The Valuations Of Tech Startups Are Soaring, Plus American Airlines Revises Rewards

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“I’ve come to the realization that this is not my time.” — Louisiana Governor Bobby Jindal, who suspended his campaign for the Republican presidential nomination yesterday. The fact that the Republican field is so crowded clearly hurt Jindal, and now…well, it’s still pretty crowded, but just a little less so.

MARKET SNAPSHOT 

Autos Drive Markets Up

  • U.S. markets started the day strong on a slew of positive earnings reports, but quickly reversed course after news broke of a possible second terrorist attack in Germany. Netflix was having none of that, though, extending its swift two-day rally to 12% on a continued reaction to noted hedge fund Soros Fund Management taking a position in the stock.
  • Europe saw big gains yesterday, boosted by auto sales growing 2.7% in October—the 26th month in a row of growth. And in case you were wondering, even scandal-ridden Volkswagen finished in the green.
  • Oil fell into its usual habit, dropping yet again for a familiar reason: investors fearing oversupply. The gains logged on Monday over geopolitical concerns were all but erased as U.S. crude stockpiles continued reaching new heights.
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U.S. MACRO 

CPI Rises to Meet Expectations

After two months of falling prices (known as disinflation for the economically-inclined), the U.S. consumer price index increased 0.2% in October, in line with analyst expectations. Increasing prices = inflation, which, according to the Federal Reserve, is necessary for a healthy economy. A strong dollar and lower oil prices had held inflation down for the past two months, but gas prices actually rose 0.4% in October and costs of other goods increased as well. The central bank’s 2% inflation target is still far from reality, but it’s likely that October’s positive reading will give the Fed further cause to raise interest rates come December.

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CORPORATE PRIMER

Wal-Mart Beats the Odds

Yesterday, Wal-Mart reported earnings that handily beat expectationsalthough to be fair, they had previously lowered profit estimates, making the earnings beat a bit deceptive. Nonetheless, the story was simple: U.S. sales staged a healthy increase on a surprising 1.7% boost in customer traffic, helping offset weak international sales and rising costs due to paying its employees higher wages. Shares jumped nearly 4% following the results, but remain down 31% on the year.

American Airlines Revises Rewards

Yesterday was another bad day for many airline travelers: American Airlines announced changes to its loyalty program. Instead of rewarding passengers based on miles flown, the airline will now reward based on dollars spent, copycatting the loyalty programs of Delta and United, American’s largest competitors. Through this shift, American’s highest-spending customers will reap more rewards, while budget travelers will score less benefits per flight. Despite American’s goal to increase its bottom line through these revisions, shares dropped 1.2% following the announcement—and so did the hearts of many budget travelers.

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TODAY IN TECH
Startup Valuations Up, Investors Skeptical

Despite weak markets and severe economic uncertainty, 86% of tech startups increased their valuations in the third quarter of 2015. Yes, the price tag keeps rising on these soon-to-be IPOs, while the tech sector as a whole remains flat—and private investors are starting to push back. Specifically, big name private tech companies like Snapchat and Dropbox are in the crosshairs, as evidenced by the uptick in senior liquidation preferences. Fancy words, but investors are essentially demanding higher levels of protection on their venture capital investments. In these frothy markets, who wouldn’t?

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OTHER STORIES

  • Germany-Netherlands match canceled after “concrete” bomb threat
  • Air Liquide to acquire Airgas for $10.3 billion
  • Canadian Pacific bids for Norfolk Southern
  • Charlie Sheen says he’s HIV-positive
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ECONOMIC CALENDAR

  • Monday: Dillard’s Earnings
  • Tuesday: Consumer Price Index; Walmart, Home Depot, Dick’s Sporting Goods Earnings
  • Wednesday: Fed Minutes; Housing Starts; Lowe’s, Target, Staples Earnings
  • Thursday: Best Buy, Gap Earnings; Weekly Jobless Claims
  • Friday: Abercrombie & Fitch, Foot Locker Earnings

HOME IMPROVEMENT

Make no mistake: the housing market has been on a roll for quite some time. An obviously beneficiary: home improvement retailer Home Depot. This past quarter, the company recorded a hefty 5.1% increase in sales and 6.4% increase in revenue, and shares responded appropriately, rising 3.4%. Home improvement lovers aren’t messing around, with average transactions over $900 rising by 8%. But Home Depot isn’t the only one improving:

  • This strong growth reflects the U.S. housing market recovery, and specifically its key drivers: housing turnover and home price appreciation.
  • Homebuilder confidence is also on the rise, reaching decade highs, according to the National Association of Home Builders.
  • Home Depot isn’t the only home improvement retailer in the game, and comparable stores have also experienced sales increases averaging 7.3%. Moral of the story: it’s a good time to be a house.

INTERVIEW QUESTION OF THE DAY

You have two coconuts, and you want to find out how high they can be dropped from a 100 story building before they break. But you only have $1.40, and the elevator costs a dime each time you ride it up (it’s free for rides down).
How can you drop the coconuts to guarantee you will find the lowest floor they will break at, while starting and ending at the first floor?
Note: they break when dropped from the same height and they don’t weaken from getting dropped. (Answer)

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BUSINESS TERM OF THE DAY

Back-End Load — A fee (sales charge or load) that investors pay when selling mutual fund shares within a specified number of years, usually five to 10 years. The fee amounts to a percentage of the value of the shares being sold. The fee percentage is highest in the first year and decreases yearly until the specified holding period ends, at which time it drops to zero.

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FOOD FOR THOUGHT
The Oxford Dictionary has named the word of the year, but it’s actually not a word at all: it’s the “Face with Tears of Joy” emoji.

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