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 July 19, 2019.
Equities were down nearly across the globe last week as economic growth out of China was disappointing (see Economic Data below). The S&P was down 1.21%, the Russell 2000 dropped 1.40% and the NASDAQ declined 1.18%. Overseas the developed markets (MSCI EAFE) declined 0.13% while emerging markets (MSCI EM) rose 0.76%. In the US, consumer staples and materials squeezed out gains while energy and communication services were the worst performing sectors. (1)
Interest rates dropped as we moved closer to a Federal Reserve meeting, scheduled for July 30-31, in which the consensus is overwhelmingly expecting an interest rate cut. The 10-year Treasuries moved lower by 7 basis points to close at 2.05%.1 While our consumer-led economy is still growing at a moderate (estimated 2%) rate with indications of a stronger second half to the year, comments from the Fed indicate that it is ready to cut interest rates at the end of the month as “insurance” to cushion the economy against rising risks.
In an increasingly volatile stock market and with rising prospects of interest rates cuts in the coming weeks from the US and European Union, the price of Gold (ETF: IAU) – an Endowment Series and Precious Metals strategy holding – has been moving higher especially in the last few weeks. Year-to-date, gold is up 11.07%. Gold miners and junior gold miners in particular— Precious Metals strategy holdings GDX and GDXJ – benefited from the leverage of their corporate operations from the rising price of the metal together with increased expectations for consolidation among the operators. Those ETFs are up 32.56%, 31.02%, respectively, year-to-date. (2)
West Texas crude oil (WTI) fell 7.6% last week to $55.64 per barrel on concerns for slowing demand. The decline would have been sharper had it not been for an attack by Iran on a British oil tanker in the Persian Gulf on Friday which caused WTI crude to rise nearly 1% that day. (1)
In the second quarter China’s economy grew 6.2% year-over-year, down slightly from the prior quarter, with particular weakness in Chinese exports to the US which declined 7.8%. Chinese imports from the US fell nearly a third on a year-over-year basis. (1)
Retail sales rose 3.8% year-over-year in June (excluding volatile auto and gasoline sales), ahead of consensus estimates as high employment and rising wages have given consumers the confidence to continue spending. Internet sales rose 13.4% year-over-year. (3)
The index of industrial production rose was flat in June vs. May, slightly below the 0.1% gain expected by most economists. (4) Factory output increased 0.4% month-over-month, however, with auto and auto parts production surprising to the upside with a 3% gain. (5)
Proprietary portfolio happenings:
Banks kicked off the second quarter earnings season last week, with two holdings in the G50 each reporting earnings ahead of expectations. Citigroup (C), and Morgan Stanley (MS) each reported revenues in line with expectations and earnings that beat expectations. They recently raised dividends significantly after receiving approval by the Federal Reserve: Citigroup by 13% and Morgan Stanley by 17%. (6)
Abbott Laboratories (ABT), a Core Select holding, beat expectations for quarterly revenues and earnings with each of their three segments – medical devices, diagnostics and consumer products – growing core sales more than 5%. Additionally, management raised guidance for the full year based on strength in existing products and their new product pipeline. (7)
Goldman Sachs (GS), a Core Select holding, boosted its quarterly dividend nearly 50% to $1.25 a share after the bank received approval from the Federal Reserve on its capital plan. Shares yield 2.34% on the new rate. (8)
Johnson & Johnson (JNJ), a G50 holding, exceeded quarterly revenue and earnings estimates, noting growth across all three divisions: pharmaceuticals, medical devices and consumer products. Management also raised full year sales guidance. (9)
Novartis (NVS), a G40i holding, reported revenues and earnings that exceeded expectations due to innovative pharmaceutical products and improved cost controls. For the second time this year, management raised guidance for the full year. (10) Shares rose 6% for the week.
Did You Know?
The cotton candy machine was invented by a dentist, William Morrison, and introduced at the 1904 World’s Fair in St. Louis. MO. There are a mere 105 calories for a standard one ounce serving of this simple whipped temptation.
Sources: (1) JP Morgan Weekly Market Recap 7-22-19, (2) Morningstar.com, (3) US Census Bureau 7-16-19, (4) Marketwatch.com 7-16-19, (5) Federal Reserve Statistical Release 7-16-19, (6) Citigroup press release 7-15-19 and Morgan Stanley press release 7-18-19, (7) Abbott Laboratories press release 7-17-19, (8) Goldman Sachs press release 7-16-19, (9) Johnson & Johnson press release 7-16-19 (10) Novartis AG press release 7-18-19