Mar 22, 2019   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

Despite today’s pullback, the market had a fairly normal week ending only modestly lower.  Headline news dominated market movements with issues in Europe taking center stage.  As mentioned last week, we can expect geopolitical news to drive investors ahead of earnings announcements mid-April.  While today was a bit of an anomaly, we should expect volatility to remain heightened given the sustained uncertainty that has grabbed hold.

The biggest news this week was the announcement out of the Federal Reserve (Fed) that it intends to raise interest rates only once this year.  It had previously stated that no less than three rate hikes were on tap for 2019.  This newfound dovish attitude sent the opposite signal to investors than the Fed had hoped.  Investors took this announcement as a sign the economy had slowed more than anticipated and that perhaps the Fed knows more than it is letting on.  Whether pressure from the White House or weakness in the economic indicators, it seems almost inconceivable that the Fed will raise rates in this environment.

Speaking of this environment, it should be noted that the yield curve inverted today for the first time since 2007.  While today’s inversion is the spread between the 3mos and 10yr yield, it is more typically the 2yr and 10yr treasuries that are compared and at the moment that spread is still positive by 11 basis points (.11%).  Regardless, today’s pullback was a reaction to this event which historically signals a recession in the coming 12-24 months.  While this news may be jarring to many, it is not a big surprise as analysts and economists have been stating this likelihood for some time now.  As we’ve noted several times this year, economic growth is slowing both in the U.S. and abroad.  Since the fourth quarter of 2018, we have been making changes to our models to adjust for a slowing economy and the possibility of a recession next year.

In company news, it seems Intel and the Department of Energy are working on building the world’s fastest supercomputer dubbed Aurora.  Currently the two fastest computers are in the United States with the third and fourth residing in China.  The goal is for this to be the first supercomputer with a performance of one exaflop, which is one quintillion calculations per second.  To put that in perspective, if every person on Earth did one calculation per second, it would take everyone over four years to do all the calculations that Aurora could do in one second.  A supercomputer with such capabilities could be used to safely simulate and test new weapons, design better batteries, wind-powered systems, or nuclear reactors.  On the health front, it could be used for research on cancer, cardiac issues, traumatic brain injuries, and suicide prevention.  One thing is certain though, it still won’t be able to predict the weather in Ohio.

In other company news, it seems Anheuser-Busch InBev has teamed up with Keurig to bring us a new type of cocktail machine.  The Drinkworks machine adds water, carbonation, and flavored alcohol pods to create cocktails such as Moscow Mules, Old Fashioneds, mojitos, or gin and tonics.  The companies are still testing different price points and are in talks to license known alcohol brands.  Another innovation comes from JP Morgan which announced a new type of “checkless” bank account this week. It gives customers access to mobile apps, branches, and ATMs.  You may be wondering, “what’s the innovation?”  Well, they plan on charging $4.95 per month for the benefit of you depositing your money with them.  That to me is not the kind of innovation I like.

In closing, I bring you the lawyers that once sued and beat Big Tobacco.  A new class-action lawsuit takes aim at real estate agents and the tools they use to do business.  The suit was filed in Chicago on behalf of anyone who sold a home through one of 20 of the largest listing services in the country over the past five years.  The suit alleges the National Association of Realtors has conspired to require anyone selling a home to pay the commission of the broker representing the buyer “at an inflated amount,” in violation of federal antitrust law.  If this case were to prevail, it could revolutionize the way Americans buy and sell the biggest asset they’ll ever own.  Now you know.

March 22, 2019

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