Historical Revelations

Oct 27, 2017   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

It was quite a week and one full of records.  The S&P 500 has closed at record highs sixty-six times this year, the most since the mid-1990s.  But also as impressive is the unusually low volatility which has resulted in the S&P 500 having its longest streak ever without a 3% intraday drawdown.  Some other mind-boggling stats include a record thirty-three straight days without a 0.5% drop, the longest streak since 1995.  And lastly, the S&P 500 has fallen by 1% or more only four times this year, the fewest for a full year since 1964.  While some may see these stats as unsustainable, the good news is that volatility is low because economies around the world are growing, there are few signs of recession in the U.S., and companies are reporting earnings growth.

This week was all about earnings announcements and boy were there a lot.  Despite the run-up in stock prices this year, some companies are executing their strategies better than others.  The following are some of the winners and losers this week:

  • General Electric -13%
  • Whirlpool -11.5%
  • Chipotle -15%
  • Expedia -19.5%
  • Baidu -10%
  • Mattel -13.5%
  • Google +4%
  • Microsoft +7.5%
  • Caterpiller +5%
  • Amazon +12%
  • Intel +11%
  • 3M +6%

In the midst of this earnings season, there is more than the normal amount of disorder happening in the healthcare sector.  For starters, it was revealed this week that Amazon has received wholesale pharmacy licenses in multiple states.  Amazon was mum on whether it is planning a move into the prescription drug delivery business, but the three major pharmacy distributors all took notice.  McKesson, AmerisourceBergen, and Cardinal Health all had a bad week down -11%, 8%, and 6% respectively.  Additionally, the old adage of kicking a man while he’s down could likewise apply here.  President Trump went on record calling the opioid epidemic an emergency with many looking at the drug distributors as ground zero.  However, the final bombshell this week was the announcement that CVS Health is considering the acquisition of Aetna perhaps blurring the line between insurance, pharmacy benefit, and retail pharmacy all in one fell swoop.  Healthcare is perhaps the most difficult and surely most uncertain sector these days.

In other news, the House of Representatives narrowly approved the Senate’s recently-passed 2018 budget, opening the door for the Senate to pass the GOP’s tax reform plan.  The reconciliation process will start soon, meaning the Senate can pass the tax cuts with just fifty votes (the VP breaking any tie).  However, a core dilemma is how to pay for the expansive tax cuts that are estimated to add up to $1.5 trillion to the existing federal deficit over ten years.  One proposal is to eliminate state and local tax deductions which could bring in up to $1 trillion over the same time period.  Another option is to reduce the annual cap on tax-deferred contributions that can be made to 401k plans from $18,000 to as little as $2,400.  Much like healthcare reform, the details could make a grand bargain insurmountable.

In closing, I turn to the much-anticipated release of 2,800 records related to the assassination of President John F. Kennedy.  While not all the records were released due to a last-minute stay by the President, enough was released to add color to what has been a hotly contested event in history.  One document has J. Edgar Hoover, in his own words, saying the public must believe Lee Harvey Oswald acted alone.  Another document indicates the Soviet Union theorized that President Lyndon B. Johnson could have been behind the assassination – and also feared that Moscow could be blamed and attacked.  They noted that sources said the KGB “was in possession of data purporting to indicate President Johnson was responsible for the assassination of the late President.”  And finally, a memo to the director of the FBI revealed that a call was made to the senior reporter at the Cambridge News (a British newspaper) at 6:05 pm on the day Kennedy was killed.  It should be noted the time is important because the call was made before JFK was assassinated.  “The anonymous caller told the reporter he should call the American Embassy in London for some big news and then hung up.”  If you are a history buff and want to know more, the documents are all online and can be reached here.  Now you know.

October 27, 2017

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