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16Nov2017 Market Close: Wall Street Gains Powered By Cisco, Walmart, DOW Up 187 Points, Stock Market ‘not Even Close' To Pricing In Tax Cuts, Says UBS

Written by Gary

Wall Street's main indexes rose sharply today (SPY +0.9%) boosted by earnings-related gains in Wal-Mart and Cisco, while a tax bill expected to boost corporate earnings passed its first - if smallest - hurdle.

Todays S&P 500 Chart

The Market in Perspective

Here are the headlines moving the markets.

Wall Street gains powered by Cisco, Walmart; tax passage supports

NEW YORK (Reuters) - Wall Street's main indexes rose sharply on Thursday boosted by earnings-related gains in Wal-Mart and Cisco, while a tax bill expected to boost corporate earnings passed its first - if smallest - hurdle.

Ex-Trump lawyer to defend AT&T-Time Warner merger

WASHINGTON (Reuters) - AT&T Inc said it had hired media lawyer Daniel Petrocelli, whose clients have included U.S. President Donald Trump, to defend its acquisition of media and entertainment company Time Warner Inc if the government sues to block the deal.

Meredith approaches Time again with Koch brothers backing: source

(Reuters) - Meredith Corp is in talks again to buy Time Inc in a potential deal backed by billionaire brothers Charles Koch and David Koch, a source familiar with the situation told Reuters on Thursday.

FCC approves TV technology that gives better pictures but less privacy

WASHINGTON (Reuters) - The U.S. Federal Communications Commission voted 3-2 on Thursday to allow broadcasters to voluntarily use a new technology to improve picture quality and allow better reception on mobile phones and give advertisers dramatically more data about viewing habits.

Emerson sweetens bid for Rockwell Automation to $29 billion

(Reuters) - U.S. industrial automation equipment company Emerson Electric Co raised its cash-and-stock offer to acquire Rockwell Automation Inc to $29 billion on Thursday, ratcheting up pressure on its smaller peer to engage in deal talks.

Activist investor draws up plan to take Barnes & Noble private: WSJ

(Reuters) - Sandell Asset Management Corp, an activist investor in Barnes & Noble Inc , has proposed a transaction that would take the bookseller private with the help of current shareholders and debt financing, the Wall Street Journal reported on Thursday.

Siemens to cut 6,900 jobs to tackle flailing turbines business

FRANKFURT (Reuters) - Siemens will cut about 6,900 jobs, or close to 2 percent of its global workforce, mainly at its power and gas division, which has been hit by the rapid growth of renewables.

Tesla to unveil electric big-rig truck in midst of Model 3 factory 'hell'

SAN FRANCISCO (Reuters) - Tesla Inc on Thursday will unveil a prototype electric big-rig truck, which may be able to drive itself, throwing the company into a new market even as it struggles to roll out an affordable sedan central to the company's future.

Wal-Mart shares jump on strong U.S. sales growth

CHICAGO (Reuters) - Wal-Mart Stores Inc reported better-than-expected U.S. comparable sales on Thursday, as customers stocked up on food and other supplies ahead of hurricanes and online purchases soared, sending its shares up more than 8.5 percent.

Einhorn: "None Of The Problems From The Financial Crisis Have Been Solved"

A month ago, a downbeat David Einhorn exclaimed "will this market cycle never turn?"

Despite solid Q3 performance, Einhorn admitted that "the market remains very challenging for value investing strategies, as growth stocks have continued to outperform value stocks. The persistence of this dynamic leads to questions regarding whether value investing is a viable strategy. The knee-jerk instinct is to respond that when a proven strategy is so exceedingly out of favor that its viability is questioned, the cycle must be about to turn around. Unfortunately, we lack such clarity. After years of running into the wind, we are left with no sense stronger than, 'it will turn when it turns'."

Such an open-ended answer, however, is a problem for a fund which famously opened a basket of "internet shorts" several years prior, and which have continued to rip ever higher, detracting from Greenlight's overall performance.

This, in turn, has prompted Einhorn to consider the unthinkable alternative: "Might the cycle never turn?" In other words, is the market now permanently broken.

While the Greenlight founder did not explic ...

UBS Reveals The Stunning Reason Behind The 2017 Stock Market Rally

It's 2018 forecast time for the big banks. With Goldman unveiling its seven Top Trades for 2018 earlier, overnight it was also UBS' turn to reveal its price targets for the S&P in the coming year, and not surprisingly, the largest Swiss bank was extremely bullish, so much so in fact that its base case is roughly where Goldman expects the S&P to be some time in the 2020s (at least until David Kostin revises his price forecast shortly).

So what does UBS expect? The bank's S&P "base case" is 2900, and notes that its upside target of 3,300 assumes a tax cut is passed, while its downside forecast of 2,200 assumes Fed hikes in the face of slowing growth:

We target 2900 for the S&P 500 at 2018 YE, based on EPS of $141 (+8%) and modest P/E expansion to 20.6x.

Our upside case of S&P 500 at 3300 assumes EPS gets a further 10% boost driven by a 25% tax rate (+6.5%), repatriation (+2%) and a GDP lift (+1.6%), while the P/E rises by 1.0x. Downside of 2200 assumes the Fed hikes as growth slows, the P/E contracts by 3x and EPS falls 3%. Congress is motivated to act before midterm elections while the Fed usually reacts to slower growth; so we think our upside case is more likely.

Why is UBS' base case so much higher than what most other banks forecast? According to strategist Keith Parker, the reason is a "Valuation disconnect": Higher rates are priced in, while higher expected growth is not. He explains:

Options Traders Furiously BFTD!

Via Dana Lyons' Tumblr,

Despite the down day yesterday, one indicator from the equity options market recorded a massive spike in bullishness.

We like to track metrics from the various stock options exchanges as a measure of stock market sentiment. Generally, when too many calls are being bought versus puts, it is a warning of overheated bullishness, and when put volume becomes extreme relative to calls, it can be a sign of excessive fear. One particular indicator we used to track closely was the International Securities Exchange's Call/Put Ratio on equity options (ISEE). For years, the ISEE was particularly helpful in signaling bullish or bearish extremes. We're not sure what changed, however, in recent years the indicator has been of little to no value in that regard (in our assessment). We do still continue to monitor it, though, just in case it gives readings that raise our antennae. Yesterday's reading did.

In the past, ISEE readings above 200, i.e., 2 calls bought per every put, have arguably been considered excessively bullish. There have not been nearly as many of these readings in recent years, so yesterday's number was alarming to say the least. At a reading of 334, it was the highest ISEE recorded in 5 and a half years - and just the 10th ever above 300 since its 2006 inception.

Now, given the fact that we haven't seen any ISEE readi ...

Kyle Bass Is Having A Bad Day - Greek Bank Stocks Crash To 16-Month Lows

Just over a month ago, Kyle Bass discussed why he was long effectively "long Greece."

Bass penned a Bloomberg editorial in which the hedge fund founder and CIO called on the IMF to stop bullying Greece - publicizing the fact that he is now effectively long Greece. Greek government bonds have performed reasonably well so far this year: They're up about 16%, and if Bass is right, they could have another 20% to 30% over the next 18 months if the IMF abandons its insistence on austerity and acknowledges that debt relief will need to be part of the long-term alleviation of debt. Bass added that, in the near future, voters will elect a more business-friendly government that will help reestablish the country's creditworthiness, much like the government of Mauricio Macri did for Argentina.

I think you also have an interesting political situation in Greece where I think there's going to be a handoff from the current Syriza government to kind of a more slightly-center-right but very economically independent new leadership in the next, call it, 18 months.

And so, I think you asked why now? And I think you're starting to see green shoots. You're starting to see the banks do the right things finally in Greece and you are about to have new leadership.

So, I think that you're going to see - and if you remember Argentina as Kirschner was going to ha ...

Why Wal-Mart Should Worry Amazon Investors

Wal-Mart still can learn a lot from Amazon, but it has the online retailer beat in one important category—profits.

Car Makers Count Costs of Global Warming Emissions Standards

Car makers are spending billions to develop electric vehicles and comply with emissions rules designed to combat global warming. But the effort may not be enough to avoid hefty fines in Europe.

Chinese Banks Find a Convertible Solution to Capital Problem

Struggling midsize banks that need to raise equity are turning increasingly to the convertible-bond market.

Stay hydrated — and 5 things to remember when giving a speech

Public speaking can be fraught with awkward moments, even for President Trump.

The Ratings Game: Target's slow growth indicates it has to do more to achieve modest results

Target reported better-than-expected earnings, but it came at a high price, with analysts saying it will take a long time for growth to build.

Best Buy blamed its sales miss on the late launch of an 'iconic' phone, but analysts shrugged

Best Buy made a big deal about how the later-than-usual launch of an "iconic" mobile phone was a key reason for missing sales expectations, but analysts aren't worried.

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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