Rocket Mortgage Blasts Off

Apr 13, 2018   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

The Dow Jones Industrial Average gained over 500 points this week after having been on a bit of a roller coaster ride these past few weeks.  Between a potential trade war with China and Russia and escalating tensions in Syria, it’s no wonder the market has been all over the place.  As long-term investors, we know times like these can feel very uncomfortable.  However, it is prudent to stay invested during these periods and not try to time the market.  Easier said than done, it is essential to keep our focus on our long-run goals and not concentrate too much on the drama du jour which has become a staple of the news cycle.

With that aside, let’s focus on what is important.  First quarter earnings announcements will begin in earnest in the coming weeks.  The volatile stock market will see a major test as traders size up the first-quarter results.  Tax cuts should help corporate America show its biggest quarterly profit growth in seven years, with S&P 500 profits expected to rise 18.4%.

In economic news, it seems gas prices may be heading higher just in time for summer.  The average gas price reached $2.70 a gallon last week to mark the highest level seen since 2015, according to data from the U.S. Energy Information Administration.  Economists say the higher gas prices in the U.S. are a consequence of the OPEC decision in 2016 to cut back on oil production.  I don’t happen to agree.  To cut back on emissions, oil refineries are required to switch to a summer formulation each year around Memorial Day.  This summer blend of gasoline costs more to produce and thus the price of gas typically rises just in time for summer vacation.  While I may be wrong, the recent price increase may have more to do with rising tensions in the Middle East rather than output cuts instituted two years ago.  One thing we can agree on is that the level of gas prices isn’t considered quite high enough yet to cut significantly into spending by U.S. consumers.

In company news, we learned Sears is shutting down its last store in Chicago, marking the end of an era.  The company has been based in Chicago for more than 100 years.  The company shed more than 50,000 jobs in 2017 and has racked up more than $10.8B in losses over the past seven years.  On a more positive note, local company Kroger, is set to hire an estimated 11,000 positions in its supermarket division, including 2,000 management positions.  This follows hiring 10,000 employees in 2017 and 12,000 in 2016.  Over the last decade, Kroger has added 100,000 new jobs in communities across America.  Also noteworthy, Johnson & Johnson won FDA approval to bring to market the first contact lens that automatically darkens when exposed to bright light.  After more than a decade of development, this new style of contact lens should come to market in the first half of 2019.

On a less positive note, it appears subprime lending is back in an albeit somewhat different form.  The large banks are no longer loaning thousands directly to subprime borrowers but instead lending indirectly through nonbank operators who make the loans.  Bank loans to nonbank financial firms are up six-fold since 2010 to $345B.  Amongst the largest lenders to nonbank financial firms are Wells Fargo, Citi, Bank of America, and JP Morgan.  You may be surprised to learn that the largest mortgage lender in 2017 was Rocket Mortgage a division of Quicken Loans, a nonbank lender.  It closed on over $96B in loans in 2016.  As of 2018, Rocket Mortgage replaced Wells Fargo as the top U.S. retail mortgage lender.

In closing, I’d like to turn your attention to one of my childhood heroes.  Some of you may remember the tennis player Bjorn Borg.  He’s widely considered to be one of the greatest in this history of the sport and was the first to man to win 11 Grand Slam singles titles between 1974 and 1981.  Since then he’s embarked on a totally different career as a fashion and sportswear retailer in Sweden.  But here’s the interesting part.  For more than two years the company has made on-the-job exercise mandatory.  The current CEO is on record saying, “If you don’t want to exercise or be a part of the company culture, you have to go.”  Can you imagine a movement like this occurring in the United States?  No? I can’t either.  Now you know.

April 13, 2018

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