After yesterday’s 500 point “Salute to Gridlock” the markets today traded mixed with the Dow gaining 11 points on light trading volume to close at 26,191. The Feds elected to hold rates steady.
JP Morgan analyst Marko “Koko” Kolanovic noted that share buybacks are resuming at a torrid pace. Following the earnings blackout period, buybacks, according to Marko’s data, are averaging $3.3 billion per day. Large companies have cash on hand and their choices for how to deploy this capital are either 1) investing in organic growth (plant/property/equipment), 2) cash dividends, 3) buybacks or 4) a takeover of another company. In the case of big banks, they can no longer do takeovers, so they only have 3 choices which puts emphasis on dividends and buybacks. Even Warren Buffett is buying back stock. The only company not buying back stock these days is……you guessed it…...GE.
Spokane based utility Avista reported flat revenue and a doubling of profits for the third quarter. Both top and bottom lines missed estimates, but it does not seem to matter since the company is set to be taken over by Canadian utility Hydro One in the coming months.
Occidental Petroleum reported stellar numbers as high oil prices and solid demand resulted in a revenue gain of 99% and an 883% jump in net income thanks to expanding margins. When it comes to energy firms, they are crushing it from an earnings standpoint. Chevron reported a 21% revenue gain and a 105% increase in net income. Exxon reported a 25% revenue increase and a 57% gain in net income. Royal Dutch Shell reported that it has so much cash on hand it was going to pile it out back and burn it but instead decided to buy back $2.5 billion worth of stock by year end. British Petroleum posted a 33% top line increase and a doubling of profits. While all this is good the gurus are worried about the prospect of slowing global oil demand in the face of rising US supply. Only time will tell how this plays out but WTI crude oil continues to drop in price while natural gas prices are holding steady.