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Tuesday April 24, 2018



Amazon's Earnings Soar

Amazon.com Inc. (AMZN) announced its first quarter results on Thursday, April 27. The online retailer reported a profit for its eighth straight quarter.

The company's revenue grew 22.6% during the quarter to $35.71 billion. Revenue came slightly ahead of the $35.3 billion analysts estimated.

"Our India team is moving fast and delivering for customers and sellers," said Amazon founder and CEO Jeff Bezos. "It's still Day 1 for e-commerce in India, and I assure you that we'll keep investing in technology and infrastructure while working hard to invent on behalf of our customers and small and medium businesses in India."

Amazon's net income rose 41% to $724 million, or $1.48 per share. On average, analysts expected earnings of $1.12 per share.

Amazon has seen its revenue soar in recent years due to the growing popularity of online shopping as well as the company's investment in its cloud hosting service, known as Amazon Web Services (AWS). AWS sales grew 42.7% during the quarter to $3.66 billion. The company has also been investing heavily internationally, including plans to invest over $5 billion in India.

Amazon.com Inc. (AMZN) shares ended the week at $924.99, up 1.9% for the week.

Alphabet's Profits Surge

Alphabet Inc. (GOOG), Google's parent company, announced its first quarter results on Thursday, April 27. The technology conglomerate's profit surged 29% during the quarter on strong advertising revenue gains.

The company's revenue rose 22% during the quarter to $24.75 billion compared to $20.26 billion during the same time last year. Revenue easily eclipsed the consensus estimate of $24.22 billion.

"Our excellent results represent a terrific start to 2017, with revenues up 22% versus the first quarter of 2016 and 24% on a constant currency basis," said Alphabet CFO Ruth Porat. "We clearly continue to benefit from our ongoing investments in product innovation and have great momentum in our new businesses across Alphabet."

Alphabet's net income rose 29% during the quarter to $5.43 billion, or $7.73 per share. Earnings per share topped the $7.34 predicted by analysts.

A key driver of Alphabet's successful quarter was the company's Google ad revenue, which climbed 18.8%. The company currently commands 60.6% of the web search ad market, but expectations are for that figure to rise to 61.6%. Alphabet has seen its share price rise 17% on the year so far.

Alphabet Inc. (GOOG) shares ended the week at $905.96, up 6.4% for the week.

Starbucks' Revenue Disappoints

Starbucks Corporation (SBUX) announced its second quarter results on Thursday, April 27. The coffeehouse chain reported revenue that missed analysts' estimates.

The company reported that revenue increased 6% during the quarter to $5.3 billion. While this was record second quarter revenue, it fell below the $5.4 billion analysts expected.

"With our U.S. business accelerating throughout the quarter and strong performance in China, we are poised to deliver strong revenue growth in the second half and into the future," said Starbucks President and CEO Kevin Johnson. "Our success in opening over 2,000 stores around the world annually, delivering record AUV and profit, despite a very difficult period for many brick-and-mortar retailers is a testament to the 330,000 partners who proudly wear the green apron."

Starbucks' net income for the quarter grew 13.5% to $652.8 million. On a per share basis, earnings were $0.45, a number in line with expectations.

Despite record revenue for the quarter, Starbucks failed to meet investors and analysts' expectations. Lower-than-expected comparable stores sales growth was a key culprit. Same-store sales on a worldwide basis rose 3%, just short of a 3.6% estimate. The story was similar in the U.S. where same-store sales rose 3%, short of a 3.5% estimate. For the year, the company's share price has risen 7%.

Starbucks Corporation (SBUX) shares ended the week at $60.07, down 1.5% for the week.

The Dow started the week of 4/24 at 20,724 and closed at 20,941 on 4/28. The S&P 500 started the week at 2,370 and closed at 2,384. The NASDAQ started the week at 5,980 and closed at 6,048.

Treasuries Rise on Weak GDP Growth

Treasury yields rose on Friday, April 28 after data showed the U.S. economy grew at its slowest pace since 2014. Despite the slow growth, other data showed signs of optimism for the rest of the year.

The Commerce Department reported that U.S. GDP grew at a 0.7% rate in the first quarter of 2017, the slowest level of growth since 2014. First quarter growth was down from 1.3% in the fourth quarter of 2016.

Even with the slowdown in GDP growth, the Commerce Department's report revealed that employment costs rose 0.8%, the fastest pace since 2007. Rising employment costs are often an indication of wage growth.

The personal-consumption index, which the Federal Reserve uses to gauge inflation, saw its biggest rise since 2011, climbing 2.4% during the quarter. With inflation exceeding the Federal Reserve's preferred 2% target, analysts expect the nation's central bank to be on track for more interest rate hikes later this year.

"The weak (GDP) number is more likely a pause than a continued slowdown," said Brett Ewing, chief market strategist at First Franklin Financial Services. "Odds should rise to a near certainty for June. They simply cannot hold off into such strong labor numbers."

Yields on the benchmark 10-year yield rose to 2.31% during early trading on Friday from 2.30% on Thursday. The 30-year bond yield rose to 2.98%. As yields rise, prices fall.

The 10-year Treasury note yield finished the week of 4/24 at 2.28%, while the 30-year Treasury note yield was 2.95%.

Mortgage Rates Rise for First Time in Weeks

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, April 27. For the first time in five weeks, the report showed mortgage rates rising.

The 30-year fixed rate mortgage averaged 4.03% this week. This represents an increase from last week when it averaged 3.97%. Last year at this time, the 30-year fixed rate mortgage averaged 3.66%.

This week, the 15-year fixed rate mortgage averaged 3.27%. This was higher than last week's average of 3.23%. The 15-year fixed rate mortgage averaged 2.89% one year ago.

"The 10-year Treasury yield rose about 10 basis points this week," said Sean Becketti, Chief Economist at Freddie Mac. "The 30-year mortgage rate moved with Treasury yields, rising 6 basis points to 4.03%. Despite recent swings in mortgage rates, the housing market continues to show signs of strength—both existing and new home sales in March exceeded expectations, and the Case-Shiller Home Price Index posted another solid gain."

Based on published national averages, the money market account finished the week of 4/24 at 0.72%. The 1-year CD finished at 1.33%.

Published April 28, 2017
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