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Thursday October 20, 2016



Delta's Revenue Drops

Delta Air Lines (DAL) announced its latest quarterly earnings on Thursday, October 13. Both revenue and profits were down from the prior year's quarter.

The company reported revenue of $10.48 billion for the quarter, down 5.6% from the same period last year. Analysts expected revenue of $10.53 billion.

"Delta's resiliency stood out this quarter as we worked through the outage, continued revenue headwinds, and volatile fuel prices to produce the industry's best operational reliability and service for our customers along with solid margins, cash flows and returns for our owners," said Delta CEO Ed Bastian. "With our focus on building a more sustainable and durable business, we will be taking a cautious approach to 2017 by keeping our capacity in line with the December quarter's 1% growth level."

Delta reported net income of $1.26 billion, or $1.69 per share. During the same period last year the company reported net income of $1.32 billion, or $1.65 per share.

The second largest airline in the U.S. suffered from a technology outage over four days in August, forcing it to cancel more than two thousand flights. Delta revealed that the outage cut into its quarterly income by roughly $150 million.

Delta Air Lines (DAL) shares ended the week at $40.24, up 2.1% for the week.

Wells Fargo Reports Mixed Results

Wells Fargo & Co. (WFC) released its quarterly earnings on Friday, October 14. The company reported an increase in revenue but a drop in profits amidst a scandal in which employees created fake accounts.

The bank, one of the largest in the U.S., reported revenue of $22.3 billion, beating analysts' expectations of $22.2 billion. During the same period last year, the company reported revenue of $21.9 billion.

"I am deeply committed to restoring the trust of all of our stakeholders, including our customers, shareholders, and community partners," said Wells Fargo President and new CEO Tim Sloan. "We know that it will take time and a lot of hard work to earn back our reputation, but I am confident because of the incredible caliber of our team members. We will work tirelessly to build a stronger and better Wells Fargo for generations to come."

Net income for the quarter was $5.6 billion or $1.03 per share. This is down from $5.8 billion or $1.05 per share last year.

Wells Fargo's retail banking business was hurt this quarter by revelations that several thousand employees had been fired for creating fake accounts in customers' names. The company noted a 24% drop in mortgage referrals and a decrease of 30% in the number of new checking accounts from September to August. In the wake of this scandal, bank CEO John Stumpf retired this week and was replaced by President and COO Tim Sloan.

Wells Fargo & Co. (WFC) shares ended the week at $44.71, down 2.1% for the week.

Reed's Reports Rising Revenue

Reed's Inc. (REED) reported its quarterly earnings on Thursday, October 13. The soda company's sales showed an increase from the prior year's quarter.

Net sales for the quarter were $12.3 million. This is an increase of 15% from $10.7 million in net sales during the same period last year.

"We are clearly back on track and continue to generate sales momentum for our Reed's and Virgil's natural craft sodas," said Reed's Founder and CEO Chris Reed. "We had a record third quarter for revenues and returned to achieving positive operating profits for the first time in almost two years. Our EBITDA turned positive and increased by more than $2.3 million during the quarter."

The company reported a net loss of $219,000, or $0.02 per share. This is an improvement from a net loss of $2.5 million, or $0.19 per share, during the same quarter last year.

Reed's produces and sells a variety of sodas, carried by natural food markets, such as Whole Foods. The company experienced difficulty last year when several items were out of stock for a significant period of time. This resulted in the company losing several distribution outlets. Reed's is now in the process of recovering from last year's losses and reestablishing its relationship with retailers.

Reed's Inc. (REED) shares ended the week at $4.24, up 3.6% for the week.

The Dow started the week of 10/10 at 18,283 and closed at 18,138 on 10/14. The S&P 500 started the week at 2,160 and closed at 2,133. The NASDAQ started the week at 5,318 and closed at 5,214.

Treasury Yields Continue to Rise

Treasury yields rose this week on investor anticipation of increased inflation and a potential Fed interest rate hike. Despite a selloff this week, yields remain at historic lows.

China reported its producer-price index this week, showing that factory prices rose for the first time since 2012. The U.S. producer-price index also rose by 0.3% in September. With this unexpected uptick in inflation, many investors are shifting their capital from bonds to more risky investments such as stocks.

The 10-year Treasury note began the week at 1.77% and rose to a high of 1.8% on Wednesday as investors sold off bonds, driving prices down and yields up.

At the Federal Open Market Committee meeting in September, the Fed declined to raise rates but indicated that the next hike would be coming very soon. Fed Funds futures, which are used by traders to make bets on interest rate policy, currently show a 60% chance of a rate hike at the Fed's December meeting.

Eric Rosengren, President of the Federal Reserve Bank of Boston, notes that the Fed may step in, noting, "if one were concerned about the historically low 10-year Treasury and commercial real estate capitalization rates, perhaps because of potential financial stability concerns, the balance sheet composition could be adjusted to steepen the yield curve."

The 10-year Treasury note yield finished the week of 10/10 at 1.79%, while the 30-year Treasury note yield was 2.56%.

Mortgage Rates Rise Slightly

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, October 13. The report revealed interest rates have risen from last week.

The 30-year fixed rate mortgage averaged 3.47% this week, up from 3.42% last week. During this time last year, the 30-year fixed rate mortgage averaged 3.82%.

This week, the 15-year fixed rate mortgage averaged 2.76%, up from last week's 2.72%. The 15-year fixed rate mortgage averaged 3.03% one year ago.

"This week the 10-year Treasury yield continued its climb as an increasing number of financial market participants foresee a December rate hike after a series of positive economic data releases," said Sean Becketti, Chief Economist at Freddie Mac. "The 30-year fixed-rate mortgage moved up 5 basis points to 3.47% in this week's survey, the first increase in one month. Even though we've seen economic activity pick up, consumer price inflation and implied inflation expectations remain below the Federal Reserve's 2% target."

Based on published national averages, the money market account finished the week of 10/10 at 0.52%. The 1-year CD finished at 1.19%.

Published October 14, 2016

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