Browsing articles in "Weekly Market Update"

The Last Straw

Jan 26, 2018   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

Upon looking at this week’s stories, it struck me that outside of earnings announcements, there isn’t much to talk about.  Earnings announcements are in full swing with a substantial number of companies reporting.  The common theme has been companies reporting better than expected revenue and earnings growth driven largely by a combination of benefits from recent tax reform, a somewhat weaker dollar, and synchronized global growth.  In the weeks ahead, we’ll be able to determine if this early assessment holds true.  At the moment, there appears to be more momentum to the upside than downside.

Fortunately, Congress reached an agreement on Monday to reopen the government after being closed last weekend.  While one could look at it as another failure in that it just keeps things open until February 8th, it appears both sides are serious about reaching a compromise regarding the border wall, a DACA solution, and immigration reform.  In the meantime, the stock market continues to move higher seemingly looking past this issue.

In other news, the Senate confirmed Jerome Powell this week to replace Janet Yellen as the chairman of the Federal Reserve.  He comes to the position at a critical time for the Fed, which is normalizing monetary policy after years of extraordinary accommodation triggered by the financial crisis.  While many who come to the position are economists who work in academia, Powell comes with a more market-based background, having worked in venture capital.  His policy positions are mostly expected to run close to Yellen, though some of his comments indicate he may be a bit more inclined to raise interest rates faster and be somewhat looser on bank regulation, especially regarding community and regional banks.

While we’re on the subject of monetary policy, our Treasury Secretary, Steve Mnuchin, let it slip he thinks a weak U.S. dollar would be great for the United States.  This is a departure from decades of traditional U.S. policy.  As if on command, the U.S. dollar dropped to a new three-year low.  Echoing Mr. Mnuchin’s comments, the chief strategist at JPMorgan made the comment, “the U.S. has been a ‘pacifist’ in the currency war for too many years.  Other countries – Japan and Europe – have been trying to push their currencies down.  We just took it.  I think we shouldn’t.”  For simplicity sake, a weaker U.S. dollar means it is cheaper for consumers in other countries to buy our goods.  On the flip side, it would mean our buying power would decrease making imported items we might buy more expensive.  Recognizing the mistake, Mr. Mnuchin tried to walk back his comments, but it was too late.  President Trump even felt obliged to say, “the dollar is going to get stronger and stronger.”

Oil has been a topic of discussion for this weekly email going back years now.  First, the price was too high, then it was too low, and now maybe it will no longer matter.  Bank of America put out a report this week suggesting oil demand will peak by 2030 amid a boom in electric vehicles.  Analysts predict 40% of all new car sales will be electric vehicles by then, reducing the need for oil as a fuel for transportation.  Even as strong global oil consumption helps to push crude prices higher, the rise of electric vehicles is seen as one of the biggest long-term threats to demand.  You heard it here first.

For this week’s story, I turn to government regulation.  I think we can all agree some regulation is a good thing.  For example, we all want clean water and uncontaminated food.  But where does one draw the line?  I came across two stories that had me thinking about the role government plays in our lives.  The first is a soda tax enacted in Seattle that adds 1.75 cents an ounce to sugary beverages.  For example, a case of Gatorade that used to cost $15.99 now costs $26.33.  A case of Dr. Pepper now costs $17.55 instead of $9.99.  The health benefit is clear, but who gets to make these decisions?  This week, the majority leader in California’s lower house has introduced a bill to stop sit-down restaurants from offering customers straws with their beverages.  A waiter who serves a drink with an unrequested straw would face up to six months in jail and a fine of up to $1,000.  In years past, I remember restaurants not offering water by default but instead leaving it to the patron to request it.  I’m not passing judgment one way or another, I just thought it was worth mentioning as a starting point for discussion.  Where do you stand?

January 26, 2018

Countdown to Shutdown: T-8hrs

Jan 19, 2018   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

With earnings announcements starting to trickle out, the news so far is good.  Most analysts had predicted the fourth quarter of last year would be a good one due to improving economic data, rising wages, and the positive effects of tax reform.  To a large extent, a lot of the good news is already priced into the stock market.  To that end, we’ve seen some companies report higher than expected revenue and earnings growth only to have investors take some money off the table in those stocks.  While the good news is generally speaking good, you’ve likely heard the saying, ‘buy the rumor, sell the news.’  We may see some of this in the weeks ahead.

The more pressing issue is the looming government shutdown which is just hours away.  I won’t go into the politics of it since that is outside the scope of this weekly email.  However, regardless of what happens, investors may not need to worry too much, as past shutdowns haven’t corresponded with significant stock-market movement.  Data shows that markets have an only modest weakness during shutdowns, with the S&P 500 falling an average of 0.6% over the period of the closure.  In fact, 44% of the time, the markets went higher during the period of the closure. Since 1976, there have been 18 closures ranging from one day to three weeks but never before has there been a shutdown when one party has controlled both the Congress and the White House.

Fortunately, the economy looks good according to the latest release of the Federal Reserve’s Beige Book.  The economy continued to expand at a “modest to moderate” rate across all eleven districts.  Employment was up at a modest pace with most districts noting ongoing market tightness and challenges finding qualified workers.  Inflation also sees “modest to moderate” growth and retailers noted holiday sales higher than expected.  Lastly, housing sales were constrained by limited inventory.  Overall, this is a picture of an economy that is growing at a sustainable pace without risk of overheating in the near-term.

In company news, Apple announced an ambitious plan to boost the U.S. economy by $350 billion over the next five years and hire an additional 20,000 workers due to the recently passed tax reform.  Also, in a reversal, the company announced that it will allow you to control whether or not your iPhone slows down as it ages in an upcoming software update.  In other news, while Cincinnati didn’t make the final cut for Amazon’s second headquarters, the company is getting closer to finding a second home Indianapolis and Columbus still in the running.  General Electric (GE) continues to feel the pain as investors slowly give up hope on this company emerging from the ashes.  There are strong rumors that the company is looking at breaking itself up, however, in this case, the sum of the parts may, in fact, be less than the whole.  To say that GE is struggling to find itself is an understatement.

In closing, I came across a piece about a month ago which highlights the most annoying words people use in everyday conversation.  For the ninth consecutive year, Americans say “whatever” is the most annoying word or phrase used in casual conversation.  Coming in second place is “fake news” which annoys 23% followed closely by “no offense, but” with 20%.  11% think “literally” is the most grating word while 10% assert “you know what I mean” is the most agitating.  Interestingly, those under the age of 40, compared to their older counterparts, do not find the word “whatever” all that bothersome.  Those millennials.  Now you know.

January 19, 2018

A Technology Driven Future

Jan 12, 2018   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

Markets pushed higher yet again this week, continuing the momentum that picked up going into the end of last year.  We won’t have long to wait for confirmation of record holiday sales as companies begin releasing earnings in just a few days.  While it is likely a lot of the good news is already priced in at these levels, there will undoubtedly be some surprises awaiting us.

Let’s start with what is presumably good news.  Holiday retail sales smashed all expectations.  The National Retail Federation reports U.S. retail holiday sales increased 5.5% year-over-year to $692 billion to top by a wide margin the forecast for a 3.6% to 4.0% gain.  Online and other non-store sales were up 11.5% to $138.4 billion to account for 20% of all sales during the period.  The flip side of the coin is that before the holiday season even started, U.S. credit card debt stood at $808 billion as of the end of the third quarter.  That’s $280 billion more than the previous high hit in 2008, at the height of the financial crisis.  We all know how that ended.  The real benchmark is $1 trillion and it is probable it will be reached this year.

Among the things that I spend a lot of time considering is what the future holds.  While much of that time is spent on market levels and economic data, the real fun is considering the trends and advancements in technology.  In that light, this week the Consumer Electronics Show (CES) brought us one step closer to a future of talking toilets and snuggling robots.  Kohler introduced an Internet-connected toilet that can respond to voice commands.  For a mere $5,625 you too can have a toilet that you can tell to lift the seat or play your favorite soundtrack.  Plus, it keeps track of water usage.  For $600 you can purchase a robot by Somnox that just wants to cuddle.  It is a bed companion that simulates human breathing and is marketed as a tool to alleviate anxiety and help you get to sleep faster.  Perhaps most intriguing is the idea of a robot that folds laundry.  Two companies each introduced robots that tackle this tedious chore.  Foldimate promises to fold a load of laundry in 4 minutes, while Laundroid folds a whole drawer of clothes.  Sadly, neither can tackle socks or bedsheets yet but can be had for $980 and $16,000 respectively.  Self-driving cars are so old news.

In company news, a class action lawsuit against Starbucks was thrown out by a U.S. federal court.  The suit alleged the company was cheating customers by under-filling drinks and overloading them with foam.  This isn’t the first court to strike down a motion against Starbucks’ portions.  Pro tip: Ask for no foam.  IBM topped the list of U.S. patents for the 25th consecutive year.  It received a record 9,043 patents in 2017, while Samsung came in a distant second with 5,743.  Other members of the top ten include Canon, Intel, LG Electronics, Qualcomm, Google, Microsoft, and Taiwan Semiconductor.  IBM’s patents include 1,900 for cloud-related tech, 1,900 for artificial intelligence, and 1,200 for cybersecurity.  IBM has now surpassed 100,000 U.S. patents issued from 1993 to 2017.

In closing, since we’re talking about the future in this week’s installment, let’s talk about drones.  We learned both the Los Angeles Police Department (LAPD) and New York State Police will start deploying drones this year.  New York State Police launched its first aerial drone program to help support law enforcement missions like public safety, disaster response, and traffic safety.  The LAPD plans to use drones of varying sizes and capabilities depending on the mission, but were more ambiguous with the details.  The use of drones is a contentious issue for law enforcement and one that has Orwellian overtones.  Technology has impacted our lives in millions of ways, from how we communicate to how we shop.  But, it may soon be used in ways only previously seen in sci-fi movies.  Just this week I heard a report of a company looking at using artificial intelligence to prevent crimes before they happen.  I couldn’t help but think about the movie Minority Report and the TV series Person of Interest.  While the future holds great promise, and technology will undoubtedly usher in a better tomorrow, it is worth paying attention to the impact technology will have on our future.  Now you know.

January 12, 2018

A Year of Surprises

Jan 5, 2018   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

Is everyone as excited about what 2018 has in store as I am?  2017 had its fair share of surprises but turned out to be a pretty fantastic year.  A number of records were set with regard to stock market levels and while the Federal Reserve started slowly tightening, it had little impact on dampening the enthusiasm shared by investors.  Before we resume our normal weekly recap, let’s take a moment to reflect on the big market events of 2017.

Among the most significant events last year were the Brexit negotiations and civil unrest in Catalonia, the future of U.S. trade with regard to NAFTA, the unraveling of the Dodd-Frank Bill regarding “too-big-to-fail”, corporate and individual tax reform, the U.S. economic boom and continuous records for stock indexes, cryptocurrency mania, media company mergers, net neutrality repeal, OPEC output cuts, Paris and Iran deal pullout, General Electric’s restructuring, the rise of Tesla, tensions with North Korea, the EU’s war on tax avoidance, and new Federal Reserve leadership.  What a year.

The natural question on everyone’s mind is what is in store for 2018?  Will U.S. stocks keep rising?  Which sectors will be hot?  Tax bill benefits or debt ceiling worries?  U.S. mid-term elections?  Will the oil rally continue?  Cryptocurrency surprises?  Next steps for monetary policy?  Dollar downturn?  Brexit and NAFTA?  Other trade agreements?  Lastly, how will the second year of Trump’s presidency shape the markets?  While we have ideas on some of these questions, it remains to be seen how 2018 unfolds.

Among the first hurdles we face is hitting the debt ceiling in approximately two weeks.  Congress has passed three short-term “stopgap” spending bills, one in September, one in early December, and the latest just before Christmas.  However, if both parties can’t reach an agreement by January 19th, it is conceivable we could have another government shutdown like the one that occurred in 2013.  Among the biggest hurdles is the need for a debt limit increase (on the back of the recent tax cuts), and the expiration of DACA protections for Dreamers in March affecting nearly a million young unauthorized immigrants.

In economic news, 2017 had the lowest annual number of job cuts since 1990.  Employers announced only 418,770 for the entire year.  Retail tops the list of job cuts with 76,084 jobs, followed by healthcare which announced a reduction of 40,732.  On the flip side, employers hired 1,100,654 people during the year representing a 27% increase over 2016.  Perhaps most encouraging, due to the tight labor market and recent tax reform, several industries are raising their minimum wage and offering better benefits including the return of the 401k match.  Most prominently, the financial services industry (primarily banks) are raising the minimum wage to $15 across the board.  Over 100 large companies announced bonuses of $1,000 or more for all their employees, increased wages, or pledged large charitable contributions.  We haven’t seen this level of largesse in quite some time.

In company news, the story remains largely focused on a select few companies.  Amazon, Facebook, Google, and Tesla continue to garner the lion’s share of the media.  In particular, there are large swathes of the media devoted to figuring out which industry Amazon will disrupt next and those companies Amazon may next acquire.  Always an entertaining character, Elon Musk continues to make wild projections for Tesla with all manner of hype, while simultaneously burning through $2 billion in cash each year.  Cryptocurrencies, while derided by the mainstream media, quickly became headline news as the price of Bitcoin skyrocketed from $1,000 to $20,000.  If 2017 was the year for Bitcoin, I suspect 2018 will be the year for alternative cryptocurrencies.  Whether this is a bubble or the beginning of a shift toward digital currency, we’ll have to wait and see.

In closing, within the first few trading days of 2018, another major milestone was accomplished – Dow 25,000.  While we don’t know exactly what will happen this year, we have an idea of some of the issues and opportunities we face.  As always, we remain vigilant and hope to remain ahead of the stories as they unfold.  Happy New Year!

January 5, 2018

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