Market Morning: Record Down Days, Biotech Buyback Busts, Coke Raising Prices, Credit Tightens

One More Down Day and S&P 500 Ties 50-Year Record

The S&P 500 (NYSEARCA:SPY) has been down 16 days in the month of October. If it closes down today, that will make 17, the most down days in a single month since 1970. While futures are up significantly this morning, there have been large reversals after an initial pop higher, so we may still tie the record. 16 down days already matches 2008. The index is down 8.6% this month, and down 8.7% from all time highs, not quite a correction yet officially, but on the edge.

Biotech Buyback Leaders Nearly All Down Despite Share Repurchases

Since 2014, big biotech companies have repurchased about $100 billion of their own shares, but most are down on their buys. The top companies to engage in this practice are AbbVie (NYSE:ABBV), Alexion (NASDAQ:ALXN), Amgen (NASDAQ:AMGN), Biogen (NASDAQ:BIIB), Celgene (NASDAQ:CELG), and Gilead (NASDAQ:GILD). Relative to the average purchase price of the shares when bought, the biggest losers are Celgene, Gilead, and Alexion, who lost out by 31%, 23%, and 19% respectively. Amgen is the leader, up 7% on its own buybacks relative to current share prices. Celgene spent $18.3B, purchasing its own shares since 2014, down $5.67 billion and Gilead $29.2 billion, down $6.7 billion on its investment in itself. Admittedly, this isn’t quite fair math since without the buybacks the stocks would be even lower (unless the money was invested in growth that materialized by now).

Coke Raising Prices, Not Going to Cannabis

Coca-Cola (NYSE:KO) is raising its prices due to aluminum tariffs raised by the Trump Administration, but one thing they’re not doing is starting a cannabis-infused beverage line. “We don’t have any plans at this stage to get into the space,” CEO James Quincey told analysts during an earnings call. “So that’s kind of where we are.” Bloomberg had earlier reported that Coke was in talks with Aurora Cannabis (NYSE:ACB) to jumpstart a CBD-infused health beverage line, the non-psychoactive cannabinoid, but has apparently since backed off the idea, or at least what’s what they’re saying at the moment.

Capital One, Discover Tighten Credit Restrictions

Is this the beginning of a credit crunch? Could be. Capital One (NYSE:COF) and Discover (NYSE:DFS) are getting more caution on the amount of credit they are willing to extend to borrowers. According to the Wall Street Journal, the reason is that they are beginning to question how much longer the current economic boom will last. Credit delinquencies are still low at 2.85%, but a recession tends to bring those rates up, peaking in 2008 at 6.77%. The restrictions come in the context of rising interest rates for the past two years, and are likely to get tighter since tighter credit tends to breed tighter credit in a feedback loop, hence credit cycles. If interest rates continue to rise, expect this trend to continue because APR rates depend largely upon benchmark Treasury rates, and the higher the APR is the less of a credit line one is likely to get.

Further, if we start to see delinquency rates rise, we’ll have more evidence that the business cycle may be turning, at which point debt consolidation could get back into fashion. Though if anticipated before rates rise significantly from here, high credit card balances may be able to be paid off at lower rates now, before credit conditions worsen further.

It’s Business As Usual After Khashoggi Murder

As expected, money makes the world go round and one murder, even recorded with the perpetrators caught red-handed, won’t disrupt business and military ties between the United States and Saudi Arabia. On the topic, Jamie Dimon, CEO of JPMorgan (NYSE:JPM) says that his boycotting of the recent Saudi investment conference “Davos in the Desert” accomplished nothing and that JPMorgan’s business ties with the royal kingdom will continue. Dimon said his bank, which has been in Saudi Arabia for more than 70 years, will follow the lead of the U.S. government when making decisions after the alleged murder of Jamal Khashoggi. As for the U.S. government it will continue to sell weapons to the Saudis so they can keep bombing Yemen, among other things.

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