Starbucks is using the oldest trick in the book to boost its stock price

• Joe Ciolli
 

• 23h
• 11,953
 

AP Photo/Ted S. Warren

• Starbucks will reportedly sell $1 billion of bonds in order to finance share buybacks, capex, dividend payments and acquisitions.
• Throughout the bull market, shares repurchases in particular have been used to drive stock price gains, even during lean times.

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Having slipped from its mid-year highs, Starbucks is turning to the oldest trick in the book to boost its stock price.

The company is planning to sell $1 billion of debt, and then use the proceeds to buy back its own stock, expand its business, pay cash dividends or finance acquisitions, according to a regulatory filing and a report from Bloomberg.

The first use — share repurchases — is a tactic frequently employed by companies to boost shares during times devoid of other positive catalysts. And considering Starbucks' stock has dropped 12% since hitting a record high in early June, it's clear that the company is willing to consider all options.

Starbucks could also drive some share appreciation by sinking money back into its business. After all, investors have been rewarding the stock prices of companies willing to shell out for capital expenditures.

Since the beginning of last year, a Goldman Sachs-curated basket of stocks spending the most on capex and research and development has beaten a similarly constructed index of companies offering high dividends and buybacks by a whopping 21 percentage points.

Shares of Starbucks were little changed as of 2:53 p.m. ET. And while it may initially seem surprising that the stock hasn't moved more on the announcement of the debt sale, it must be considered that investors are often wary when companies add to their existing debt load. It's entirely possible that's offsetting the potentially positive effect of buyback and capex spending.

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There's a new biggest bull on Wall Street

• Joe Ciolli
 

• 13h
• 4,796
 

Thomson Reuters

• Brian Belski of Bank of Montreal Capital Markets sees the S&P 500 finishing 2018 at 2,950, the most bullish forecast on Wall Street.
• He sees many of the same bullish conditions that existed at the start of 2017, and thinks that the market can power higher even without tax reform.

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Buy stocks. Enjoy improving earnings growth. Profit. Rinse, repeat.

That's basically Brian Belski's 2018 outlook in a nutshell. If it sounds familiar, that's because it's largely the same view the BMO Capital Markets chief investment officer put forth a year ago. Except this time, profit expansion is supposed to be even better.

That's emboldened Belski to slap a 2018 year-end price target of 2,950 onto the S&P 500 — a roughly 14% surge from current levels — making him the most bullish strategist on Wall Street.

S&P 500 earnings growth was supposed to level off in 2017, but forecasts show it continuing to improve into 2018.BMO Capital Markets

"We believe there is no reason to expect that a dramatic reversal in longer-term fundamentals is imminent," Belski wrote in a client note. "Rather, the slope of our long standing secular bull market call remains positive."

What's more, BMO's earnings growth forecast doesn't factor in any expectations for tax reform. Although the passage of a GOP tax plan is frequently cited as something that could underpin further gains in the stock market, Belski sees the S&P 500 standing on its own two legs even without it.

Still, progress on the tax front certainly couldn't hurt. Belski has an even more optimistic "bull case" scenario that calls for the S&P 500 to end 2018 at 3,250, spurred by corporate reinvestment and an acceleration in consumer spending. A lower corporate rate and a one-time repatriation tax holiday — both of which are expected to be part of a successful tax plan — could ultimately drive that reinvestment.

Belski also highlights an interesting wrinkle to the 8 1/2-year bull rally, which is that investors haven't trusted its stability throughout basically its entire run. He thinks it's time to shed those negative thoughts and embrace the positive factors leading the market higher.

"Investors have been climbing the wall of worry for nine years and counting," said Belski. "Doubt, fear and rushes to judgment have been trying to diagnose the end of the bull market since it began. We believe it is time to accept fundamentals and turn off the rhetoric."

Here's a round-up of the other 2018 year-end S&P 500 targets on Wall Street, ordered from most to least bullish:

• UBS — Keith Parker — Target: 2,900
• Credit Suisse — Jonathan Golub — Target: 2,875
• Deutsche Bank — Binky Chadha — Target: 2,850
• Goldman Sachs — David Kostin — Target: 2,500

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Yellen to resign from Fed board, reinforcing Trump's mandate to revamp one of the world's most powerful institutions

• Pedro Nicolaci da Costa
 

• Nov. 20, 2017, 2:18 PM
• 22,023
 

Federal Reserve Board Chair Janet Yellen. Cliff Owen/AP

• Fed chair Janet Yellen will step down from the central bank's board of governors.
• Yellen's vacancy reinforces President Donald Trump's power to reshape the world's most powerful central bank.
• Supporters say Yellen, the first woman to lead the Fed, is a major loss.
• Trump's two appointments so far have been men who worked at the same private-equity firm.

Federal Reserve Board Chair Janet Yellen will be stepping down from the central bank's powerful board of governors after President Donald Trump refused to reappoint her to a second term as the central bank's first female leader.

Yellen is the first Fed chair in recent memory not to be reappointed by the president despite a solid four-year term. Trump announced earlier this month that he was replacing her with Fed governor and former Carlyle Group executive Jerome Powell.

Trump now has four remaining seats on the central bank's seven-member board to appoint. The policy-setting Federal Open Market Committee may be on track for its biggest year of turnover since 1936.

The announcement ends some speculation — and for some, hope — that Yellen might stay on as a Fed board governor, which she was entitled to do under Fed rules.

"Yellen submitted her resignation Monday as a Member of the Board of Governors of the Federal Reserve System, effective upon the swearing in of her successor as Chair," the Fed said in a statement.

The Fed Up coalition, a group of community organizations who have pressured the central bank to pay more attention to low-income communities, bemoaned Yellen's loss in a statement.

"Janet Yellen’s retirement is a loss for working people across the country," Shawn Sebastain, the group's codirector, said in a statement.

"Yellen showed remarkable leadership and spoke out about economic inequality, racial disparities in the economy, the role of women in the workplace, and the need for more diversity at the Fed," he added, urging her to stay engaged in the public debate over the economy even after returning to private life.

Fed board governors have terms that can last up to 14 years. While few complete their terms, the appointments could have a long-lasting impact on an institution that plays a key role in US economic policy.

The Fed not only sets interest-rate policy for the world’s largest economy but also plays a dominant role in the regulation of big Wall Street banks.

With so much attention focused on the top job, Fed watchers have paid little mind to other potential nominees. But the shortlists are likely to be filled with many of the same names, including ex-Fed governor and Morgan Stanley banker Kevin Warsh, Stanford professor and former Treasury official John Taylor, and perhaps Glenn Hubbard, a Columbia University professor and a former adviser to President George W. Bush.

Trump has already appointed Randal Quarles, who, like Powell, worked for Carlyle Group and the administration of George W. Bush, to the new role of vice chair for supervision. Trump ran for president on a platform of deregulating Wall Street despite evidence that a lack of adequate rules and enforcement caused the 2008 financial crisis. Outgoing officials like Yellen and ex-vice chair Stanley Fischer have warned against any drastic revamps.

SEE ALSO: Trump's choice for Fed chair reflects a harsh reality all women face in the workplace

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