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Wednesday January 16, 2019



Charles Schwab Meets Expectations

Charles Schwab Corporation (SCHW) announced its fourth quarter and full-year results on Wednesday, January 17. The brokerage company reported numbers that were in-line with Wall Streets' estimates.

The company reported that revenue rose 14% during the quarter to $2.24 billion. This met Wall Streets' predictions for revenue in the quarter. For the full-year, revenue rose 15% to $8.62 billion.

"Our steady focus on operating 'through clients' eyes' has been a driving force in helping Schwab achieve another record year," said Charles Schwab CEO Walt Bettinger. "In 2017, clients opened 1.4 million accounts, and households new to Schwab's Retail business rose by 49% versus 2016; 54% of these households were age 40 or younger."

Schwab earned record net income of $597 million, or $0.41 per share during the quarter, up 14% from the same period last year and matching estimates. For the full-year, the company earned $2.35 billion, or $1.61 per share.

Charles Schwab Corporation celebrated its fifth successive year reaching record net revenues. The company reported that new retail brokerage accounts rose to 248,000 during the fourth quarter, representing a 36% year-over-year increase. Charles Schwab Corporation received the JD Power's U.S. Full-Service Investor Satisfaction Survey award for the second consecutive year.

Charles Schwab Corporation (SCHW) shares ended the week at $55.48, relatively unchanged for the week.

American Express Reports Earnings

American Express Company (AXP) announced its fourth quarter and full-year earnings on Thursday, January 18. The financial services company reported revenue and earnings that beat analysts' estimates.

The company reported that revenue increased 10% during the fourth quarter to $8.84 billion. Revenue exceeded the same period last year, and also surpassed Wall Streets' estimate of $8.72 billion. For the full-year, revenue increased 4% to $33.47 billion.

"We ended the year with record billings and strong loan growth, which helped drive a 10% increase (up 9% [foreign exchange rate]-adjusted) in revenues this quarter," said American Express Chairman and CEO Kenneth I. Chenault. "Card Member spending grew 11% with strong momentum across each of our business segments. Loans grew 14% in the quarter while credit metrics remained strong and were again in line with our expectations."

American Express experienced a net earnings loss of $1.2 billion, or $1.41 per share, in the fourth quarter due to the new tax law. Last year in the same quarter, the company posted earnings of $825 million, or $0.88 per share. On an adjusted earnings per share basis excluding tax law changes, the company earned $1.58 per share, which is higher than the $1.54 per share expected.

The financial services company posted its first net loss in more than 20 years due to tax law changes. CEO Kenneth Chenault announced his retirement during the fourth quarter. He will be succeeded by the current vice chairman Stephen Squeri in February. American Express shares slid 2.6% in after-hours trading after the release of the earnings report.

American Express Company (AXP) shares ended the week at $98.03, down 3.9% for the week.

Bank of America Reports Mixed Results

Bank of America Corp. (BAC) announced its quarterly and full-year earnings on Wednesday, January 17. The nation's second largest bank in terms of assets reported mixed results.

The company reported that revenue increased 2% during the fourth quarter to $20.4 billion. This missed the $21.5 billion predicted by analysts. For the full-year, the company reported revenue of $87.4 billion.

"Responsible growth delivered solid results in 2017," said Bank of America CEO Brian Moynihan. "Pretax earnings rose 17%, and we continued to close in on our long-term return targets. We gained market share across our businesses while carefully managing credit, risk exposures, and expenses. We invested in technology, client engagement, and in our own team, including the $1,000 bonus we announced last month for 145,000 employees."

Bank of America reported net income of $5.3 billion, or $0.47 per share. This beat the consensus estimate for earnings of $4.6 billion, or $0.44 per share. For the full-year, net income was $18.2 billion.

Bank of America has experienced a profit-boost in recent months thanks to higher interest rates and an 11% increase in net interest income during the fourth quarter. The company's profits took a one-time $2.9 billion hit due to tax reform. Bank of America expects its tax rate to fall to 20% in 2018, from 29% in 2017 because of the new corporate rates in the tax bill.

Bank of America Corp. (BAC) shares ended the week at $31.72, relatively unchanged or the week.

The Dow started the week of 1/16 at 25,988 and closed at 26,072 on 1/19. The S&P 500 started the week at 2,799 and closed at 2,810. The NASDAQ started the week at 7,307 and closed at 7,336.

Treasury Yields Increase

U.S. Treasury yields pushed higher this week following the release of the Federal Reserve's Beige Book. While political uncertainty loomed as Congress worked on a spending bill, Treasury yields held steady.

On Wednesday, the Federal Reserve released its Beige Book, detailing economic anecdotes from regional Fed banks. The Fed predicts the U.S. economy and inflation will expand in 2018. The U.S. Treasury yield increased to 2.58% after the Beige Book's release.

"Rising yields are simply a reflection of a strengthening economy which is healthy," stated Jon Day, global bond Portfolio Manager at Newton Investment Management. "The key factor to watch is core inflation - it needs to move higher for yields to keep rising."

On Thursday, the yield on the 10-year Treasury note hit 2.629% a high last seen in September 2014.The rise in yields was in response to Thursday's announcement that the number of unemployment applications has fallen to a 45-year low.

On Thursday night, the House passed a short-term spending bill. The Senate needs sixty votes to pass a short-term spending bill before Friday night's deadline. The Treasury yields muted in reaction to the possibility of a government shutdown. In early-morning trading on Friday, the yield held steady at 2.63%.

"If you go back and look at 2013, when we had the last government shutdown, it was pretty much a nonevent," said Gina Martin, Chief Equity Strategist of Bloomberg Intelligence. "You did get about a 5% correction in equities, but it started well in advance. The markets have a tendency of telling you whether this is potentially meaningful or not."

The 10-year Treasury note yield finished the week of 1/16 at 2.66%, while the 30-year Treasury note yield was 2.93%.

Mortgage Rates Continue Increase

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, January 18. The report revealed the 15 and 30-year fixed mortgage rates moved higher than last week's averages.

The 30-year fixed rate mortgage averaged 4.04% this week. This is an increase from last week when it averaged 3.99%. Last year at this time, the 30-year fixed rate mortgage averaged 4.09%.

This week, the 15-year fixed rate mortgage averaged 3.49%. This was higher than last week's average of 3.44%. The 15-year fixed rate mortgage averaged 3.34% one year ago.

"The U.S. weekly average for the 30-year fixed mortgage rate rose above 4% for the first time since last summer to 4.04% in this week's survey," said Len Kiefer, Deputy Chief Economist at Freddie Mac. "This is the highest weekly average for the 30-year fixed rate mortgage since May of 2017. Some may be wondering if this is the last time we'll see a three handle on the 30-year mortgage rate. Never say never, but inflation is firming, the Federal Reserve's Beige Book indicates broad-based economic growth and labor markets are tightening."

Based on published national averages, the money market account finished the week of 1/16 at 0.86%. The 1-year CD finished at 1.81%.

Published January 19, 2018

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