STOCKS GO NOWHERE: Here's what you need to know (DIA, SPX, SPY, QQQ, TLT, IWM)

REUTERS/Brendan McDermid

Stocks finished the day little changed after a rocky first hour of trading as stocks stabilized a bit following Wednesday's session, which was the worst in a month. 

First, the scoreboard:

• Dow: 17,717, +7, (+0.04%)
• S&P 500: 2,063, -1, (-0.03%)
• Nasdaq: 4,736, -25, (-0.5%)
• WTI crude oil: $46.50, +0.5%

Labor Market

It's a light week for the economic data, but Thursday's mornings initial jobless claims number turned some heads as claims rose for the third straight week and jumped to a 14-month high.  

Initial filings for unemployment insurance rose to 294,000 last week, more than the 270,000 that was expected and the most since the week of February 28, 2015. The 62-week streak of claims totaling less than 300,000 did remain intact. 

The 300,000 level has been seen my economists and commentators as a key level for the labor market, but Ian Shepherdson at Pantheon Macroeconomics, anticipating that Thursday's reading could be seen a referendum on the health of the labor market, wrote in a note to clients, "You can expect to read that these data signal some sort of deterioration in the labor market; that judgment cannot possibly be justified on the back of one weekly observation, just as it made no sense to argue that the 248,000 reading in mid-April signaled a real improvement." 

In short, we like the claims data because it is a good, high-frequency read on the labor market, which has been the most robust part of the US economy in recent years. 

But the high-frequency nature of this report can also lead to volatility; be careful making too much of any one report.

Apple

Apple is no longer the most valuable company in the world. 

On Thursday, following a Nikkei report that said Taiwan Semiconductor Manufacturing Company, Apple's main processor chip supplier, is looking at a terrible second half of 2016, shares of Apple fell more than 2% to their lowest level since June 2014. 

So, a classic second-order read from the market here, but the big fear with Apple is that going forward iPhone sales are just going to stop being so spectacular. 

In the first quarter of this year, Apple's second quarter, revenue fell against the prior year period for the first time since 2003. iPhone sales were down 16% from the prior year quarter. And it's been CEO Tim Cook's commentary around iPhone sales that have gotten a lot of scrutiny in recent weeks. Basically: he should have seen this coming. 

Not super encouraging, then, all things considered. And yes, Apple pays a nice dividend, but based on its stock price the company has gone nowhere for the last couple years. 

On a market-cap basis, Apple was worth about $492 billion on Thursday while Google was worth closer to $493 billion. A small difference but, hey, someone has to be the biggest public company in the world based on market capitalization. 

Next year, Saudi's state-backed Saudi Aramco oil company is expected to hit the public markets and will almost surely be larger than either Google or Apple. But this is a fun "competition" while it lasts. 

Earnings

The earnings recession is over. 

On Thursday, Binky Chadha at Deutsche Bank was out with a big call, forecasting a 1.9% increase in S&P 500 profits in the second quarter of this year; this would mark the first year-on-year increase in a year for profits among the US market's biggest companies. 

Over the last year markets have ben dealing with a "profit recession," or a decline in S&P 500 earnings that have been chalked up to an increase in the value of the dollar — which hurts profit for US-based companies that do business overseas — and a decline the price of oil, which takes a bite out of profits for the energy sector. 

But Chadha noted that the dollar's rally has been stemmed and the price of oil has bounced back, and combining this with stronger-than-expected US growth, profit growth should return to US corporations. 

This, one would think is good news for the stock market. 

Stocks rise because expected earnings rise. For the last almost two years now stocks have gone nowhere and earnings have declined. Thus, stocks have gotten more expensive to own, though there's been no reason to sell en masse. Perhaps it is this return to profit growth that drives the next leg of stock prices, though there is some underlying valuation issues to work out. 

The point is: consensus still expects the second quarter to see profits fall, but Chadha is sticking his neck out and making a big call that the situation on the ground may in fact change significantly. 

Banking, Politics

The SALT Conference is currently underway in Las Vegas and taking the stage on Thursday was former Speaker of the House John Boehner. 

And he had a great idea for the banking industry: be more like the plastics industry!

Boehner's argument is that the real problem for Wall Street right now is PR. People think banks are evil — or at least, Bernie Sanders does — and that banks will inevitably create the problems the public will be left to deal with. (This is essentially the narrative on what happened during the financial crisis, which, admittedly, was a once-in-a-generation sort of event.)

Citing the success of the "Plastics Make It Possible," campaign, Boehner said Thursday, "Over the course of a few years, it convinced the American people that plastics were really good. And the whole issue went away."

So, then it's settled: all banking needs is a little PR. Boehner noted, rightly, that a lot of people want to start their own business and don't have the money to do it. Enter banks. Of course, it is a lot more complicated than that. But Boehner is at least trying to help. 

Meanwhile, Hillary Clinton — the Democratic frontrunner for president — said Thursday she supports a call put forth by Democratic lawmakers in Washington to make the Federal Reserve more diverse and get bankers out of the Federal Reserve system. 

Four regional Fed presidents, for example, used to work at Goldman Sachs. 

A statement from the Clinton campaign on Thursday supported a letter sent to Fed Chair Janet Yellen by Democrats including Senator (D-MA) Elizabeth Warren, with the Clinton camp saying (our emphasis):

The Federal Reserve is a vital institution for our economy and the well-being of our middle class, and the American people should have no doubt that the Fed is serving the public interest.  That's why Secretary Clinton believes that the Fed needs to be more representative of America as a whole and that commonsense reforms -- like getting bankers off the boards of regional Federal Reserve banks -- are long overdue. Secretary Clinton will also defend the Fed's so-called dual mandate -- the legal requirement that it focus on full employment as well as inflation -- and will appoint Fed governors who share this commitment and who will carry out unwavering oversight of the financial industry.

At least from a near-term policy perspective, however, is bolded: Clinton supports certain initiatives around the Fed's staffing efforts, but is not trying to change the dual-mandate of price stability and full employment. 

This means that at least as of now, a Clinton presidency wouldn't see material changes at the Fed. There will be not "Audit the Fed," in other words. 

Donald Trump, however, has said he'd look to replace Yellen. 

So there's that. 

Additionally

Jim Chanos has a new short idea. 

The IEA has good news for the oil industry: supply disruptions might help prices rebound. 

German conglomerate Bayer wants to buy Monsanto. 

Big KKR report on what they call the mounting macro paradox in China. 

Kadhim Shubber on Lending Club. 

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