Market Snapshot* DJIA
18526.14
-11.97
Nasdaq
5283.93
+8.02
S&P 500
2186.15
-0.32
1.54%
1/32
10-Year 30-Year Euro
Wednesday, September 07, 2016
Nymex Crude
2.237%
1/32
$1.12425
-0.0005
$45.5
+0.67
Source: SIX Financial Information, ICAP plc *preliminary values subject to adjustments
Stocks
Tomorrow’s Headlines
U.S. stocks finished mixed, as declines in shares of grocery chains helped drag down the consumer staples sector. The Dow Jones Industrial Average fell 20 points, or 0.1%, to 18518. The S&P 500 lost 0.1% and the Nasdaq Composite was flat.
Apple Unveils Latest iPhone Apple Inc. unveiled its latest iPhone as the company seeks to reignite sales of the smartphone that has propelled much of the company’s extraordinary growth over the past decade. The new phone, called iPhone 7, removes the traditional headphone jack but includes a force-sensitive “home” button, a new two-camera system and a sharper screen, among other different features. Questions, though, remain whether the changes will be enough to reignite excitement about the iPhone.
Treasurys U.S. government bonds held relatively steady Wednesday following Tuesday's soft report on U.S. service-sector activity.
The new phone will start at $649, the same as the previous model, but will offer twice the minimum amount storage.
Forex The dollar wavered Wednesday while the Japanese yen strengthened, as investors focus on major central-bank decisions in the weeks ahead. The WSJ Dollar Index, which measures the U.S. currency against 16 others, was essentially flat at 85.76.
Commodities Oil prices rose for a third straight session, pulled up by a gasoline market riding on expectations that refineries are slowing down. Light, sweet crude for October delivery settled up 67 cents, or 1.5%, to $45.50 a barrel on the New York Mercantile Exchange.
Ahead of the announcement, Apple also showed off a new game based on the Super Mario videogame character and its next-generation smartwatch, which will include a wrist-top version of the hit mobile game “Pokemon Go.” Chief Executive Tim Cook began the event in San Francisco with a taped video involving late-night host James Corden driving him in a version of the comedian’s “Carpool Karaoke” skit. The skit included the two singing “Sweet Home Alabama” with musician Pharrell Williams.
Fed Beige Book: Economy Expanded at a ‘Modest’ Pace Through August The economy continued to expand at a modest pace in July and August, a Federal Reserve report said Wednesday, a sign the U.S. could continue its uninspired growth trajectory in the third quarter. continued on page 2
Tomorrow’s Calendar 8:30 a.m.
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09/03 Unemployment Insurance Weekly Claims Report - Initial Claims Jobless Claims (expected 265K), Net Chg (previous +2K), Continuing Claims (previous 2159000), Net Chg (previous +14K) Bloomberg Consumer Comfort Index Q2 Quarterly Services 09/02 EIA Weekly Natural Gas Storage Report Working Gas In Storage (Cbf) (previous 3401B), Net Chg (Cbf) (previous +51B) 09/02 EIA Weekly Petroleum Status Report Crude Oil Stocks (Bbl) (previous 525.87M), Net Chg (Bbl) (previous +2.276M), Gasoline Stocks (Bbl) (previous 232.004M), Net Chg (Bbl) (previous -0.691M), Distillate Stocks (Bbl) (previous 154.753M), Net Chg (Bbl) (previous +1.496M), Refinery Usage (previous 92.8%), Total Prod Supplied (Bbl/day) (previous 20.152M), Net Chg (Bbl/day) (previous -0.589M) Jul Consumer Credit Consumer Credit Net Chg (USD) (expected +16.0B) Federal Discount Window Borrowings Money Stock Measures Foreign Central Bank Holdings
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Wednesday, September 07, 2016 4 p.m. ET
Tomorrow’s Headlines continued Most districts across the country saw “modest” or “moderate” growth in the most recent period, according to the central bank’s beige book, a review of regional economic conditions. The survey collected anecdotal information on economic activity in July and August from 12 district banks. Respondents from across the districts said they expected growth to continue at a “moderate” pace in the coming months. Most districts reported tight labor markets, with moderate growth in hiring. Upward pressure on wages continued to build, especially for workers with specialized skill sets such as engineers and certain construction workers. That didn’t translate into significant inflation pressure, though. Price increases were described as “slight overall.”
Fed’s Lacker: Strong Case For September Hike Federal Reserve Bank of Richmond President Jeffrey Lacker said Wednesday there will be a strong case for a rate increase at the Fed’s policy meeting later this month. Mr. Lacker said recent mixed economic data, including lower-than-expected readings on services and manufacturing activity, hadn’t eroded his economic outlook. “At this point it looks like the case for a rate increase is going to be strong in September,” he told reporters after testifying on Capitol Hill. “I just don’t see what would hold us back.” The Fed’s Open Market Committee is scheduled to meet Sept. 20-21.
Appeals Court Ruling Weakens Uber Driver Class-Action Uber Technologies Inc. was handed a victory Wednesday in a fight with its legions of drivers after an appeals court ruled most of the contract workers must resolve their differences through individual actions, rather than as a group. The decision by the Ninth Circuit Court of Appeals applies to a lawsuit challenging Uber’s background-check practices, but the reasoning in it likely also applies to a high-profile case over drivers’ classification. In that class-action suit, Uber had agreed in a settlement to pay up to $100 million to some 385,000 drivers in two states, but a federal judge rejected that proposal last month. Wednesday’s ruling is a setback for labor advocates who had hoped the classification suit would proceed to trial and set a precedent for workers participating in the so-called gig economy, performing hourly tasks like grocery shopping, parking cars and cleaning clothing for others.
Dell Closes $60 Billion Merger with EMC
The new company, to be named Dell Technologies, aims to be a one-stop shop for information technology sold to business. The company employs about 140,000 people globally and will maintain operations in Hopkinton, Mass., where EMC was located. With $74 billion in revenue, Dell Technologies will be the world’s largest privately controlled tech company.
Priceline Drops Name-Your-Own Airfare Feature Priceline.com is no longer letting travelers name their own price for airline tickets, a feature that kicked off the online travel pioneer’s business but had lost traction with customers. Priceline Group Inc. on Sept. 1 quietly removed the online auction option for airfares from its namesake website. The company still lets customers make an offer for hotel rooms and car rentals, though such transactions are fewer and fewer. “We’ve removed the need for the consumer to bid,” said Brigit Zimmerman, Priceline.com’s senior vice president of air and vacation packages. “It’s a heck of a lot easier.”
Tesla Investigates Fatal Crash in the Netherlands Tesla Motors Inc. and Dutch authorities Wednesday were investigating the fatal crash of one of the company’s vehicles in a town south of Amsterdam, raising the specter that the car’s self-driving system might have played a role in the driver’s death. Tesla had technical personnel at the scene taking part in the investigation though no other details were immediately available and the company declined to say whether the self-driving features were being used at the time of the crash. The Associated Press reported that the driver, a 53-year-old man, died when his car slammed into a tree and burst into flames. “We are undertaking a full investigation and will share our findings as soon as possible,” the Tesla spokesman said.
JPMorgan Taps New Heads of Equities J.P. Morgan Chase & Co. said Wednesday that two longstanding executives, Mark Leung and Jason Sippel, will become global co-heads of equities. The move comes days after Barclays PLC said Tim Throsby, who had previously been at the helm of J.P. Morgan’s equities business, would move to the U.K. bank. Mr. Leung and Mr. Sippel will also manage the prime-services business as well, alongside James Kenny, the New York bank’s head of investor services, according to an internal memo reviewed by The Wall Street Journal.
Dell Inc. Wednesday said it completed its $60 billion deal to acquire EMC Corp., the largest technology merger in history. Copyright © Dow Jones & Company, Inc. All Rights Reserved. www.dowjones.com
continued on page 3
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Tomorrow’s Headlines
lion) in bad loans, new tough laws in management criteria have been introduced into Greek law as of late last year.
continued
Ackman’s Stake Acquisition Increases Pressure on Chipotle William Ackman’s large stake in Chipotle Mexican Grill Inc. adds pressure to the struggling burrito chain that has faced longstanding shareholder concerns about the board and executive pay. Judging from the stock bounce Wednesday morning, investors welcome the move by Mr. Ackman, whose Pershing Square Capital Management LP late Tuesday disclosed a 9.9% stake in the company. Chipotle shares rose 5.5% to $436.71 in afternoon trading. Chipotle is still reeling from a series of food-safety problems last year, including a case of salmonella in Minnesota, E. coli in several states, and norovirus in California and Boston. Its strategy to lure back customers with free burritos and free children’s meals doesn’t appear to be working, while its new loyalty program hasn’t kept restaurants full.
TRowe Price to Oppose Oracle’s Deal For NetSuite T. Rowe Price Group Inc. notified NetSuite Inc. that it will oppose its planned $9.3 billion acquisition by Oracle Corp. The investment firm cited “inherent conflicts of interest” between the two software companies. In a regulatory filing Wednesday, NetSuite said its board received a letter from T. Rowe which said Oracle’s planned purchase price undervalues NetSuite in part because potential rival bidders are scared off by Oracle Chairman Larry Ellison’s “unique relationship with the company.” Entities owned by Mr. Ellison or his family held nearly 40% of NetSuite’s common shares as of April, according to regulatory filings. “In our view, the inherent conflicts of interest between NetSuite, the Ellison entities and Oracle are daunting and may be impossible to manage,” T. Rowe wrote in the letter, sent to NetSuite’s board on Tuesday. “Therefore, subjecting this transaction—or any future versions of it—to the approval of the unaffiliated shareholders is essential.” T. Rowe is the largest unaffiliated shareholder of NetSuite, with approximately 14.5 million shares. At Wednesday’s midday trading price of $109.25, the stake is worth nearly $1.6 billion.
National Bank of Greece Begins Search For New Chair National Bank of Greece, the country’s second-largest lender, called Wednesday for applications for a new chairman as part of a shake-up of the industry’s management demanded by international creditors. In a bid to restore investor confidence in Greek banks and help them better manage some 110 billion euros ($124 bil-
NBG said that it is in the process of reorganizing its board of directors and it is looking for a new chairman, head of the audit committee and nonexecutive directors. Headhunter Egon Zehnder has been appointed to help in the recruitment process. Applicants have until Sept. 25 to apply for the jobs. Greece’s parliament has introduced a complex and comprehensive set of rules aimed at reducing politicized appointments in the sector. The rules effectively banish local business magnates and former politicians from bank boards. Directors must have worked in banking for at least a decade, for instance. But directors who head committees that control decisions about risk and personnel can’t have worked in Greece’s financial sector in the past 10 years. Up to a third of the board members at Greece’s major banks are expected to be replaced because of these new criteria, including current NBG chairwoman Louka Katseli.
Target Revamps Staffing for Grocery Business Target Corp. is building dedicated teams to manage the grocery sections of its stores as part of an effort to turn around declining sales in its food business. Grocery employees will no longer work in other parts of the store and they will receive specialized training, including handling backroom inventory and interacting with customers. Each grocery team will have 10 to 60 employees, depending on the store. The changes have already been rolled out to about 450 stores and are expected to appear in another 150 by next month. The new approach is part of an effort “to improve our offering, better cater to our guests and drive growth,” said Katie Boylan, a Target spokeswoman.
Guggenheim Hires Ex-Nomura Banker For Leveraged Finance Guggenheim Partners has hired a senior leveraged-finance banker who left Nomura Holdings amid a shake-up at the Japanese firm this spring. Carl Mayer, who headed Nomura’s U.S. leveraged finance group, is joining Guggenheim’s New York office in a senior role focused on originating and distributing the types of risky debt often used to power private-equity takeovers, according to people familiar with the move. Mr. Mayer and another senior leveraged-finance banker at Nomura, Mark Epley, left the firm in April as Nomura slashed head count in its leveraged-buyout group. Guggenheim, like other nonbank financial firms, sees opportunity in leveraged lending, an area that has become more difficult and less profitable for traditional Wall Street banks. New rules limit banks overseen by the Federal Reserve and the Office of the Comptroller of the Currency from providing what regulators view as excessive levels of debt to companies.
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Wednesday, September 07, 2016 4 p.m. ET Copyright Dow Jones & Co., Inc.
Talking Points
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Trump Promises To Spend On Military Buildup
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The first-time political candidate didn’t put a price tag on his plan. Mackenzie Eaglen, a resident fellow at the conservative American Enterprise Institute, estimates that Mr. Trump’s plan could cost $55 billion to $60 billion more a year than the current budget caps for military spending.
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Donald Trump laid out plans Wednesday to jettison current defense-spending caps and embark on a military buildup that includes big outlays for ships, planes and troops, as well as bolstering the nation’s missile-defense systems. The Republican presidential nominee also said that, if elected, he would give the Pentagon 30 days to present a plan for destroying ISIS. “Today, I’m here to talk to you about three crucial words that should be at the center, always, of our foreign policy,” Mr. Trump said. “Peace through strength.” The New York businessman said he wants to increase the Army to 540,000 troops, build out the Marine Corps to 36 battalions and add about 100 fighter craft to the Air Force, bringing the total to 1,200. Mr. Trump also said he would build a “state of the art” missile-defense system and modernize naval cruisers to provide ballistic missile-defense capabilities.
The four-year cost of restoring the Army to 540,000 active-duty soldiers could be between $35 billion and $50 billion, she said. The cost over four years to expand the Navy’s fleet from 308 ships to 350 would be about $13 billion; the cost of building the Marine Corps to have 36 battalions would be about $15 billion over the next four years. Finally, building a 1,200-fighter Air Force could cost at least $25 billion, Ms. Eaglen estimated. The costs of Mr. Trump’s proposals, however, would cost more beyond the four-year estimates; building 42 ships, for example, would take years to complete and cost billions more. “This is clearly ambitious and expensive,” she said in an email. Anthony Cordesman, a defense and strategy expert at the Center for Strategic & International Studies, said Mr. Trump’s numbers were more a political statement to show his defense commitments to voters than a serious defense-policy proposal. “Generic manpower or generic units or generic equipment has no military meaning,” said Mr. Cordesman. Chris Harmer, a retired commander in the U.S. Navy and a defense-policy expert, said the broader point that the military is overtaxed and underfunded in its current missions abroad has merit. But he said that there was little need to increase defense if Mr. Trump is simultaneously proposing scaling back U.S. commitments. “Mr. Trump seems to be advocating both a decrease in overseas commitments as well as an increase in military funding that doesn’t seem to make sense. He has talked repeatedly of decreasing U.S. commitment to our Asian allies, our allies in the Middle East and our NATO and European allies. If that is what he wants to do, there is no real reason to increase funding,” Mr. Harmer said. Justin Johnson, a defense-budget expert with the conservative Heritage Foundation, said the U.S. military was in a “downward spiral” at the same time threats from Islamic State, Russia, North Korea and other international and nonstate actors were growing. Mr. Trump’s proposal to both spend more resources on defense while asking allies to contribute their fair share was a reasonable policy prescription, he said. “The next president should do both things: rebuild the U.S. military and call for our allies to do more. I think that’s a reasonable step,” Mr. Johnson said. Mr. Trump cited the Heritage Foundation’s work in his speech. Before he could embark on a military buildup, Mr. Trump would have to convince Congress to rescind mandatory defense-spending limits, part of what is known continued on page 5 Copyright © Dow Jones & Company, Inc. All Rights Reserved. www.dowjones.com
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Talking Points
That isn’t the problem this year. Performance has been far more broad-based. Some 57% of S&P 500 stocks have outperformed the index so far in 2016. That is higher than usual, according to research firm Cornerstone Macro.
continued as sequestration, or the sequester. Those limits were established as part of a 2011 budget agreement that set a decade’s worth of spending caps to try to reduce the federal budget deficit. “As soon as I take office, I will ask Congress to fully eliminate the defense sequester and will submit a new budget to rebuild our military,” Mr. Trump said. “It is so depleted.” Calls to end the sequestration cuts have increased as military officials have warned lawmakers that the reductions would jeopardize preparedness. But lawmakers have so far been only able to agree on temporary deals easing spending limits for both the military and domestic programs.
This Year, Everyone Is Beating The Market It has gone from bad to worse for stock pickers this year. In 2015, when the S&P 500 barely budged, the index’s performance was driven by a narrow sliver of the market, the so-called FANG stocks—Facebook Inc., Amazon.com Inc., Netflix Inc. and Google parent Alphabet Inc. Fund managers who failed to own enough of any of those highfliers had a tough time keeping up.
And the S&P 500 equal-weight index, which tracks the same S&P 500 stocks but weighs them equally instead of by market capitalization, has beaten the traditional S&P 500 by about 3 percentage points. By comparison, it underperformed the market last year by 3.4 percentage points. “There are more ways to find returns today,” Chris Verrone of Strategas Research Partners wrote to clients this week. But you won’t find them if you own a typical fund. Only 15% of large-cap active managers have beaten the Russell 1000 this year through August, the worst performance on record dating back to 2003, according to Bank of America Merrill Lynch. Some of this might be earnings driven. Active managers tend to perform better when profit growth is strong, unlike today. Low rates also have hampered performance. The reach for yield has prompted a surge into bond-like stocks such as slowly growing utilities and telecom stocks, which growth-oriented managers tend to ignore. Some consolation for fund managers and all investors: A wider distribution of rallying stocks bodes well for the duration of a bull market. Narrow rallies such as those during the dotcom boom and housing bubble were followed by sharp reversals, though that didn’t happen after the FANG rally last year.
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