Wall Street Breakfast: S&P 500 Tops Record High

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Includes: AA, AMZN, BRK.A, BRK.B, BX, C, CVKEY, FB, GM, HMC, LYFT, NTDOY, QQQ, RRD, SPY, TSLA, VIA, VIAB, XOM, XRX
by: Wall Street Breakfast
Wall Street Breakfast
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The S&P 500 has climbed back over a record it set more than a year ago, capping a stop-start recovery that has been one of the most uneven and uncertain in recent memory. The rally, which on Monday took the benchmark past its previous all-time high of 2,134.72 set in May 2015, was derailed at various points by plunging oil prices, currency devaluations in China and most recently the U.K. vote to leave the EU. Can it keep going?

Economy

Backing a case brought by the Philippines, an international tribunal has ruled against Chinese claims to rights in the South China Sea, citing a lack of evidence that the country "historically exercised exclusive control over the waters or their resources." Although The Hague cannot enforce the ruling, and no U.N. peacekeeping forces are expected in the region, it can tarnish Beijing's image as it will be looked at as a unilateral actor if it goes against the international community.

Japan's Nikkei extended gains overnight, rising 2.5% to almost recapture its pre-Brexit level, after Prime Minister Shinzo Abe ordered a new round of fiscal stimulus as a "bold investment into seeds of future growth." Reports also suggest that Ben Bernanke is in Tokyo to meet with Abe, who said he wanted to "accelerate the speed of escape" and "use all three arrows of Abenomics (stimulus, easing and structural reforms) to conquer deflation."

President Obama is confident that the "special relationship" between the U.S and Britain will continue after Theresa May becomes British prime minister, White House spokesman Josh Earnest told reporters. May is set to become the new prime minister tomorrow evening, when David Cameron offers his resignation to Queen Elizabeth II. What are her EU views? According to May, "Brexit means Brexit and we are going to make a success of it."

The European Commission has slashed its U.K. and eurozone growth forecasts following the Brexit vote, stating the cumulative negative impact for British GDP would be about 1%-2.5%, and the euro area between 0.2%-0.5%, by 2017. "The U.K. leave vote has surprised markets," said European Commissioner Pierre Moscovici. "The longer the uncertainty lasts, the costlier it will be for the economy."

The Bank of England received prior warning from the FCA that commercial property funds might suspend dealings in the aftermath of the Brexit vote, according to the minutes from its latest Financial Policy Committee meeting. Seven U.K. open-ended commercial real estate funds subsequently suspended dealings, leaving over £18B frozen in the biggest seizing up of funds since the financial crisis.

More tension between Brussels and Rome? Italy must respect EU rules that require creditors to take losses before benefiting from any taxpayer funded bailouts, Eurogroup President Jeroen Dijsselbloem declared, but Prime Minister Matteo Renzi told Corriere della Serra that "a deal is within reach." The IMF separately warned that Italy will not reach pre-crisis growth levels until the mid-2020s due to a number of "significant" structural challenges.

Democrat Bernie Sanders will team up with Hillary Clinton on the campaign trail for the first time today, joining her in New Hampshire where he is expected to endorse the presumptive nominee in a belated show of party unity. The move concludes weeks of negotiations between the two camps and comes after Clinton adopted elements of Sanders' plans for free in-state college tuition and expanded affordable healthcare coverage.

Stocks

Amazon surged past Berkshire Hathaway to a market cap of about $356B on Monday, becoming the fifth largest U.S. company (Berkshire's (BRK.A, BRK.B) market value currently sits at $355B). The news comes before Amazon's (NASDAQ:AMZN) second annual Prime Day. Ahead of the big celebration, the company said it added 19M U.S. Prime members since last year's inaugural event, equating to growth of 43%, for a total 63M members.

Facebook is being sued for $1B in federal court for allegedly allowing Palestinian militant group Hamas to make use of its platform to plan terror attacks that resulted in the deaths of four Americans. Although the concept of initiating legal action against Facebook (NASDAQ:FB) or other social networks after attacks is not new, the same court has handed down verdicts in the past assigning responsibility for acts of terrorism.

Following months of political wrangling, European officials have approved a new agreement that will allow the transfer of online data - from social media posts and search queries to information about workers' pensions and payroll - across the Atlantic. The pact, known as the EU-U.S. Privacy Shield, will also provide some extra privacy protections for European citizens.

Nintendo's share price surged again overnight thanks to the U.S. craze for the "Pokemon Go" smartphone game, pushing the company's market cap past $31B. The stock finished the day up 12% in Tokyo. What's the hype all about? Nintendo's (OTCPK:NTDOY) app has made a major case for augmented reality as the gaming format of the future, with players traversing their physical surroundings, phone in hand, to find new characters.

On track to split into two companies by the end of the year, Xerox (NYSE:XRX) has been in talks to acquire R.R. Donnelley (NASDAQ:RRD), sources told Bloomberg. Xerox said in January that it will separate into a document technology company, which makes printers and copiers, that will have annual sales of $11B, and a business process outsourcing company will have $7B in revenue. XRX +2.3%; RRD +6.7% premarket.

An ex-girlfriend of media mogul Sumner Redstone (VIA, VIAB) will not be granted a new trial over her lawsuit that challenged the 93 year old's mental competence, a California judge said in a tentative ruling. The same judge in May dismissed Manuela Herzer's case after one day of trial, finding that Redstone's videotaped deposition made it clear he didn't want her in his life any longer.

Exxon Mobil has rebutted claims that an attack had taken place on its structures after the Niger Delta Avengers said it had blown up the Qua Iboe 48" crude oil export pipeline operated by the firm. "There were no attacks on our facilities," said Exxon Mobil (NYSE:XOM) spokesman Todd Spitler. The militant group has claimed responsibility for a series of recent bombings in Nigeria's southern oil hub.

Embattled Venezuela seems to be too much to take for Citibank (NYSE:C), as President Nicolas Maduro said the U.S.-based bank will shut down his government's foreign currency accounts within a month. "Do you think they're going to stop us with a financial blockade? No, gentlemen. Nobody stops Venezuela," the socialist leader proclaimed. "With Citibank or without Citibank, we march on."

China's Vanke and its partners are in talks to pay about 12.9B yuan ($1.9B) for commercial property from Blackstone (NYSE:BX), a deal that first drew attention last month after a Vanke (OTC:CVKEY) director abstained from a key vote citing a conflict of interest. Vanke didn't identify the partners, but said securities wouldn't be issued to fund the transaction.

Honda has co-developed the world's first motor for hybrid cars that doesn't use heavy rare earth metals, a breakthrough that would reduce its dependence on the expensive materials, which are controlled mainly by China. Honda (NYSE:HMC) is aiming for new-energy vehicles (hybrid, battery-electric and fuel cell) to account for two-thirds of its line-up by 2030, from around 5% now.

The SEC is investigating Tesla Motors (NASDAQ:TSLA) for a possible securities law breach after the electric car maker failed to report a fatal crash in May, according to the WSJ. The probe centers around whether Tesla should have disclosed the accident as a "material" event, or a development a reasonable investor would consider important.

Lyft may finally be ready to expand outside its home country, according to co-founder John Zimmer, who said the company will "very likely" spread to other regions (besides global alliances with Didi Chuxing, Ola and Grab). LYFT also announced yesterday it would grow Express Drive, its short-term rental program with General Motors (NYSE:GM), expanding to California and Colorado.

Monday's Key Earnings

Alcoa (NYSE:AA) +3.8% opening Q2 earnings season with a beat.

Today's Markets

In Asia, Japan +2.5% to 16096. Hong Kong +1.7% to 21225. China +1.8% to 3049. India +0.7% to 27808.
In Europe, at midday, London flat. Paris +1.7%. Frankfurt +1.7%.
Futures at 6:20, Dow +0.5%. S&P +0.5%. Nasdaq +0.6%. Crude +2.1% to $45.70. Gold -0.3% to $1352.90.
Ten-year Treasury Yield +5 bps to 1.48%

Today's Economic Calendar

6:00 NFIB Small Business Optimism Index
8:45 Fed's Bullard speech
8:55 Redbook Chain Store Sales
10:00 Job Openings and Labor Turnover Survey
10:00 Wholesale Trade
1:00 PM Results of $20B, 10-Year Note Auction
10:30 PM Fed's Mester speech

Companies reporting earnings today »