Back to the Future

Aug 18, 2017   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

Traditionally, summer is the period of the year during which the market becomes quiet.  We usually see trading volume dwindle and volatility slow.  However, the month of August has proven to be anything but ordinary. Between the riots in Charlottesville and the traditional Friday firing of an administration official, not to mention the media’s need to sensationalize every news story, we’re living in a polarizing time.  While the economic data hasn’t changed much, it seems investors patience and tolerance are waning thin.

More recently, it has become hard to report on the news from the week, because these days are so political.  I try to tread a fine line, knowing that this weekly recap is read by people across a wide spectrum of political beliefs.  However, it is sometimes difficult to avoid since politics often has a way of impacting both the stock market and the economy.  If I seem partial to one side or another, know that it is not intentional and just a reflection of what is being reported (for better or worse).  Having said that, let’s move on to nonpolitical stories this week.

Procter and Gamble has been under siege lately by activist investor Nelson Peltz.  This week the company fired back in a letter to shareholders asking them to vote against the bid by Trian Fund Management to land a board seat.  It states, “Mr. Peltz does not bring any new or needed skills to our Board.  We believe that adding him to the Board would derail the very significant value creation progress we are making.”  Kudos to P&G for not mincing words.  The company’s annual shareholder meeting is scheduled for October 10, 2017.

In other company news, Costco was ordered to pay $19 million after losing a recent lawsuit.  A federal judge ruled that Costco owes Tiffany & Co. damages for selling engagement rings with the Tiffany name.  Costco argued that its use of the name “Tiffany” referred to a generic style of ring, and not the luxury retailer itself.  However, using the name Tiffany is different than using the phrase “tiffany setting” which is synonymous with a solitaire style setting which is considered the classic engagement ring style today.  Unfortunately for Costco, they only sold 2,500 “Tiffany” rings with a profit of $3.7 million.  While this won’t have a significant impact on the company’s earnings, it is worth noting semantics matter.

This next story made me a little nostalgic.  While I don’t remember the authentic wood paneled station wagons of the 1950’s, often referred to as “Woodies”, I do remember the faux wood paneled station wagons of the 1970’s.  Over time, car manufacturers have sought out weight savings first in the use of aluminum and then with the use of carbon fiber.  With the push toward electric vehicles, slimming down cars takes on an even greater importance.  It seems the push to make lighter vehicles is leading some Japanese suppliers to turn to wood.  Denso and DaikyoNishikawa say cellulose nanofibers made from wood pulp weight just one fifth of steel and can be five times stronger.  While nothing compares to those faux wood paneled station wagons of yore, I am cautiously optimistic we’re moving back to the future.

In closing, we sometimes talk about patterns in the market.  For example, this is only the fourth calendar year in history (since 1926) that the first seven months of the year were all positive.  The other three years in which the first seven months were all positive were 1954, 1964, and 1995.  The average full year return for those three years was +35.56%.  However, these patterns are typically just anomalies which is why most small print disclosures usually say something to the effect of past performance does not guarantee future returns.  So when Liz Ann Sonders, chief investment strategist at Charles Schwab, made the following statement this week I had to chuckle.  She said, “there’s a seasonal thing we all need to be mindful of right now.  Many viewers may not be familiar with an effect that comes into play in years ending in seven.  If you go back all the way to 1900 and you use the Dow, for a variety of reasons, maybe some of which are mystical, years ending in seven have notoriously brought corrective phases.”  That’s not to say that we aren’t going to have a pullback this year, but “mystical” reasons are not generally at the top of my list.  Now you know.

August 18, 2017

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