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Friday October 28, 2016



Netflix's Stock Surges

Netflix Inc. (NFLX) announced its third quarter earnings on Monday, October 17. Shares of the entertainment company soared 19% after the announcement thanks to earnings that surpassed Wall Street's expectations, marking Monday as the stock's best daily performance since April of 2013.

Netflix reported revenue of $2.29 billion for the quarter. This was a 36% boost from last year's third quarter revenue of $1.58 billion and above the $2.28 billion predicted by analysts.

"We are now in the fourth year of our original content strategy and are pleased with our progress," the company said Monday in a letter to shareholders. "In 2017, we intend to release over 1,000 hours of premium original programming, up from over 600 hours this year. The Internet allows us to reach audiences all over the world and, with a growing base of over 86 million members, there's a large appetite for entertainment and a diversity of tastes to satisfy."

Netflix announced earnings of $0.12 per share, beating Wall Street's prediction of $0.06 per share. Last year at this time, Netflix reported adjusted earnings of $0.07 per share.

The company attributes its growth to the growing popularity of its original content. During the quarter, Netflix debuted one of its newest hit shows, Stranger Things, and released season two of Narcos. The company will be adding a new title to its list of original content on November 4 when it releases The Crown, which will focus on the early reign of Queen Elizabeth II.

Netflix Inc. (NFLX) shares ended the week at $127.50, up 27% for the week.

Hasbro Gets a Disney Boost

Hasbro, Inc. (HAS) announced its third quarter results on Monday, October 17. The toy and board game company's revenue rose 14% thanks in large part to a recent licensing agreement with Disney.

The company reported that revenue during the quarter was $1.68 billion. This topped estimates for revenue of $1.56 billion.

"Innovative play experiences, engaging storytelling and global execution of Hasbro's Brand Blueprint continues to drive consumer and retailer demand for our brand portfolio," said Hasbro Chairman, President and CEO Brian Goldner. "2016 has been a strong year, including our third quarter - which marked the greatest revenue and earnings quarter in Hasbro's history. We are well positioned for what we believe will be a good holiday season."

Hasbro reported earnings of $2.03 per share in the quarter. This beat the consensus estimate of $1.74 per share.

This past quarter saw Hasbro realize the fruits of a new licensing deal with Disney for princess dolls and toys for the popular movie Frozen. Hasbro's girls division's sales increased 57% during the quarter. Further helping matters for Hasbro is that the toy industry is growing. Research firm NPD group projects sales in the U.S. will rise 7% in 2016. So far on the year, Hasbro's share price has risen 7%.

Hasbro, Inc. (HAS) shares ended the week at $82.81, up 3.6% for the week.

American Airlines Reports Earnings

American Airlines Group, Inc. (AAL) reported quarterly earnings on Thursday, October 21. Higher labor costs and fewer passengers caused a decline in both earnings and revenue in the third quarter.

American Airlines announced that revenue for the third quarter was $10.59 billion, surpassing Wall Street's estimate of $10.56 billion. Last year's third quarter revenue was $10.71 billion.

"These outstanding results are due to the efforts of our more than 100,000 team members, who are working tirelessly to improve our operations, product, and customer experience," said American Airlines CEO Doug Parker. "Nowhere are these efforts more evident than through the seamless completion of our largest IT cutover yet, which combined our fleet and pilot groups onto one system, with no disruption to service."

The company reported net income of $737 million, down from last year's third quarter earnings of $1.69 billion. Earnings per share for the third quarter were $1.40, down from $2.49 per share a year ago.

Despite the drop in earnings and revenue, the quarter marked the second-best third quarter earnings in the airline's history. American Airlines, the world's largest airline, experienced a 15% increase in labor costs during the third quarter, adding approximately $368 million to the company's operating expenses. The financial sting was partially offset by ongoing lower fuel costs and an increase in domestic fares.

American Airlines Group, Inc. (AAL) shares ended the week at $39.90, up 3.2% for the week.

The Dow started the week of 10/3 at 18,136 and closed at 18,146 on 10/7. The S&P 500 started the week at 2,133 and closed at 2,141. The NASDAQ started the week at 5,214 and closed at 5,257.

Treasury Yields Move Lower

Treasury yields fell this week, with the 10-year yield reaching its lowest level since mid-August. Comments from central bank leaders at home and abroad were the big factors in falling yields.

On Thursday, European Central Bank President Mario Draghi signaled the central bank will slowly taper its bond-buying program when the time comes instead of abruptly ending it. However, he also left open the door for an expansion of the policy. Following Mr. Draghi's comments, the gap between five and 30-year yields narrowed.

"It's dovish—they are not going to end [the bond-buying program] in March abruptly," said Priya Misra, head of global interest-rate strategy at TD Securities (USA), LLC. "Treasuries are following global rates, particularly the long end."

During early Friday trading, the two-year bond yield was flat at 0.823%, while the 10-year note yield had fallen 2.3 basis points to 1.734%. Yields move inversely to prices, so as yields fall, prices rise.

On Wednesday, New York Federal Reserve President William Dudley joined the chorus of other Fed members' recent comments when he said he expects the central bank to raise interest rates later this year. Consequently, investors have been shying away from shorter-term bonds, which are more sensitive to interest rate hike speculation.

The 10-year Treasury note yield finished the week of 10/17 at 1.74%, while the 30-year Treasury note yield was 2.49%.

Mortgage Rates Continue to Move Higher

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, October 20. The report revealed interest rates rising for the second consecutive week.

The 30-year fixed rate mortgage averaged 3.52% this week, up from last week when it averaged 3.47%. Last year at this time, the 30-year fixed rate mortgage averaged 3.79%.

This week, the 15-year fixed rate mortgage averaged 2.79%. This is up from last week when it averaged 2.76%. The 15-year fixed rate mortgage averaged 2.98% one year ago.

"The 30-year fixed-rate mortgage moved a solid 5 basis points to 3.52% while the 10-year Treasury yield remained relatively flat," said Sean Becketti, Chief Economist at Freddie Mac. "This is the first week in over 4 months that rates have risen above 3.50%. This month, mortgage rates seem to be catching up to Treasury yields and returning to pre-Brexit levels."

Based on published national averages, the money market account finished the week of 10/17 at 0.52%. The 1-year CD finished at 1.19%.

Published October 21, 2016

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