Economic Market/Portfolio Happenings
Hello and welcome to this week’s Jones Financial Blog! Our goal at Jones & Associates is to help keep you up to date with interesting current economic/market happenings as well as some proprietary portfolio happenings. Knowledge is power and thought we would share some of ours with you. Enjoy!
All data is for the week ended May 24, 2019. Note the US markets were closed Monday in observance of Memorial Day.
Stocks declined across the major US indices as markets continued to be concerned about the ongoing trade war between the US and China. The S&P declined 1.14%, the Dow Jones fell 0.63%, the Russell 2000 fell 1.39% and the NASDAQ decreased 2.28%. In overseas markets the developed countries index (MSCI EAFE) edged down 0.48% and the emerging markets (MSCI EM) weakened by 0.86%. Within the S&P energy and technology were the worst performing sectors while utilities and healthcare were the best performers. In addition to the continuing trade tensions between the US and China, the UK failed to deliver clarity in its ongoing Brexit efforts. In fact, Prime Minister Theresa May resigned last week further adding to UK volatility. 1
The US 10-year Treasury yield fell last week as investors sought safe havens. 10 year yields fell to 2.32% and 2 year yields fell to 2.16%. 2 The US yield curve continues to remain close to inversion as investors maintain a risk off sentiment in the US. European bond yields also fell last week with the German 10-year bund and the UK Gilt yielding -0.12 and 0.96% respectively.3 Weaker than expected economic data in the Eurozone led investors to be net buyers of European debt.
Oil prices continued to fall last week as investors continued to be concerned about slower global economic growth due to weaker, trade induced demand. West Texas Crude fell roughly 6% last week to $58.61 per barrel.1 Helping stem the losses were the continuing sanctions on Iran and Venezuela and OPEC supply cuts. Despite stock markets declines gold prices have remained relatively flat for the month finishing last week at $1,289 per ounce.1
April existing home sales fell 0.4% from March to a seasonally adjusted annual rate of 5.19 million homes. Total home sales are down 4.4% from a year ago. This number was below consensus expectations.4
Durable goods orders (products meant to last at least three years) dropped 2.1% in April. Economists surveyed by MarketWatch had forecast a 2.4% decline in new orders. If cars and planes are removed from the data, orders were flat. Transportation often exaggerates the ups and downs in orders because of lumpy demand from one month to the next. 5
Germany’s economy shrugged off a recession by reporting GDP expanded by 0.4% in the first quarter of 2019, an encouraging sign for the European economy. This ends a six-month period of stalled growth in the back half of 2018 for Germany. Still, Germany has only grown by 0.7% over the last 12 months. (6)
Proprietary portfolio happenings:
AT & T: (T), a G50 holding, reiterated guidance at investor conferences, reaffirming it EPS growth and free cash flow of $26B. Further, AT&T is planning a launch of a video-on-demand service in the fourth quarter, using Warner Media properties such as HBO and other programming. Shares were up 4% for the week.
Alibaba Group (BABA), a G33 holding, reported sales and operating profit growth of 51% and 42%, respectively, which exceeded expectations. Additionally, management raised revenue guidance for the current quarter. (6) Shares dropped 4.7% for the full week due to its focus on Chinese consumer for its revenues and the negative direction of US/Chinese trade talks last week.
Virtusa (VRTU), a G33 holding, reported revenues and earnings that were below expectations due to challenges in large banking clients, an issue that has driven volatility in earnings in recent results. However, the company continues to grow faster than its digital engineering and information technology consulting service peers. (7) Shares were down 17% for the week.
Did You Know?
The Indianapolis Motor Speedway’s first competition wasn’t even an automobile race. On June 5th, 1909 – two months before the speedway’s completion – the track grounds served as a launch pad for a balloon race. The national championship gas-filled balloon race was organized by Speedway president Carl Fisher because he was anxious to recover his investments in the Speedway. The event drew 40,000 spectators, and the winner landed 382 miles away in Alabama.
Sources: (1) JP Morgan Weekly Market Recap 5/27/19, (2) Treasury.gov, (3) Goldman Sachs Market Monitor, (4) https://www.nar.realtor/research-and-statistics/housing-statistics/existing-home-sales, (5) https://www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf#EconStats, (6) Trading Economics, (7) Home Depot press release 5/21/19, (8) Australian Elections: A Change in Direction, (9) Pure Storage press release 5/21/19