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Sunday February 7, 2016



Alphabet's Earnings Spell Success

Alphabet Inc. (GOOG), Google's parent company, reported its fourth quarter results on Monday, February 1. The tech giant surpassed analysts' expectations as ad revenue ignited sales.

Alphabet reported quarterly revenue of $21.33 billion. This is an increase of 18% from last year.

"Our very strong revenue growth in Q4 reflects the vibrancy of our business, driven by mobile search as well as YouTube and programmatic advertising, all areas in which we've been investing for many years," said Ruth Porat, CFO of Alphabet. "We're excited about the opportunities we have across Google and Other Bets to use technology to improve the lives of billions of people,"

Net income for the quarter was $4.92 billion. Last year, the company's fourth quarter net income was $4.67 billion.

A great deal of Alphabet's success can be attributed to Google's advertising business. Revenue from advertising alone was $19.08 billion, making up 88% of the company's total quarterly revenue. In after-hours trading on Monday, Alphabet's shares rose more than 8%, briefly overtaking Apple as the world's most valuable company. However, Apple took back the crown at Wednesday's closing when its market cap was reported at $534 billion, while Alphabet's cap came in around $515 billion.

Alphabet Inc. (GOOG) shares ended the week at $683.55 down 10% for the week.

ExxonMobil's Earnings Plunge

ExxonMobil Corporation (XOM) released its full-year and fourth quarter earnings on Tuesday, February 2. The company reported a substantial drop in earnings, as low oil prices pushed profits 50% lower than they were a year ago.

Exxon announced full-year revenue of $268.88 billion, starkly lower than last year's reported revenue of $360.31 billion. Fourth quarter revenue totaled $59.81 billion, down from the company's year ago quarterly revenue of $87.28 billion.

"While our financial results reflect the challenging environment, we remain focused on the business fundamentals, including project execution and effective cost management," said CEO Rex W. Tillerson. "The scale and diversity of our cash flows, along with our financial strength, provide us with the confidence to invest through the cycle to create long-term shareholder value."

Exxon reported full-year net income of $16.15 billion, significantly lower than the previous year's earnings of $32.52 billion. The company's quarterly net income was $2.78 billion, a 58% drop from the year-earlier quarter.

With crude prices around $30 a barrel, Exxon's sharply lower earnings are a testament to the hurting oil and gas economy. Oil prices have dropped 70% since June 2014, forcing oil companies to take measures to preserve capital. Exxon is no exception. The company announced on Tuesday that it will be cutting capital spending by 25% and suspending its share buyback program. However, unlike its rivals BP and Chevron that announced they will be laying-off upwards of 4,000 workers, Exxon has avoided mass layoffs and plans to start six new projects this year.

ExxonMobil Corporation (XOM) shares ended the week at $80.08 up 4% for the week.

Yahoo Reports Earnings and Layoffs

Yahoo! Inc. (YHOO) reported its full year and quarterly earnings on Tuesday, February 2. Overall, the company's results were aligned with analysts' expectations.

The company's full year revenue was $4.97 billion, compared to $4.67 billion in the year prior. Quarterly revenue was reported at $1.27 billion, slightly lower than last year's fourth quarter revenue of $1.25 billion.

"I'm pleased to report that our Q4 performance exceeded guidance across GAAP revenue, revenue ex-TAC, adjusted EBITDA, and non-GAAP Operating Income," said Marissa Mayer, CEO of Yahoo. "We are extremely proud of the billion dollar plus business we have built in mobile, video, native and social."

Yahoo's full year net earnings were down significantly, as it reported earnings of $4.36 billion compared to $7.52 billion the previous year. On a per share basis, this quarter's earnings were 13 cents a share. Last year, Yahoo earned 30 cents a share in the fourth quarter.

The earnings report came on the tail-end of Mayer's unveiling of Yahoo's strategic plan to simplify the company and narrow its focus. Part of this plan involves a trim down in size. Mayer announced that Yahoo plans to lay off 15% of its 11,000 employees and close five offices. In addition, the company aims to cut its operating expenses by more than $400 million by the year's end in order to accelerate its growth in 2017.

Yahoo! Inc. (YHOO) shares ended the week at $27.97 down 5% for the week.

The Dow started the week of 2/1 at 16,454 and closed at 16,205 on 2/5. The S&P 500 started the week at 1,937 and closed at 1,880. The NASDAQ started the week at 4,588 and closed at 4,363.

Yields Rise Then Fall With New Job Report

Treasury yields rose on Friday morning following the release of the government's latest job report, but spiraled downward as the day wore on as investors adapted a more negative view of the job report.

The employment report revealed that job growth fell below expectations with only 151,000 jobs added. However, investors initially were optimistic as the report indicated that the unemployment rate fell from 5.0% to 4.9%, making January the first month since February 2008 that the employment rate has dropped below 5.0%.

At first, the jobs report had the effect of easing the concerns of some investors who have been flocking to Treasury bonds due to plummeting oil prices and weakness in China. Following the announcement, the yield on the 10-year Treasury note rose to 1.89% compared to 1.84% prior to the announcement.

"The headline number was a bit of a disappointment but not too bad, and the rest of the report suggests steady improvement," said Michael Hanson, a senior economist at Bank of America Merrill Lynch. "The financial markets are leery, but the labor market still looks like it's continuing to grow."

However, as the day continued, investors and analysts scrutinized the employment report, causing stock prices to fall and the demand for safer assets, like bonds, to rise. By the end of the day on Friday, the yield on the 10-year Treasury note had dropped nine basis points from the start of the week and reached its lowest level since April of last year.

"It's a rather difficult report to interpret. It confirms there has been some deceleration in the U.S. economy. We're not falling off the cliff, but it clearly shows the U.S. economy is not immune to the global slowdown," said Russ Koesterich, global market strategist with asset manager BlackRock.

The 10-year Treasury note yield finished the week of 2/1 at 1.84% while the 30-year Treasury note yield was 2.67%.

Five Week Fall - Interest Rates Keep Tumbling

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, February 4. The report showed interest rates falling for the fifth straight week.

The 30-year fixed rate mortgage averaged 3.72% this week. This represents a decrease from last week when it averaged 3.79%. Last year at this time, the 30-year fixed rate mortgage averaged 3.59%.

This week, the 15-year fixed rate mortgage averaged 3.01%. This was down from last week when it averaged 3.07%. The 15-year fixed rate mortgage averaged 2.92% one year ago.

"Both the Treasury yield and the mortgage rate now are in the neighborhood of early-2015 lows," said Sean Becketti, Chief Economist at Freddie Mac. "These declines are not what the market anticipated when the Fed raised the Federal funds rate in December. For now, though, sub-4% mortgage rates are providing a longer-than-expected opportunity for mortgage borrowers to refinance."

The money market fund finished the week of 2/1 at 0.3%. The 1-year CD finished at 0.5%.

Published February 5, 2016
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