GOLDMAN: Sell stocks

• Myles Udland
 

• 21h
• 22,975
 
• 18

Wikimedia Commons

Goldman Sachs thinks it's time to sell some stocks.

In a note to clients on Sunday, Goldman strategist Christian Mueller-Glissmann moved his team's portfolio weighting recommendation on stocks to Underweight from Neutral, effectively giving clients the green light to sell down some of their stock holdings.

"In our view, equities remain in their 'fat and flat' range and are now just near the upper end," Mueller-Glissmann writes (emphasis theirs).

"As a result, we downgrade equities to Underweight in our 3-month asset allocation.Until the growth situation improves, we are not that constructive on equities, particularly after this type of rally and amid continuing concerns about the sustainability of stimulus-led growth in China, global policy uncertainty (and in Europe in particular), dovish central bank expectations, and heightened prospects of unknown shocks (e.g. Turkey recently)."

For the next 12 months, Goldman still recommends clients remain Neutral on the market — a recommendation it first made in May.

On Monday, stocks in the US were mixed but ultimately little-changed. Earlier in the session, the S&P 500 briefly hit a new record high.

Sunday's call from Goldman comes on the heels of a note from Mueller-Glissmann and his team in June that said the market looked particularly fragile. That note suggested that "asymmetries" in the market were building to the downside, which in layman's terms means the chances of something dramatic happening in the market was more likely to happen on the way down than the way up.

Sunday's call reiterates much of the same thinking from June, but adds that as we move past the post-Brexit rally we've seen in stocks, we're again seeing a decline in risk appetite from investors.

This argument broadly says that as investors get less excited about adding or extending positions in risk assets, stocks begin to look more vulnerable to an "air pocket"-type drop of the variety we've seen several times in the last couple years.

"We think the negative asymmetry in risky assets is increasing again," Goldman writes.

"A positive level of the risk appetite indicator is not a bearish signal per se — the indicator can remain in positive territory for prolonged periods of time without any risk of drawdowns as long as macro fundamentals remain supportive. However, with our risk appetite indicator now in neutral territory, the market is more vulnerable to growth and policy disappointments, in our view. In addition, its positive momentum has faded and we are back at the levels we saw ahead of the last 3 drawdowns."

Goldman Sachs

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Microsoft is laying off another 2,850 people in the next 12 months

• Matt Weinberger
 

• 17h
• 10,288
 
• 4
 

Microsoft CEO Satya Nadella.Microsoft

Microsoft  $56.49

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Disclaimer

Microsoft is planning to lay off 2,850 more employees in the next 12 months or so, according to a filing it just made with the US Securities and Exchange Commission.

You can read Microsoft's full 10-K report here.

And here's the pertinent part from the document (emphasis added):

"In addition to the elimination of 1,850 positions that were announced in May 2016,approximately 2,850 roles globally will be reduced during the year as an extension of the earlier plan, and these actions are expected to be completed by the end of fiscal year 2017."

The first 1,850 layoffs mentioned here were mainly from Microsoft's struggling smartphone business, including 1,350 employees in Finland working at what was once Nokia world headquarters. These layoffs also included people in Microsoft's salesforce, which was recently reorganized and saw the departure of COO Kevin Turner.

In total, Microsoft laid off 7,400 employees in its last fiscal year, which ended on June 30.

The new layoffs are a continuation of the same plan, and include the sales group as well as others. About 900 people affected by the new layoffs were already informed during the sales reorganization, according to a person familiar with Microsoft's plans.

Microsoft recently revised its ambitious goal of getting Windows 10 onto 1 billion devices, as the deterioration of Windows' phone business made that milestone unrealistic.

Windows phones from Microsoft and other vendors have less than 3% market share globally.

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Amazon sets third straight record profit, stock barely moves

• Eugene Kim
 

• 18h
• 8,651
 
• 1

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Amazon CEO Jeff BezosAP Photo/Reed Saxon

Amazon.Com  $758.06

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Disclaimer

Amazon just reported its second quarter earnings after the bell on Thursday afternoon.

It's a beat across the board, with Amazon setting another record-high quarterly profit for the third consecutive quarter.

But Amazon shares dipped slightly in after hours before bouncing back up ~2% as third quarter operating income guidance came in lower than street estimates.

Here are the most important numbers:

• Q2 earnings per share (GAAP): $1.78 per share vs. $1.11 per share estimated
• Q2 Revenue: $30.4 billion vs. $29.56 billion estimated (up 31% year-over-year)
• AWS revenue: $2.88 billion vs. $1.82 billion last year, up 58% year-over-year
• Operating cash flow: $12.7 billion, up 42% from $9.0 billion last year

Amazon had $857 million in net profit, its fifth straight profitable quarter, an anomaly for a company known for investing in growth over profits. Operating income came in at $1.3 billion, nearly triple last year's $464 million.

When asked if this a sign of Amazon's investment opportunities drying up, Amazon CFO Brian Olsavsky said that's not the case, stressing its investments in video content, fulfillment centers, and AWS for the remainder of the year. Instead, he said it's an indication of the company's "operating efficiency."

"I would not take our financial results as an indication of we’re running out of investment opportunities in any way, shape, or form," he said during a press call.

Amazon gave third quarter revenue guidance in the range of $31 billion to $33.5 billion, close to street estimates of $31.6 billion.

Amazon Web Services continues to be Amazon's fastest-growing and most profitable business. Its revenue grew another 58% year-over-year to $2.88 billion, while posting $718 million in operating income, which is bigger than the $702 operating income its North America retail business recorded.

Amazon continues to see quarterly profits.Amazon

In its earnings release, Amazon CEO Jeff Bezos focused on the company's expansion into India, a market it committed to invest $5 billion last quarter. “The team in India is inventing at a torrid pace, and we’re very grateful to our Indian customers for their welcoming response,” he said in a statement.

Amazon didn't share anything new about its annual Prime Day, sticking to previously reported numbers of 60% orders growth compared to last year's event. It also said that third party sales on Prime Day nearly tripled while Prime members saved over twice as much on deals.

We'll be updating this post with info from the earnings call or click here for the latest updates. 

Amazon shares have been on an absolute tear lately, jumping over 50% since February. Its soaring stock price has made Amazon the fifth most valuable company in the US at one point, and turned its CEO Jeff Bezos into the world's third richest man.

Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.

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Google beats, stock pops

• Jillian D'Onfro
 
• 18h
• 11,617
 
• 2
 

Google CEO Sundar PichaiGetty Images

Google parent company Alphabet beat its Q2 earnings expectations on both the top and bottom line, sending the stock popping more than 5% after-hours.

It has leveled to about 4% up.

Here are the most important numbers:

Revenue (ex-TAC):$17.5 billion ($16.9 billion expected), up 21% year-over-year

EPS: $8.42 vs. $8.03 expected

Alphabet's Other Bets, like Nest, Verily, and super-fast internet service, Fiber, saw losses of $859 million on revenue of $185 million. That's compared to revenue of $74 million and losses of $660 million at the same time last year. This is only the third quarter that Alphabet has reported under its new operating structure.

The other most important numbers are cost per click, how much Google can charge for its ads, and paid clicks — how many times people click those ads. Cost per click was down 7% vs -6% expected, and paid clicks were up 29% year-over-year vs 27% expected.

Google's "other revenues," where it lumps together its cloud business, Play store revenues, and hardware sales, were $2.17 billion, up 33% year-over-year. That's better than the 24% growth it saw last quarter. The company has said that it ultimately sees its enterprise business as being more important than its advertising business, so that increased growth is a good sign. On the company's earnings call, CFO Ruth Porat confirmed that cloud and apps drove most of the growth of other revenues. 

Other important numbers:

• Alphabet increased its headcount to 66,575, a big leap from 57,148 a year before.Porat said that Google was growing bigger by numbers, but "Other Bets" were growing faster
• Google websites revenue was $15.4 billion, up 24% year-over-year, while Google's networks revenue was $3.7 billion, up 3% year-over-year. Websites revenue includes YouTube
• Its operating expenses — other than cost of revenues — were $7.4 billion, or 34% of its revenue. 
• The company's capital expenditures were $2.12 billion. Porat said that the costs were driven by production equipment (likely for YouTube) and data center construction 
• Its traffic acquisition costs — the fees it pays to partner websites that run Google ads or services — were $3.9 billion. Last quarter, Google's TAC made analysts nervous. It has held steady year-over-year at 21% of total advertising revenue

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Internal auditor slams IMF handling of Greece bailout

• Paul Handley, AFP

• 22h
• 74

The IMF too readily accepted the ECB and EC decision to not restructure Greece's massive debt, the Fund's Independent Evaluation Office said in a report © AFP/File Aris Messinis

Washington (AFP) - An independent probe into the IMF's handling of European bailouts found that it bent its rules and was vulnerable to political pressure as it embarked on the ill-fated 2010 Greece rescue.

The International Monetary Fund's Independent Evaluation Office said in its report Thursday that in the plunge into the eurozone crisis, the Fund's executive board was poorly informed and exercised too little oversight over decisions which taxed the Fund's resources.

And it suggested that, led by and operating too closely with Europeans, the Fund underestimated the risks in the European economy and overestimated the region's ability to handle any problems.

- Independence compromised? -

The IEO report bluntly criticized the rush by the Fund's management, led former French finance minister Dominique Strauss-Kahn up to May 2011, to join the European Central Bank and European Commission in the crisis bailouts of Greece, Ireland and Portugal.

It questioned whether the Fund had sacrificed its independence and ability to clearly assess the situation in Europe after joining the bailout "Troika" with the ECB and EC.

The Fund too readily accepted the ECB and EC decision to not restructure Greece's massive debt, which would have lightened Athens' financial burden, before embarking on the first 110 billion euro bailout.

"The IMF was kept on the sidelines in late 2009 and early 2010 when approaches to dealing with the developing crisis in Greece were being debated in Europe," the report said.

"By the time the IMF was invited to provide its expertise and financing in late March 2010, the option of debt restructuring at the program's outset was off the table."

Debt restructuring was later required after the first bailout program failed, and even now, the IMF is demanding its European partners reduce Greece's debt load if it is to join the third rescue program.

- Europe 'treated differently' -

The report said that the IMF management's move to lend Greece more than normally permitted was rushed through the executive board, which represents the crisis lender's membership, with little discussion and understanding. That raised eyebrows around the rest of the world, where IMF crisis loans have been less flexible.

"Weaknesses in the decision-making process created the perception that the IMF treated Europe differently. The procedure used for Greece was essentially repeated for Ireland and Portugal," the report said.

The IEO acknowledged that the European crisis was an extraordinary, complex challenge, the first time the Fund dealt with advanced economies in a currency union.

However, it said, in joining the Troika, "the IMF lost its characteristic agility as a crisis manager. The IMF supported programs in Greece and Portugal incorporated overly optimistic growth projections; lessons from past crises were not always applied."

It suggested that the IMF, by tradition always led by Europeans, was too embedded in European sensitivities and so not making clear-eyed assessments of economic risks.

"At the euro area level, IMF staff's position was often too close to the official line of European officials, and the IMF lost effectiveness as an independent assessor," the report said.

The IEO added that the IMF reliance on Troika partners left it lacking flexibility, unable to change course when the Greece program stumbled early on.

"IMF management and staff, having decided not to push for debt restructuring for Greece, did not make a case for it when the program's likelihood of success increasingly came into doubt, starting from the fall of 2010."

- Vulnerable to politics -

While the report held back from concluding that the Fund bowed to political pressure from its European partners, it suggested the pressure was present, especially in the "unusual" arrangement of IMF staff working together with staff from the other Troika institutions.

"The credibility of the IMF comes from the technical competence and independence of its staff, and the managing director must ensure that its technical work is protected from political influence."

In a statement released at the same time as the report, Strauss-Kahn's successor Christine Lagarde rejected the premise that there was European political influence on IMF decisions.

Aside from that point, she stressed that the euro area crisis had been "extraordinary" and "unprecedented." 

"The IEO's reports echo many of the lessons that we have drawn from our own internal assessments.... We must constantly aspire to do better in avoiding crises, managing crises, and learning from the past."

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The stock market just did something it hasn't done in at least 45 years

• Myles Udland
 

• 18h
• 29,733
 
• 8
 

The stock market has been really boring. 

And now we have some data to really — and I mean really — back that up. 

Ryan Detrick, senior market strategist at LPL Financial, noted on Twitter that Thursdaymarked the 11th straight day the S&P 500 closed inside a 1% trading range, the first time this has ever happened, according to records going back 45 years. 

So for the first time since at least the Nixon administration, stocks have been stuck inside an insanely tight window.

Here's what the last 11 days of trading action look like, an example of how any chart can look scary or interesting if you zoom in close enough. But trust us: Literally nothing has been going on. 

Business Insider, data via Bloomberg

On Thursday, my colleague Jonathan Garber highlighted commentary from Nautilus Investment Research, which called the lull we've seen in stocks over the last few weeks the "dullest market in decades."

Nautilus noted that the benchmark had spent the last 10 days inside a 0.9% range, the tightest in 22 years. Of course with Thursday's close this stretch was extended to 11. 

As Garber noted on Thursday, the VIX index — also known as the "fear index" and measures market volatility — is approaching a low hit back in January 2007 and is well below its long-run average. 

And with Thursday's close, we're getting a better historical perspective on just how slow things have really been.

Andy Kiersz/Business Insider/Data from Bloombeg

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