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First Indictment in Russia Collusion Case to Overshadow Q3 Earnings?

Monday, October 30, 2017

We certainly are not hurting for things to talk about ahead of Monday’s opening bell: from waking up to find out who won last night’s wild World Series Game 5 in Houston to the first indictments coming down the pike in the FBI-commissioned investigation involving those around the Trump presidential campaign — plus Q3 earnings season continuing its accelerated amount of reports released — there is plenty of grist for the mill. Also, President Trump may be expected to make his decision for who will replace Janet Yellen as Chair for the Federal Reserve this week.

Also, Personal Income and Spending numbers have hit the tape this morning, coming in at an as-expected +0.4%. This follows the unrevised previous month’s +0.2%. Spending on the headline reached 1%, slightly higher than the +0.8% analysts had been looking for. Real personal spending was +0.6%, with the core read month over month at a tame +0.1%, year over year +1.3% and the year-over-year deflator at +1.6%.

What these numbers suggest in a nutshell is a slight but growing uptick in U.S. citizens’ income, with an even more exuberant attitude toward spending. Coming as this report does following the recovery and rebuilding efforts after Hurricanes Harvey and Irma, perhaps these high-than-expected numbers, where they exist, are a near-term reaction as much as a long-term growth trajectory. In any case, more positive economic data ahead of this year’s holiday season, which may also point to positive consumer attitudes toward Q4 growth.

Obama-appointed Fed Governor Jay Powell looks to be Trump’s favorite to replace Yellen as Fed Chair, which is an announcement we may see this week, especially in light of other headline-making commotion coming out of the nation’s capital today and perhaps through the week. Yellen’s term expires next February, and it is widely assumed Trump will put his signature on this decision. Former front runners for Yellen’s replacement had been former QE skeptic Kevin Warsh, among others.

Trump’s former campaign manager Paul Manafort has surrendered to authorities this morning, in the first of two indictments passed down from Special Prosecutor Robert Mueller’s office. The second, businessman Rick Gates, is a long-time advisor of Manafort’s. The 12 counts from the Federal Grand Jury are: conspiracy against the United States, conspiracy to launder money, unregistered agents of a foreign principal (Ukraine), making false and misleading statements and seven violations of failure to file foreign account documents.

Last week, new allegations from the White House regarding former presidential candidate Hillary Clinton’s involvement with the Russian government also came to the fore. At this stage, however, this report seems unlikely to be related to the Mueller report.

Q3 Earnings Stay Revved

According to Zacks Director of Research Sheraz Mian’s Earnings Preview report last Friday, we’ve already seen 54% of quarterly reports in from the S&P 500 as of the end of last week. Q3 revenue growth currently rides +6.7% growth, versus +5.0% in the trailing 4-quarter average, and the 3-year trailing average of just +0.2%. Over the next 5 days, we expect nearly 900 more reports, including from Facebook FB and Apple AAPL after the bell in the days ahead.

New York-based conglomerate Loews Corp. L reported a 1-cent beat ahead of today’s opening bell — 3 cents per share versus 2 cents in the Zacks consensus. Operating revenue rose 9.4% in the quarter, while total expenses fell 29% year over year.

Loews component CNA Corp. CNA also beat earnings estimates, reporting 58 cents per share versus 51 cents we has been expecting. Another Loews component, Diamond Offshore Drilling DO, posted a big earnings miss before today’s opening bell, reporting 8 cents per share as opposed to the Zacks consensus of 19 cents. Revenues of $366 million in the quarter, however, topped the $363 million in our consensus estimate.

Mark Vickery
Senior Editor

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