Browsing articles in "Weekly Market Update"

Mooo’vng Forward

Mar 31, 2017   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

It is hard to believe the first quarter just ended.  It was a quarter which saw stocks rise but one that also experienced an increase in uncertainty and volatility.    President Trump was in no small part responsible for both the appreciation and the uncertainty.  While his timeline has certainly changed, it appears his goals remain intact.  We anticipate the economy will continue to grow modestly in the second quarter as gridlock in Congress takes hold.

There is quite a lot to talk about this week.  I’ve mentioned the issues surrounding the Department of Labor’s Fiduciary Rule August 2015 and again November 2016.  Without getting too far into the weeds, the Fiduciary Rule was originally proposed in 2010 as part of sweeping financial reforms.  However, it was pulled from the bill and brought back in 2015.  In essence, the fiduciary rule is about putting clients’ interests first.  For clarity, Harvest Financial Advisors already abides by the fiduciary rule while the brokerage and insurance industry does not.  Though this should not be a controversial topic, it gets to the heart of how brokers are compensated in the financial services industry.  Upon taking office, President Trump ordered a review of the rule at the behest of the world’s largest asset managers who control America’s $16 trillion retirement industry.  Among those are Blackrock and Vanguard, two of the largest and most trusted names in the industry, who are concerned the new rules “risk confusing investors and adding unnecessary costs for the financial industry.”  I’ll let you draw your own conclusion.

Another topic that frequently comes up is automation and its impact on jobs.  This is a theme I anticipate will grow in the years and decades ahead.  Ford announced this week it will invest $1.2 billion to expand SUV and truck capacity at three separate Michigan plants.  This is fantastic news and was quickly pushed by the White House as “making America great again.”  However, reading a little further, one would notice that this rather large expenditure is expected to add or retain only 130 jobs.  The moral of the story is automation could lead to greater productivity at the expense of labor.

So I’ve touched on regulation in the financial industry and jobs in manufacturing.  The only thing left to discuss is climate change.  This week Exxon Mobil urged President Trump to keep the United States in the 2015 Paris climate agreement, calling the accord “an effective framework for addressing the risks of climate change.”  So what’s up with the world’s largest fossil fuel company pushing for climate change regulation?  As with the financial industry above, it is important one considers the motivation.  Exxon Mobil says in its letter that, “there are several reasons for the U.S. to stay in the Paris pact, including the opportunity to support greater use of natural gas, since it creates lower carbon emissions than coal when used for power generation.”  You’ll never guess who has been investing heavily in natural gas the past few years.

And lastly, if you thought privacy was essentially dead, it is now officially dead.  Both the House and the Senate voted this week to repeal regulations governing consumer privacy protection at Internet service providers.  When the president signs this legislation, the repeal will allow service providers to sell consumer information including browsing history without customer consent.  Major providers that will benefit from looser rules include AT&T, Comcast, and Charter Communication.  Your web browsing patterns contain a treasure trove of data, including your health concerns, shopping habits and visits to personal sites. ISPs can find out where you bank, your political views, and sexual orientation simply based on the websites you visit. The fact that you’re looking at a website at all can also reveal when you’re at home and when you’re not.  Welcome to the 21st century.

In closing, I came across a story about Fitbit for cows.  Cows?  It seems the tags which most cows have in their ears are going high tech.  The new ear tags will monitor each cow’s heart rate, body temperature, and location.  It will also store the animal’s date of birth and vaccination history.  A rancher will be able to access this data using Bluetooth-enabled devices, essentially creating “smart cows.”  Not unlike precise crop management, this will usher in the era of smart herd management. Now you know.

March 31, 2017

Two Spaces or One?

Mar 24, 2017   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

While Monday marked the first week of Spring, green failed to materialize in the markets.  Sentiment soured a little for the first time on President Trump’s ability to accomplish his promised pro-growth policies of tax reform and stimulus.  Also, health care reform appears to have met an impasse in the House, and a lot of investors are waiting for the next catalyst.

At issue, the growing doubts that tax reform, infrastructure spending, and deregulation will take longer to pass than initially thought.  Optimism after the presidential election led markets higher on the premise that a lot of what the President campaigned on could be implemented quickly.  Markets shot higher, and valuations became stretched.  However, opposition within the President’s party was not fully appreciated, and President Trump’s strong-arm business style flies in the face of the long-standing tradition of “horse trading” otherwise known as politics.

President Trump wasn’t the only one having a difficult week.  Sears stock declined over fifteen percent as the company warned it might not continue to be a “going concern.”  While this doesn’t come as a surprise, it is unusual for a company to make such a statement unless there is a good cause.  It should be noted Sears still retains 15-20% of the appliance market and 10-15% of the tool market.  Continued declines at Sears could be a win for the likes of Home Depot and Lowes.  On another note, Google had a difficult week after several large advertisers, including Verizon, AT&T, Johnson and Johnson, and JP Morgan, announced they are freezing advertising on non-search properties of Google.  Apparently, ads from these companies were placed next to content promoting terrorism and hate on YouTube (which is owned by Google).  Google issued a mea culpa and promised to give companies more control over where their ads appear.

Not to be forgotten, England is still in the process of decoupling from the European Union.  Prime Minister Theresa May will formally write to the European Union next Wednesday to announce Britain’s withdrawal from the bloc.  If all goes according to the two-year negotiations set out in the official timetable, Brexit should happen in March 2019.  Also on the radar, Greece is set to miss yet another deadline for unlocking bailout funds, edging closer to a repeat of the 2015 drama that pushed Europe’s most indebted nation to the edge of economic collapse.  So if it makes you feel any better, the United States, while undergoing some dysfunction, remains the best place to invest.

In closing, I discovered I’ve been doing something wrong for a long time.  In fact, I’d bet many of you may be as surprised as I was upon learning that you should never put two spaces after a period.  How can it be wrong when we were taught this so many years ago?  You can blame it on the electric typewriter (yes, that dates me).  As typesetting became more widespread in early 20th century Europe, its practitioners adopted best practices.  Among those was the use of a single space following a period.  Every major style guide – including the Modern Language Association Style Manual and the Chicago Manual of Style – prescribes a single space after a period.  Most people would know the one-space rule if it weren’t for a quirk of history.  It comes down to the electric typewriter circa 1950.  Electric typewriters used monospace type – that is, every character occupies an equal amount of horizontal space.  This is in contrast to proportional type which typesetters used.  Monospace type gives you text that looks “loose” and uneven.  Hence the adoption of the two-space rule.  On a typewriter, an extra space after a sentence makes text easier to read.  Here’s the thing, Monospaced fonts went out in the 1970s.  While I intellectually understand the rule, this habit thirty years in the making may be hard to break.  Please don’t fault me.  Now you know.

March 24, 2017

Fed Decision

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

It was a relatively quiet week as investors waited for the Federal Reserve (Fed) meeting Wednesday.  At the end of last year, the Fed anticipated raising rates three times in 2017.  This past Wednesday was the first opportunity to raise rates and investors took a wait-and-see approach to avoid getting ahead of the Fed’s decision.  Because it was so highly anticipated, when the Fed did make the announcement to hike rates 0.25%, it was largely met with a collective yawn.

What is rather unusual is the lack of larger swings in the market.  So far this year, the Dow has only closed higher or lower by more than 100 points on 13 days.  If this pace keeps up, 2017 will be the year with the second least 100-point moves since 2006.  For clarification, a 100-point on the Dow represents only 0.48% Dow’s value.  The low number of 100-point days comes alongside a host of other stats demonstrating just how abnormally quiet stocks have been.  The CBOE Volatility Index has remained anomalously low, and the S&P 500 has not fallen by 1 percent or more since early October, the longest such streak since 1995.  The consensus is investors are in a “buy-the-dip” mentality since the election last November.

In other news, with tax reform looking less likely this year, U.S. companies are making overseas acquisitions now rather than waiting for tax changes later.  Intel announced Monday it is paying $15 billion to buy Mobileye, and in January Johnson & Johnson agreed to buy Switzerland’s Actelion for $30 billion.  In both cases, the corporations are paying for their acquisitions completely with cash they’ve stashed abroad.  Publicly listed U.S. corporations have announced more than $60 billion in acquisitions of targets outside of North America this year, more than double the amount in the same period a year ago, per Bloomberg.  There’s too much cash on corporate balance sheets.  That cash wants to go someplace, and if it can’t go home, it will travel.  Congress’s non-partisan Joint Committee on Taxation estimates that U.S. corporations hold as much as $2.6 trillion of profit overseas that hasn’t been taxed in the U.S.

While we’re on the subject of tax reform, it might be a good opportunity to review some highlights of President Trump’s first budget proposal.  The good news, I suppose, is that it does not touch mandatory spending programs like Social Security, Medicare, and Medicaid (which collectively make up 75% of total federal spending).  What he addressed in his budget is the 25% which is considered discretionary spending.  It should come as no surprise that the areas he wants to spend more on are those he talked about on the campaign trail, while those parts of the budget he wants to cut are ones he has been most vocal about since taking office.  If one were to score the agencies regarding winners and losers under the current proposal, it would look like the chart above.  In a nutshell, defense spending will increase approximately 10 percent while the EPA and aid to foreign countries would take the biggest hit.  While the budget will most likely be tweaked in the coming weeks, it will undoubtedly have a positive impact on some sectors while making it more difficult for other sectors.  The stock market will try to anticipate the winners and losers.

For the story of the week, I turn to YouTube.  By now most of your have heard of YouTube, and many may watch videos on it regularly.  I count myself among the latter group.  But what I came across a couple of weeks ago caught me completely off guard.  As of this month, people around the world now watch more than 1 billion hours of YouTube per day!  For comparison sake, viewers of regular television programming watch 1.2 billion hours per day.  While many of the clips found on YouTube are short, they clearly add up.  YouTube put it in further perspective, pointing out that an individual attempting to rack up 1 billion hours of viewing would have to find a playlist that was 100,000 years long.  It is a huge shift and one that reflects YouTube’s ascent to a primary media distribution platform.  Google owns YouTube.  Now you know.

March 17, 2017

One Small Typo

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

Twelve straight record closes and a move above 21,000 marks another milestone for the market this week.  Much of the appreciation since the election is due to the anticipation for deregulation, increased government spending, and tax reform.  Some actions have been taken, but much more are in the pipeline (no pun intended) and could be difficult to gain traction not only with Democrats but also within the President’s party itself.  We continue to enjoy the market appreciation but have been taking gains as part of the general rebalancing process.  Diversification means owning those positions that may not be doing well at the moment, i.e. fixed income, but whose lack of correlation to the equity markets will provide respite when the tide eventually turns.  And it will.

Has the market gotten a little ahead of itself?  The answer depends on whether you believe President Trump will be able to achieve healthcare reform, tax reform, immigration reform, infrastructure spending, et al.  Aerospace and defense names such as Boeing and Lockheed Martin rose after Trump proposed a $54 billion boost to defense spending.  His plans regarding $1 trillion in infrastructure spending helped move shares of Caterpillar and other industrial stocks.  Financials continue to rank among the top performers this year on anticipation of deregulation and interest rate hikes.  These areas have become ubiquitously known as the “Trump Trade” and have outsized gains.  While President Trump may giveth, he can also taketh away.  Sectors like retail took it on the chin this week with renewed talk about a border tax on goods produced in Mexico and China.  Utilities which have been spending billions upgrading to natural gas, oddly enough, are also hurting with a renewed focus on coal.

It was a good week for investors for another reason.  The major brokerage companies, starting earlier this year, decided to cut trading costs.  Just one month ago Schwab announced it was lowering its trading commission on stocks and ETFs to $6.95.  This week Fidelity rose to the challenge and announced It is lowering its trading commission to $4.95.  The same day, Schwab announced it would match Fidelity’s rate.  The new commission rate is 50% lower than that at E-Trade and TD Ameritrade.  As described in an article in Forbes, investment management fees are one of the smallest headwinds investors face.  In fact, trading costs and taxes eat up even greater shares of returns than fees.  This week marks a small victory for investors everywhere.

Let’s switch gears for a moment and talk about TV.  For years the largest players in communications industry had a stranglehold on its consumers.  Whether from a lack of competition or poor service and ever rising package prices, consumers had little choice.  However, things are changing.  Sling TV and Hulu were early innovators in streaming TV.  This week we learned Google (Alphabet) is taking it to the next level.  It plans on rolling out TV service this Spring, including thirty channels, local TV, and unlimited Cloud DVR for only $30 per month.  The industry, reluctant to change, is being forced into a new future of streaming media and TV on any device anywhere.  Fortunately, we all have a free front row seat to this coming attraction.

In closing, I came across another story about details.  Last week was about an email sent by mistake that led to a substantial lawsuit.  This week, it’s a typo that shut down some of the largest websites.  The problem was traced back to Amazon’s hosting platform as part of its Amazon Web Services (AWS) a multi-billion dollar division within Amazon.  And you thought they only sold stuff!  After recovering from the problem, Amazon put up a post explaining what happened.  While attempting to fix an issue with their billing system, “an authorized team member using an established playbook executed a command which was intended to remove a small number of servers for one of its billing subsystems.”  There was just one problem with this: “Unfortunately, one of the inputs to the command was entered incorrectly, and a larger set of servers was removed than intended.”  If there’s a moral to this story, it’s probably that even the best and most reliable can make mistakes.  The other moral is details matter.  Now you know.

March 3, 2017

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