stock-market-valuation measures now exceed every point in history except for one extreme reached in March 2000 — when equities topped leading into the bursting of the dot-com bubble.
And when you look at it from the perspective of individual sectors, conditions look more stretched than in 2000, when excessive valuations were concentrated mostly in tech, according to Hussman.
He went even further and split the S&P 500 into deciles based on the price-revenue ratios of stocks. Except for the richest portion — which is still the most extended since the tech bubble — every decile is currently at or within 2% of its most extreme historical valuation, Hussman's data shows.
8 17 17 spx price revenue by decile COTDWhen split into deciles based on price-revenue ratio, stocks look broadly expensive relative to history.Hussman Funds
But amid all the warnings Hussman and a handful of Fed officers are sounding, some within the central bank think lofty stock prices are justified. Here's another portion of the minutes (emphasis ours):
"A couple of participants noted that favorable macroeconomic factors provided backing for current equity valuations; in addition, as recent equity price increases did not seem to stem importantly from greater use of leverage by investors, these increases might not pose appreciable risks to financial stability."
So the Fed, like the general investing public, is divided. But the central bank is kicking its crusade against higher valuations into a higher gear, so stay tuned to see if the dissenters can be swayed.

Thursday, August 17, 2017

The Fed just fired off a stark warning — and it highlights one of the biggest risks for stocks

The Fed just fired off a stark warning — and it highlights one of the biggest risks for stocks

janet yellenFed Board Chair Janet Yellen looks pretty worried about stock valuations. Gary Cameron/Reuters
The Federal Reserve is done pulling punches. It thinks thestock market is too expensive, and it wants investors to take note.
In the minutes of its July meeting, the central bank explicitly highlighted stretched equity valuations, sharpening its tone compared with previous comments. Here's the key segment (emphasis ours):
"Since the April assessment, vulnerabilities associated with asset valuation pressures had edged up from notable to elevated, as asset prices remained high or climbed further, risk spreads narrowed, and expected and actual volatility remained muted in a range of financial markets."
In other words, the Fed is basically saying that it warned you about high valuations, but prices continued to climb, and — guess what — now the situation is even worse.
Later in the minutes, several participants said these extended stock prices, combined with continued low interest rates, had led to an easing of financial conditions. However, they were split on what that means for the market going forward.
One camp argued for tighter monetary policy, saying the Fed's efforts to remove accommodation had been "offset by other factors," limiting their effectiveness.
Another faction said, "Recent rises in equity prices might be part of a broad-based adjustment of asset prices to changes in longer-term financial conditions." And, as such, increasingly expensive stocks might not provide "much additional impetus to aggregate spending on goods and services."
These extended valuations are also a source of worry for other market experts, like John Hussman, the president of the Hussman Investment Trust. By his count, stock-market-valuation measures now exceed every point in history except for one extreme reached in March 2000 — when equities topped leading into the bursting of the dot-com bubble.
And when you look at it from the perspective of individual sectors, conditions look more stretched than in 2000, when excessive valuations were concentrated mostly in tech, according to Hussman.
He went even further and split the S&P 500 into deciles based on the price-revenue ratios of stocks. Except for the richest portion — which is still the most extended since the tech bubble — every decile is currently at or within 2% of its most extreme historical valuation, Hussman's data shows.
Screen Shot 2017 08 17 at 9.20.39 AMWhen split into deciles based on price-revenue ratio, stocks look broadly expensive relative to history. Hussman Funds
But amid all the warnings Hussman and a handful of Fed officers are sounding, some within the central bank think lofty stock prices are justified. Here's another portion of the minutes (emphasis ours):
"A couple of participants noted that favorable macroeconomic factors provided backing for current equity valuations; in addition, as recent equity price increases did not seem to stem importantly from greater use of leverage by investors, these increases might not pose appreciable risks to financial stability."
So the Fed, like the general investing public, is divided. But the central bank is kicking its crusade against higher valuations into a higher gear, so stay tuned to see if the dissenters can be swayed.

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