Auf Wiedersehen Beetle

Jul 12, 2019   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

It was a good week for stocks with the Federal Reserve all but assuring investors it will lower interest rates at its next meeting at the end of this month.  With little in the way of company news, and before the start of earnings announcements next week, investors hung on every word from two days of Congressional testimony regarding monetary policy.

If one thing is clear from his testimony, Chairman of the Federal Reserve, Jerome Powell is concerned about the heightened degree of uncertainty present today.  In his opening statement, he uttered the phrase no less than twenty-six times.  But perhaps the most telling line was when Mr. Powell refused to call the market “hot.”  “To call something hot, you need to see some heat,” he said referring to inflation which has been below expectations for some time despite low unemployment.   With his testimony, he paved the way for at least one rate cut in a couple weeks’ time.  The markets reacted accordingly.

In other news, the Healthcare Sector had a court ruling, a reversal of policy, and a potential executive order all hitting in the same week.  A U.S. District Judge blocked a Trump administration rule requiring drug makers to put prices in television ads, which is a central part of the President’s push to lower the cost of prescription medications.  The judge ruled this would violate free speech and exceeded the Health and Human Services Department’s statutory authority.  The second item is the White House reversal of policy on its plan to end drug rebates.  Pharmaceutical distributors collect the rebates and, in theory, pass along the cost savings to consumers.  While the White House has backed down on this plan, it is suggesting a new executive order to lower drug prices may be forthcoming.  This new plan will tie Medicare and Medicaid reimbursement for drugs to the lowest prices paid internationally.  This latest plan has the potential to save the U.S. government billions annually, but will undoubtedly face stiff lobbying efforts and is likely to end up in the courts if it is ever signed into law.

In company news, it was announced this week that Procter & Gamble plans to roll out a line of household insecticides safe for pets and people.  The new Zevo brand is the first creation to hit stores from P&G’s Ventures unit and one of the bigger launches in general since Tide Pods in 2012.  Also worth noting, the last Volkswagen Beetle has rolled off the assembly line in Mexico, serenaded by a mariachi band, and surrounded by proud factory workers.  The iconic car has been around in one form or another since 1940, but failed to navigate the current swerve in consumer tastes to SUVs.  If you have ever wanted to buy a new Volkswagen Beetle, it’s now or never.

In closing, I want to pass along a bit of information that I somehow missed.  Gas taxes were raised in 12 U.S. states as of 7/1/2019, ranging from 19 cents a gallon in Illinois and 10.5 cents per gallon in Ohio to just one-tenth of a penny in Nebraska and Michigan.  In Ohio, the additional gas tax is expected to cost a motorist who drives 15,000 miles per year and gets 25 miles per gallon an extra $63 per year.  The tax increase is expected to raise an additional $865 million in revenue, which will be split 55/45 between the state and local government and is earmarked for road and bridge repair.  The gas tax was last increase in Ohio in 2005.  Proponents cited the buying power of the tax has been eroded by inflation, Ohioans are driving more miles, and cars are more fuel efficient so less gas tax revenue is coming in per mile driven.  If you happen to drive a hybrid car or an electric car, you too will bear some of the cost.  The legislation charges electric vehicle owners $200 a year and hybrid owners $100 a year as an extra registration fee.  The good news is that starting July 2020, we are no longer required to display a front license plate in Ohio.  Now you know.

July 12, 2019

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