Markets Carve Out Modest Gains; Apple Shines

After drifting sideways for most of the day, the Dow Jones Industrial Average and the S&P 500 both closed slightly higher.

Apple (NSDQ: AAPL) was the big story. The tech stalwart lifted the Nasdaq on the strength of iPhone X sales. Also lifting tech stocks were soaring shares of chip makers Qualcomm (NSDQ: QCOM) and Broadcom (NSDQ: AVGO), on reports of a possible merger.

Otherwise, the markets lacked a catalyst for dramatic action.

The U.S. Labor Department reported Friday that non-farm payrolls increased by 261,000 jobs in October, below expectations of 310,000. The unemployment rate last month fell to 4.1% from 4.2%.

Investors were more concerned by the drop of one cent in average hourly wages, which lowers the year-over-year increase to 2.4%.

Wage growth was in the spotlight, especially with the holiday shopping season ahead. Consumers may be reluctant to spend if paychecks remain stagnant.

Consumer spending accounts for 70% of U.S. gross domestic product. Three-fourths of that spending occurs during the holidays.

But consumers weren’t reluctant to buy the iPhone X, which hit stores Friday. Apple’s latest smartphone is enjoying strong demand, calming investor concerns that the gadget is too pricey. Apple closed the day up 2.61%.

The Republican tax plan also loomed large. Investors continued to chew over details of the proposed legislation. The bill aims to radically cut taxes for businesses, but at the expense of deductions popular with the middle class.

Notably, the bill cuts the mortgage interest deduction in half. For most people, the home is their most valuable asset. Industries crucial to the housing sector are screaming bloody murder.

The mortgage interest deduction is sacred to average Americans, right up there with motherhood and the flag. The bill faces tough sledding in Congress.

Friday Market Wrap

  • DJIA rose 0.10% to close at 23,539.22
  • S&P 500 rose 0.31% to close at 2,587.84
  • Nasdaq rose 0.74% to close at 6,764.44

Friday’s Big Gainers

  • Qualcomm (NSDQ: QCOM) +12.71%

Chip maker target of takeover bid by rival Broadcom, which rose 5.45%.

  • NRG Energy (NYSE: NRG) +6.31%

Utility posts strong 3Q operating results.

  • Dentsply Sirona (NSDQ: XRAY) +5.95%

Maker of dental instruments reports healthy 3Q earnings.

Friday’s Big Losers

  • Discovery Communications (NSDQ: DISCK) -5.35%

Cable network continues to lose subscribers.

  • American International Group (NYSE: AIG) -4.59%

Hefty claims losses prompt insurer to boost reserves.

  • Activision Blizzard (NSDQ: ATVI) -3.44%

3Q revenue beats but earnings miss.

Letters to the Editor

“Small caps seemed poised to take off next year. What’s your view?” — Robert A.

I think this bull market is overdue for a correction. However, tailwinds position small stocks as safer havens.

Chief among these advantages is the tax reform package unveiled Thursday by the House of Representatives. The tax bill dramatically cuts taxes on corporations and wealthy heirs.

Small-cap companies tend to pay higher taxes than global behemoths. The big boys are adept at lowering their rates through expensive lobbyists and accountants; they also avoid taxes by squirreling their profits overseas.

The Republican bill would lower the corporate tax rate to 20% from 35%. It also would repeal the estate tax.

The bill proposes a tax cut for many businesses organized as partnerships, limited liability companies and other so-called pass-throughs. Currently, such companies pass their earnings through to their owners, who are taxed at their individual income rates, which can be as high as 39.6%. The bill would reduce the top rate to 25%.

These provisions would be a big shot in the arm for the country’s entrepreneurs and innovators. However,  passage of the bill remains uncertain.

Got any questions or comments? Reach me at: — John Persinos

This Day in History

November 3, 1964: In one of the greatest landslides in U.S. presidential elections, incumbent Lyndon Baines Johnson defeated Republican challenger Barry Goldwater.

Gathering more than 60% of the vote, Johnson crushed the conservative senator from Arizona. LBJ secured his first full term in office after succeeding John F. Kennedy who was slain in November 1963.

Johnson racked up several legislative achievements as part of a domestic agenda he called The Great Society. Medicare, Medicaid, and landmark civil rights laws got passed because of his skilled negotiating.

But LBJ was undone by the Vietnam War. Dissent against the widening war sent his poll numbers plummeting. He didn’t seek re-election in 1968.

Goldwater had been humiliated in the 1964 election. But his campaign planted conservative seeds that would bear fruit with the triumph of Ronald Reagan in 1980.

The lesson is that fortune is fickle. Today’s hero can become tomorrow’s goat, and vice versa. Keep your eye on the long haul.

Number of the Day: 39.3

The average American consumes 39.3 gallons of bottled water every year.

One of the surest ways to make gains is to invest in trends that enjoy momentum. The rise of bottled water is one such trend.

U.S. per-capita consumption of carbonated soft drinks has fallen to its lowest level since 1986. Global sales of bottled water products are expected to grow at a compounded annual growth rate of 8.4% from now until 2022.

Sales of soda in the U.S. have plunged by more than 25% over the past 20 years. That makes bottled water one of the hottest investments available.

Quote of the Day

“Not to mince words, Mr. Epstein, but we don’t like your boys’ sound. Groups are out; four-piece groups with guitars particularly are finished.”

— Dick Rowe, executive in charge of evaluating new talent for the London office of Decca Records, 1962

Dick Rowe spoke those words to Brian Epstein, manager of The Beatles. Not to mince words, Mr. Rowe, but you blew it.