Big Upside Surprise!

Apr 26, 2019   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

This week was dominated by earnings announcements and economic releases.  In both cases, the numbers look good.  In fact, some might even say they look great.  That’s not to say that everything is perfect, as we saw some companies miss earnings estimates, but on average both the economy and corporate earnings appear to be in good shape.  It should also be noted that the quarter that just finished will be the low point for the year, with each subsequent quarter gaining strength.

Let’s start with the best news of the week.  Today it was reported that Gross Domestic Product (GDP) in the first quarter grew by 3.2%.  This is a big beat since analysts had estimated growth of approximately 2.3% for the quarter and it eclipsed the 2.2% growth of the fourth quarter last year.  I don’t think anyone expected the number to come in this high.  So why didn’t the market shoot higher today on this news?  Well, to be fair the market has recovered from the losses set late last year.  One might say that much of this news, while being a surprise, was already priced into the market at its current valuation.

In other economic news, new home sales in March blasted through estimates with 692,000 sales.  With wages rising, unemployment low, mortgage rates falling, and millennials growing older, it seems there might just be some pent-up demand for both new and existing homes.  However, this phenomenon may not be taking place everywhere.  I read yesterday that homes in the Northeast, particularly New York, Connecticut, New Jersey and Massachusetts, are staying on the market longer than expected with prices falling in large part due to last year’s tax reform which limits property and state income tax deductions to $10,000.  Along similar lines, another article I read reports states with the highest property and state income taxes saw large outflows of residents last year.

In company news we learned that Amazon is expediting its free Prime two-day shipping to one-day shipping.  To offset the cost, Amazon is taking an $800 million charge in the second quarter.  Don’t worry, the company is still making an extraordinary profit.  We also learned that Tesla plans on rolling out a fleet of 1,000,000 robotaxis in 2020.  Before you ditch your car, just know that Elon Musk made the off-hand announcement on the company’s earnings call along with the pronouncement it will also begin offering car insurance.  Most analysts don’t find either claim credible.  However, it is clear that the company is feeling the pressure from rivals.  Ford announced a $500 million partnership and minority stake in Rivian Automotive, which made a huge splash when it announced a blisteringly fast, off-road capable EV pickup truck late last year.  Ford is hoping to get a jump on the development of its own EV truck by using Rivian’s platform.

Hitting a little closer to home, we learned that Verizon will begin rolling out its 5G network in twenty additional cities, including Cincinnati, Cleveland, Columbus, and Indianapolis, among others.  You might be saying, “5G”?  Let’s take a trip down memory lane.  It all started with 1G in the 1980’s which was basic analog cell phone signal.  2G saw a major improvement when the signal moved from analog to digital, which is more secure and reliable but more importantly allowed for text messaging.  3G is perhaps the most revolutionary in that it allowed for web browsing, email, video downloading, picture sharing, and other smartphone features.  4G was a little different in that it didn’t necessarily provide new features.  Instead it provided speed, high speed to be exact.  Additionally, it improved security and lowered the cost of voice and data services.  That brings us to 5G.  This new standard increases the already fast speed of 4G by 100X, up to 100Gbps.  It also allows for higher density on the network which should also lower the cost, in theory.  Before you get too excited, 5G is not compatible with current smartphones since it requires a new chipset.  At the moment there are only a handful of 5G smartphones.  Here are the manufacturers building them as we speak.  Among them are the Huawei Mate X for $2,600, the Samsung Galaxy S10 5G for $1,300, the Xiaomi Mi MIX 3 for $680, the LG V50 ThinQ, and the ZTE Axon 10 Pro 5G.   It is rumored Apple may have one ready late 2020 but that is still a rumor at this time.  And yes, I hope the prices come down substantially between now and then.  Now you know.

April 26, 2019

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