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Monday July 23, 2018



American Express Reports Decreased Profits

American Express Company (AXP) released its latest quarterly earnings on Wednesday, July 19. Revenue was up slightly from the prior year but profits declined sharply.

The company reported revenue of $8.3 billion. This was an increase of 1% from $8.2 billion reported at this time last year.

"We started the year strong and accelerated the pace this quarter by continuing to execute a strategy that is transforming our consumer, commercial and merchant businesses," said American Express CEO Kenneth I. Chenault. "Our transition started in 2015 when we renewed several long term cobrand relationships and moved away from others that no longer made economic sense."

American Express posted net income of $1.3 billion for the quarter. This is a 33% drop from $2.0 billion this time last year.

The financial services company noted in its report that the results from the previous year's quarter included numbers related to its since-terminated relationship with Costco. The two companies ended their cobrand relationship in 2015. American Express announced in June that it would become the exclusive credit card issuer for Hilton Worldwide Holdings beginning in 2018.

American Express Company (AXP) shares ended the week at $85.59, up less than 1% for the week.

Johnson & Johnson Raises Profit Outlook

Johnson & Johnson (JNJ) reported quarterly earnings on Tuesday, July 18. The company posted an increase in revenue and a drop in profits from the prior year.

Revenue for the quarter was $18.8 billion, up 1.9% from the same quarter last year. This fell below analysts' expected revenue of $18.95 billion.

"Our second-quarter results reflect strong adjusted earnings growth and we are optimistic that the investments we are making will accelerate our sales growth in the second half of this year," said Alex Gorsky, Chairman and CEO of Johnson & Johnson. "Our pharmaceutical pipeline continued its strong momentum with the approval of TREMFYA™ as well as the submission and approval of several key line extensions."

The company posted net earnings of $3.8 billion, or $1.40 per share. This was a 4.3% decrease from $3.9 billion, or $1.43 per share during the same quarter last year.

Johnson & Johnson, purveyor of pharmaceuticals, medical devices and consumer products, increased its full-year guidance in this week's earnings release. The company expects sales between $75.8 billion and $76.1 billion. The full-year earnings outlook was also adjusted upward to between $7.12 and $7.22 per share.

Johnson & Johnson (JNJ) shares ended the week at $135.37, up 2% for the week.

Netflix Exceeds Expectations

Netflix, Inc. (NFLX) announced quarterly earnings on Monday, July 17. The online streaming giant reported strong results that blew past Wall Street expectations and sent shares soaring in after-hours trading on Monday.

Netflix reported quarterly revenue of $2.79 million. This was a 32% increase from last year's second quarter revenue of $2.1 million and higher than the $2.76 million in revenue expected by analysts.

"For Q2, revenue and operating income were right on forecast," said Netflix CFO David Wells, CEO Reed Hastings and CCO Ted Sarandos in a joint letter to shareholders. "Our streaming membership grew more than expected, from 99 [million] to 104 [million], due to our amazing content. We also crossed the symbolic milestones of 100 [million] members and more international than domestic members. It was a good quarter."

Netflix announced net earnings of $66 million, or $0.15 per share. This is up about 67% from $41 million, or $0.09 per share that the company reported in the same quarter one year ago.

Netflix, which has the largest global subscriber base among streaming services, beat expectations in subscriber growth for the quarter with 5.2 million new subscribers. Twenty-seven of their original content shows received over 90 Emmy nominations this year, almost double the nominations they received last year. Netflix plans to premiere 40 films in the near future, ranging from big budget blockbusters to independent films.

Netflix, Inc. (NFLX) shares ended the week at $188.54, up 15.7% for the week.

The Dow started the week of 7/17 at 21,634 and closed at 21,580 on 7/14. The S&P 500 started the week at 2,460 and closed at 2,473. The NASDAQ started the week at 6,320 and closed at 6,388.

Low Inflation Pushes Treasury Yields Down

U.S. Treasury bond yields fell this week as central banks in Europe and Asia project slower-than-expected inflation. Reports by the European Central Bank and the Bank of Japan lowered expectations for immediate economic growth.

The European Central Bank announced this week that it would delay implementation of its plan to move away from its quantitative easing policy. The bank expects to pull back from this non-standard stimulus effort, which was implemented in March of 2015, once inflation returns to nearly 2%.

"We were unanimous in setting no precise date for when to discuss changes in the future," said ECB President Mario Draghi during a press conference on Thursday. "We simply said that our discussions should take place in the autumn."

In early trading on Friday, the 10-year Treasury yield was at 2.24%, down from 2.33% at the start of the week. The 30-year Treasury bond yield was at 2.81%, after opening the week at 2.92%.

On Friday, the European Central Bank released a report indicating that it expects annual inflation between 1.5% and 1.6% between now and 2019. This parallels a report released Thursday by the Bank of Japan, which pushed back its target date for reaching the 2% inflation goal to early 2020.

"Central Banks in the U.S. and Europe have also pushed back the timing to achieve their inflation targets a few times," said Bank of Japan Governor Haruhiko Kuroda. "There are some factors that are just too difficult for a central bank to control or predict, such as falls in oil prices."

The 10-year Treasury note yield finished the week of 7/17 at 2.23%, while the 30-year Treasury note yield was 2.80%.

Mortgage Rates Reverse Course

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, July 20. Mortgage rates fell for the first time in three weeks.

This week, 30-year fixed rate mortgage averaged 3.96%, down from 4.03% last week. At this time last year, the 30-year fixed rate mortgage averaged 3.45%.

The 15-year fixed rate mortgage averaged 3.23% for the week. This was down from 3.29% last week. Last year at this time, the 15-year fixed rate mortgage averaged 2.75%.

"Continued economic uncertainty and weak inflation data pushed rates lower this week," said Freddie Mac chief economist Sean Becketti. "The 10-year Treasury yield fell 5 basis points this week. The 30-year mortgage rate moved with Treasury yields, dropping 7 basis points to 3.86%."

Based on published national averages, the money market account finished the week of 7/17 at 0.61%. The 1-year CD finished at 1.41%.

Published July 21, 2017

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