The Green Mountain State

Jan 4, 2019   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

I won’t lie, it was shaping up to be a pretty crummy week prior to today.  Fortunately, two things happened to turn the markets around.  The first is a bit of economic news and the second a message from the chairman of the Federal Reserve.  In recent months negativity and fear, largely due to uncertainty, overtook Wall Street.  Sentiment dropped and the markets finished the year on a low note.  I won’t say there wasn’t good cause for the market correction, but instead that the move went too far too fast.

The piece of economic news that jolted markets higher this morning was the jobs report which showed the economy added 312,000 jobs in the month of December.  This far exceeded expectations for 178,000 additions and was bolstered by upward revisions to both October and November’s numbers.  The bottom line is that this huge beat provides evidence that recession fears are overblown.

The second bit of news that sparked relief was the interview with Jerome Powell, in which he says the Federal Reserve (Fed) is “listening sensitively” to markets concern about risk, always prepared to shift policy.   He went on to say the market is pricing in downside risk well ahead of the data, but seems more mindful of investor sentiment whether due to recent market volatility or pressure from the White House.  Despite investors being ahead of the risk curve, he went on to say, “We’re always prepared to shift policy and shift it significantly if need be.”  This is quite the departure from his last speech in which he basically said, full steam ahead with rate hikes.  The market reacted favorably to this news, anticipating further rate hikes are off the table for now.  In an interesting aside, he also stated he would not resign if asked to by the President.  Seems everyone is a little on edge these days.

Before we move headfirst into 2019, let’s take a minute to re-visit some of the highlights of 2018.  There is the U.S. China trade war, Cambridge Analytica scandal, Iran deal exit, Brexit fireworks, Italian budget, ballooning U.S. debt ceiling, revamped NAFTA, iPhone estimates and patent battles, Disney-Fox deal and IBM-Red Hat, cannabis stocks, Amazon’s new headquarters, GE dropped from the DOW and the collapse of Sears, OPEC output cuts, end of European Central Bank (ECB) buying, rate hike drama, and the current government shutdown.  It was a rather tumultuous year in many respects.

In company news, we learned this week that more than three dozen pharmaceutical companies began 2019 by raising prices on hundreds of medicines by an average of 6.3%.  This was a surprise given the pressure put on the industry by the President.  Both Tesla and Apple had a difficult week after the former announced it failed to meet production expectations for the quarter (by a small margin) and the later lowered its forward guidance on first quarter revenue growth substantially.  It was also announced this week that Bristol-Myers Squibb aims to acquire Celgene for $74 billion in a combination of cash and stock.  The deal is expected to close in the third quarter.

There’s so much that happened this week.  It was discovered that Google shifted $23 billion to Bermuda in 2017 through a Dutch shell company to reduce foreign taxes in a move called the “Double Irish, Dutch Sandwich” tax strategy/loophole.  Also, the government shutdown enters day 14 today with no resolution in sight.  Kevin Hassett, head of the White House Council of Economic Advisers, said his estimate is that GDP will fall by 0.10% every two weeks that the government is shutdown.  However, he was quick to say he doesn’t expect a big economic impact assuming that it ends relatively quickly.

In closing I bring you an idea if you are inclined to move.  It seems Vermont, despite having the second lowest population of all states, has the highest proportion of people moving there from out of state compared to elsewhere in the U.S.  Most people moving to Vermont cited jobs (34.4%) and retirement (31.2%).  Four Western states filled out the top five: Oregon (63.8% inbound), Washington (62.4% inbound), Nevada (61.8% inbound), and Arizona (60.2% inbound).  Among those seeing the largest outflows include New Jersey, Illinois, Connecticut, and Kansas.  Now you know.

January 4, 2019

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