Browsing articles in "Weekly Market Update"

Olde West Chester Christmas Walk

Nov 17, 2017   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

There are a lot of macroeconomic events which we could talk about.  For example, Venezuela falling into default, the end of Mugabe’s thirty-seven-year reign over Zimbabwe, and President Trump’s recent trip to Asia.  Other topics might include the faltering NAFTA negotiations or perhaps the tax bill that passed in the House of Representatives this week.  Some might find interest in General Electric’s long and slow downfall, or perhaps the surprise announcement that the P&G proxy battle did, in fact, go to Nelson Peltz.  However, with the temperatures falling and Thanksgiving less than one week away, my thoughts have turned to the approaching holidays and the realization that another year is quickly coming to an end.

With this in mind, I am going to forgo the usual political, economic, and financial commentary and instead give you a poem on the theme of thanksgiving.  This poem is written by Ella Wheeler Wilcox who was born in 1850 in Johnstown, Wisconsin.  It is said she was published by the time she graduated high school.

Thanksgiving
Ella Wheeler Wilcox

We walk on starry fields of white
And do not see the daisies;
For blessings common in our sight
We rarely offer praises.
We sigh for some supreme delight
To crown our lives with splendor,
And quite ignore our daily store
Of pleasures sweet and tender.

Our cares are bold and push their way
Upon our thought and feeling.
They hand about us all the day,
Our time from pleasure stealing.
So unobtrusive many a joy
We pass by and forget it,
But worry strives to own our lives,
And conquers if we let it.

There’s not a day in all the year
But holds some hidden pleasure,
And looking back, joys oft appear
To brim the past’s wide measure.
But blessings are like friends, I hold,
Who love and labor near us.
We ought to raise our notes of praise
While living hearts can hear us.

Full many a blessing wears the guise
Of worry or of trouble;
Far-seeing is the soul, and wise,
Who knows the mask is double.
But he who has the faith and strength
To thank his God for sorrow
Has found a joy without alloy
To gladden every morrow.

We ought to make the moments notes
Of happy, glad Thanksgiving;
The hours and days a silent phrase
Of music we are living.
And so the theme should swell and grow
As weeks and months pass o’er us,
And rise sublime at this good time,
A grand Thanksgiving chorus.

In closing, I want to invite everyone to come tomorrow to the Olde West Chester Christmas Walk.  This will be our ninth year participating and enjoy seeing everyone partake in this festive event.  It is open to the public and runs from 2 pm to 8 pm.  The parade is the highlight of the day and should not be missed.  It starts at 7 pm and makes its way down Cincinnati-Dayton Rd. Our office is the perfect place to view the parade as it marks the mid-point of the route.  As always, we will have a nice offering of cookies and warm cider and a balloon artist for the kids.  We hope to see you tomorrow!

November 17, 2017

The Cut, Cut, Cut Act

Nov 3, 2017   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

What a week!  If hundreds of earnings announcements weren’t enough, we also had the nomination of a new Federal Reserve chair, and the GOP tax reform plan.  Trying to digest all the information was like trying to drink from a firehose.  I’ll do my best to summarize what could turn out to be the busiest week of the year.

You may have noticed the stock market continues to head higher each week.  In fact, this is the eighth-consecutive week of higher closes.  We also learned that despite this week marking the thirtieth anniversary of the Black Monday stock market crash, this October the CBOE Volatility Index recorded the lowest monthly average in its history (dating back to 1990).  You couple that bit of news with the release of the Consumer Confidence Index which increased to its highest level in almost seventeen years, and it’s no wonder the stock market keeps heading higher.  I’m not saying that we’ve hit euphoria yet, but the numbers indicate people, in general, feel good about the economy and investors are confident current economic conditions will persist.

Part of what is fueling this rally is the cash that had been sitting on the sidelines all these years.  A recent report found that mutual funds are holding only 3.3% of assets in cash.  Meanwhile, money market funds as a percent of long-term assets have fallen to 17% – also an all-time low.  A separate Citigroup study from a couple months back finds institutional cash at just 2.25% of assets.  The bottom line is that there are a lot of fully-invested bears out there.

Additionally, the Federal Reserve Open Market Committee (FOMC) met this week and in its policy statement takes note of solid economic activity despite the hurricanes, soft core inflation, and continued strength in the labor market.  There is nothing in the statement suggesting the Fed won’t hike rates again at its next meeting in December.  But while we’re on the subject of the Federal Reserve, it should be noted that President Trump nominated Jerome Powell to be the new chairman of the Federal Reserve, replacing Janet Yellen whose term expires in February.  Mr. Powell has been a Fed governor since 2012 and has consistently voted with Yellen, thus earning the moniker, “The Republican Yellen.”  One thing that could prove different is his desire to further deregulate banks.  He’s on record saying he wants to, “deregulate community banks, relax liquidity constraints on larger firms, and relax lending standards in the housing markets.”  Those measures are more in line with the Trump administration and were likely contributing factors to his nomination.

In the middle of all this news, the GOP released details of its tax reform plan.  It did not go unnoticed.  No doubt you heard some of the details in the news.  The biggest change is the effort to drop the corporate tax rate from 35% to 20%.  However, anyone with a grade school education knows this means less revenue and potentially big budget deficits, perhaps as large as $1.5 trillion over 10 years.  To offset this loss of income, Republicans came up with a number of ideas including capping the mortgage interest deduction on new home purchases, limiting the amount of property taxes that can be deducted, eliminating the deductibility of state and local taxes, medical expenses, the tax credit for adoption of a child, and student loan interest.  It also keeps the top marginal tax bracket at 39.6% for those with earned income greater than $1 million.  Just remember, to “simplify” the tax code it was necessary to write a 400-page bill.

I usually close out this weekly piece with a funny or unusual story.  This week is a more sobering reminder that money is not free and does not, in fact, grow on trees.  It was announced the Social Security Administration paid out more than $1 trillion in fiscal 2017 for the first time ever.  This amounts to 37 times the Department of State budget, 32 times that of the Department of Justice, 20 times that of the Department of Homeland Security, and 76% more than the federal government spent on the Department of Defense.  The Social Security Administration and the Department of Health and Human Services now account for 53% of all federal spending.  If nothing is done to fix the funding, the financial reckoning will be huge – some estimate as much as $11.4 trillion down the road.  Now you know.

November 3, 2017

Historical Revelations

Oct 27, 2017   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

It was quite a week and one full of records.  The S&P 500 has closed at record highs sixty-six times this year, the most since the mid-1990s.  But also as impressive is the unusually low volatility which has resulted in the S&P 500 having its longest streak ever without a 3% intraday drawdown.  Some other mind-boggling stats include a record thirty-three straight days without a 0.5% drop, the longest streak since 1995.  And lastly, the S&P 500 has fallen by 1% or more only four times this year, the fewest for a full year since 1964.  While some may see these stats as unsustainable, the good news is that volatility is low because economies around the world are growing, there are few signs of recession in the U.S., and companies are reporting earnings growth.

This week was all about earnings announcements and boy were there a lot.  Despite the run-up in stock prices this year, some companies are executing their strategies better than others.  The following are some of the winners and losers this week:

  • General Electric -13%
  • Whirlpool -11.5%
  • Chipotle -15%
  • Expedia -19.5%
  • Baidu -10%
  • Mattel -13.5%
  • Google +4%
  • Microsoft +7.5%
  • Caterpiller +5%
  • Amazon +12%
  • Intel +11%
  • 3M +6%

In the midst of this earnings season, there is more than the normal amount of disorder happening in the healthcare sector.  For starters, it was revealed this week that Amazon has received wholesale pharmacy licenses in multiple states.  Amazon was mum on whether it is planning a move into the prescription drug delivery business, but the three major pharmacy distributors all took notice.  McKesson, AmerisourceBergen, and Cardinal Health all had a bad week down -11%, 8%, and 6% respectively.  Additionally, the old adage of kicking a man while he’s down could likewise apply here.  President Trump went on record calling the opioid epidemic an emergency with many looking at the drug distributors as ground zero.  However, the final bombshell this week was the announcement that CVS Health is considering the acquisition of Aetna perhaps blurring the line between insurance, pharmacy benefit, and retail pharmacy all in one fell swoop.  Healthcare is perhaps the most difficult and surely most uncertain sector these days.

In other news, the House of Representatives narrowly approved the Senate’s recently-passed 2018 budget, opening the door for the Senate to pass the GOP’s tax reform plan.  The reconciliation process will start soon, meaning the Senate can pass the tax cuts with just fifty votes (the VP breaking any tie).  However, a core dilemma is how to pay for the expansive tax cuts that are estimated to add up to $1.5 trillion to the existing federal deficit over ten years.  One proposal is to eliminate state and local tax deductions which could bring in up to $1 trillion over the same time period.  Another option is to reduce the annual cap on tax-deferred contributions that can be made to 401k plans from $18,000 to as little as $2,400.  Much like healthcare reform, the details could make a grand bargain insurmountable.

In closing, I turn to the much-anticipated release of 2,800 records related to the assassination of President John F. Kennedy.  While not all the records were released due to a last-minute stay by the President, enough was released to add color to what has been a hotly contested event in history.  One document has J. Edgar Hoover, in his own words, saying the public must believe Lee Harvey Oswald acted alone.  Another document indicates the Soviet Union theorized that President Lyndon B. Johnson could have been behind the assassination – and also feared that Moscow could be blamed and attacked.  They noted that sources said the KGB “was in possession of data purporting to indicate President Johnson was responsible for the assassination of the late President.”  And finally, a memo to the director of the FBI revealed that a call was made to the senior reporter at the Cambridge News (a British newspaper) at 6:05 pm on the day Kennedy was killed.  It should be noted the time is important because the call was made before JFK was assassinated.  “The anonymous caller told the reporter he should call the American Embassy in London for some big news and then hung up.”  If you are a history buff and want to know more, the documents are all online and can be reached here.  Now you know.

October 27, 2017

Teen Trends to Watch

Oct 20, 2017   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

The markets advanced this week pushing the averages higher again.  In fact, the Dow Jones Industrial Average (DJIA) closed above 23,000 for the first time.  It is also worth noting that this week marked the thirtieth anniversary of Black Monday.  For those of you who are too young to remember, the 1987 stock market crash was amongst the largest in history with the DJIA falling 22.6% in one day or the equivalent of 5,300 points.  While some are worried about current market valuations, it should be noted that a repeat of Black Monday is unlikely to happen again due to modern trading technology, implementation of circuit breakers, and the way funds are managed.  Yep, this time is different.

So let’s start with the big news.  Procter & Gamble held off activist investor Nelson Peltz with the certification of the proxy vote this week.  The vote was very close with a margin of victory of only 0.2% or roughly 6 million votes.  While this means P&G is out of the woods, for now, the fight for a board seat likely isn’t over.  CEO, David Taylor, insists that the current transformation underway is working but will take time.  Today’s earnings announcement of just one percent organic growth undermines management’s defense and leaves the door open for the likes of Mr. Peltz to make another run at the company.

In other news, I learned this week that there may be a huge hike in the SIFI threshold on the way.  You may remember in the aftermath of the 2008 financial crisis, certain financial institutions including banks, brokerage companies, and insurance companies were determined to be “too big to fail”.  The official term given by the Federal Reserve for these institutions is “Systematically Important Financial Institutions” or SIFI for short. Gary Cohn, the chief economic advisor to President Trump and the Director of the National Economic Council, said the Trump Team and Congress are working on a plan to raise the asset level to be considered systematically important from $50 billion to $200 billion.  The reason this is significant is that companies considered systematically important have more stringent regulatory requirements regarding capital and reserves.  Undoing this measure just nine years after the financial crisis seems dicey, but we’re currently in a risk-on environment.

I came across two stories this week that involved the Saint Regis Mohawk Tribe.  Having never heard of this Native American tribe, I was curious.  A federal judge in Texas invalidated four key patents for the dry-eye treatment Restasis, dealing a blow to its manufacturer Allergan.  In September, Allergan took the highly unusual step of paying the Saint Regis Mohawk Tribe in upstate New York to take possession of the patents, which then were leased back to the company.  The tactic was a way to protect the company from a patent challenge that is underway before the United States Patent and Trademark Office (USPTO).  The Mohawk tribe has claimed that sovereign immunity shields the patents from challenges.  While the ruling this week is a blow to Allergan, the case with the USPTO remains unsettled.  Oddly enough, I came across another story this week in which the Saint Regis Mohawk Tribe is suing Microsoft and Amazon for patents it holds.  I am intrigued by this technicality and wonder if this may become a loophole for corporations, not unlike some of the other unsavory strategies they’ve employed such as the “double Irish with a Dutch sandwich” which shifts taxable profits to a low or no tax jurisdiction.

In closing, I’d like to share a research survey by Piper Jaffray.  The survey looks at the spending habits of teenagers and hopes to gain insight into the current trends.  The following are some of the highlights:

  • Snapchat is the preferred social media platform for 47% of teens, up 12% year-over-year.
  • 82% of teens expect their next phone to be an iPhone, which is the highest ever seen in this survey.
  • Streaming continues to gain teen video share as preference for “linear” TV declined 2%
  • Only 35% of teens listen to Pandora radio versus 49% last year.
  • Teens increasingly prefer Amazon as their favorite website at 49%, up 9% year-over-year.
  • Starbucks remains the only public brand to garner double-digit mindshare among restaurants.

Now you know.

October 20, 2017

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