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 31, 2019.
Markets were down nearly across the globe last week. The S&P dropped 2.58%, the Russell was down 3.18% and the NASDAQ lost 2.39%. Overseas the international developed markets (MSCI EAFE) fell 1.85% while emerging markets rose 1.24%.1 A possible breakdown in US-China trade tariff negotiations along with a Thursday night declaration from President Trump that the U.S. would impose stairstep tariffs on all Mexican imports— pressuring Mexico to improve border security measures – pushed markets lower. The move on Mexican imports comes as a surprise, as many thought the US-Mexico-Canada trade agreement was moving closer to completion following the U.S.'s recent removal of tariffs on Canadian and Mexican aluminum and steel. In the US the best performing sectors, although down, were real estate and technology while energy and staples were the worst performers. (1)
Bond prices rose as yields fell across all maturities of US Treasuries. The benchmark 10-year Treasuries closed at a 2.14% yield, down 18 basis points for the week and 55 basis points year to date. (1) The rate decline is based on fears that the economic growth will slow due to tariffs. The market is currently pricing in two 25 basis point Federal Reserve rate cuts over the next 12 months. (1)
Gold prices rose as a “safe haven asset” on fears of falling economic growth amid global stock selloff as trade tensions were elevated. The trade concern increases bets of Fed rate cuts, adding support to precious metals prices since they lower the opportunity cost of holding bullion which does not provide a yield. The gold ETF (IAU), an ETF Endowments and Precious Metals holding, rose 1.79% for the week. (2)
Oil prices fell throughout the week to $53.50 per barrel of West Texas Crude, down 7.8% for the week, on fears that production was outpacing demand. (3) Prices plunged after the American Petroleum Institute reported production that significantly exceeded expectations on Wednesday and then again on Friday after the president announced new tariffs against Mexico. Additionally, President Trump delayed sanctions on Iran’s oil exports which effectively raised global production forecasts.
First quarter US GDP growth was revised down very slightly to 3.1%, better than the 3.0% consensus forecast. With growth expected in the current quarter, the US will enter its 11th year of economic expansion in July to become the longest expansion in US history. (4) Real consumer spending (after the effect of inflation) was flat, which was disappointing.1Pending home sales fell 2% year over year in April versus the consensus forecast for a 0.5% increase. (5) Contract signings precede closings by about 45-60 days, so the pending home-sales index is a leading indicator for upcoming existing-home sales reports.
The University of Michigan index of consumer sentiment rose 2.8 points to 100.0 in May vs. April, although the last two weeks of the month showed a decline due to tariff concerns. (6)
Proprietary portfolio happenings:
Dollar General (DG), a Core Select holding, reported sales and earnings that beat expectations. Management signaled that future sales would continue to benefit from recent initiatives, and profitability would not be significantly impacted by a trade war due to pricing flexibility. (7) Shares rose 4% for the week.
National Grid (NGG), a G40i holding, saw shares drop as they traded ex-dividend of $2.03 per share on May 30. The payment date is August 14 for dividends of this United Kingdom electric and natural gas utility. (8)
Sysco Foodservice (SYY), a G50 holding, saw shares drop – along with other food distributors – on concerns that the announced tariffs on Mexican imports would affect their produce costs. Shares declined 8.3% for the week.
Did You Know?
A Canadian woman lost her wedding ring in 2004, and it was found 13 years later encircling a carrot growing in her garden.
Sources: (1) JP Morgan Weekly Market Recap 6/3/19, (2) Morningstar.com, (3) Oilprice.com, (4) Bureau of Labor Statistics 5/30/19, (5) National Association of Realtors 5/30/19, (6) Surveys of Consumers, University of Michigan, (7) Dollar General press release 5/30/19, (8) National Grid Investor Relations Dividends ADRs