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Monday July 15, 2019



Netflix Shares Fall on Earnings Miss

Netflix, Inc. (NFLX) released its latest quarterly earnings on Monday, July 16. The company reported lower-than-expected subscriber growth for the quarter.

The online streaming giant had revenue of $3.9 billion for the second quarter. This is up from $3.7 billion during the same time last year.

"Internet video is growing globally and we are fortunate to be one of the leaders," said Netflix executives in a letter to shareholders. "In addition to succeeding commercially, we are starting to lead artistically in some categories, with our creators earning enough Emmy nominations this year to collectively break HBO's amazing 17-year run."

The company reported net income of $384 million for the quarter. This is up from $290 million in net income for the same quarter last year.

Netflix added 5.2 million subscribers during the second quarter, matching subscriber numbers from last year's second quarter. Despite holding steady on subscribers and increasing profits, Netflix fell short of its forecast of 6.2 million new users for the quarter. The shortfall contributed to investor concern over the company, causing earnings to tumble 13.5% following the report's release.

Netflix, Inc. (NFLX) shares ended the week at $361.05, down 9.5% for the week.

American Express Increases Earnings Guidance

American Express Company (AXP) reported earnings for the second quarter on Wednesday, July 18. The credit card company reported increased earnings and profits for the quarter.

Revenue for the quarter reached $10.00 billion, up from $9.17 billion during the same quarter last year. This missed Wall Street's expectations of $10.05 billion in revenue.

"We are a globally integrated payments company and the power of our differentiated business model was evident throughout this quarter's results," said American Express CEO Stephen J. Squeri. "Revenue growth was driven by broad-based increases in Card Member spending and fees. It also reflected the benefit of higher loan volumes, which that spending helped generate."

American Express reported net income of $1.62 billion. This is a 21% increase from $1.34 billion in net income at this time last year.

Shares of American Express fell 3.4% following the company's earnings release on Wednesday. Despite missing on revenue for the quarter, however, the company revised its guidance, indicating that it expects revenue to increase 9% for the year. The company was previously forecasting an 8% increase in revenue.

American Express Company (AXP) shares ended the week at $100.15, relatively unchanged for the week.

EBay Reports Earnings

EBay Inc. (EBAY) released its earnings report for the second quarter on Wednesday, July 18. The company reported increased revenue and net income from the previous year's quarter.

The ecommerce giant reported quarterly revenue of $2.64 billion. While this exceeded the company's revenue of $2.42 billion during the same quarter last year, it fell below analysts' estimate of $2.66 billion.

"In Q2 we continued to execute our strategy, making improvements to the core eBay experience," said eBay President and CEO Devin Wenig. "As we look ahead to the second half of 2018, we expect acceleration in our core business and continued strong growth in earnings."

The company reported net income of $642 million, or $0.64 per share. This is up sharply from $29 million, or $0.03 per share during the same quarter last year.

Revenues from eBay's Marketplace segment totaled $1.84 billion, up 9% from the second quarter of last year. StubHub, the company's subsidiary, which specializes in the resale of tickets for sporting events and concerts, reported $240 million in sales, an increase of 5% from the prior year. The company has indicated that it expects revenue between $2.64 billion and $2.69 billion for the third quarter of this year. Share values for the San Jose, California-based company fell 9% following Wednesday's earnings release.

EBay Inc. (EBAY) shares ended the week at $34.20, down 9.2% for the week.

The Dow started the week of 7/16 at 25,034 and closed at 25,058 on 7/20. The S&P 500 started the week at 2,797 and closed at 2,802. The NASDAQ started the week at 7,832 and closed at 7,820.


Treasury Yields Rise

Yields on U.S. Treasury bonds rose this week following President Trump's comments on the Federal Reserve's interest rate policy. The president broke with tradition by expressing his opinions on the independent central bank's decisions.

In an interview with CNBC released on Thursday, the president expressed his concerns over the Federal Reserve's rate hike schedule. The Fed has been steadily raising interest rates since December 2015. Rates have been raised twice so far in 2018, with two more rate hikes expected before year's end.

"I'm not thrilled because we go up and every time you go up they want to raise rates again," said President Trump. "I am not happy about it. But at the same time, I'm letting them do what they feel is best."

The yield on the benchmark 10-year Treasury note was trading at 2.88% midday on Friday after opening the week at 2.83%. The 30-year Treasury bond opened the week at 2.93% and was at 3.02% during trading on Friday.

The president expanded on his comments with a pair of Twitter posts on Friday morning, expressing concern that rising interest rates and a strengthening dollar would put the U.S. at a competitive disadvantage. President Trump noted that the Fed is raising rates at a time when "China, the European Union and others have been manipulating their currencies and interest rates lower."

The Federal Open Market Committee has four remaining meetings scheduled this year. Despite the president's comments, Fed funds futures on Friday indicated a 61% probability of two more rate hikes this year.

During a radio interview last week, Federal Reserve Chairman Jay Powell emphasized the Federal Reserve's independence, stating, "We have a long tradition here of conducting policy in a particular way, and that way is independent of all political concerns."

The 10-year Treasury note yield closed at 2.90% on 7/20 while the 30-year Treasury bond yield was at 3.03%.


Mortgage Rates Drop Slightly

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, July 19. Rates showed little movement from last week.

This week, the 30-year fixed rate mortgage averaged 4.52%, down from last week's average of 4.53%. Last year at this time, the 30-year fixed rate mortgage averaged 3.96%.

The 15-year fixed rate mortgage averaged 4.00% this week, down from 4.02% last week. At this time last year, the 15-year fixed rate mortgage averaged 3.23%.

"Manufacturing output and consumer spending showed improvements, but construction activity was a disappointment," said Sam Khater, Chief Economist at Freddie Mac. "This meant there was no driving force to move mortgage rates in any meaningful way, which has been the theme in the last two months. That's good news for price sensitive home shoppers, given that this stability in borrowing costs allows them a little extra time to find the right home."

Based on published national averages, the money market account closed at 1.25% on 7/20. The 1-year CD finished the week at 2.43%.

Published July 20, 2018
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