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 26, 2019.
Domestic stocks rose last week, with the benchmark S&P 500 up 1.66%, the Russell 2000 rising by 2.02% and the NASDAQ gaining 2.26%. Communication Services and Financials were the strongest performing sectors while energy and utilities were down slightly. Overseas the developed markets (MSCI EAFE) declined by 0.20% while emerging markets (MSCI EM) were down 0.75%. (1) With 45% of the S&P companies having reported second quarter results, 77% have exceeded earnings estimates which is above the five-year average. Those companies with higher global revenue have underperformed those that generate sales only in the US. (2)
Interest rates rose and bond values fell over the last week, with the benchmark 10-year US Treasuries yielding 2.08%, up three basis points for the week. The Federal Reserve Board will meet this week, and most analysts are expecting a 25-basis point cut to their interest rate, to a range to 2.00-2.25%. The focus will now be on their guidance for any further rate cuts considering disappointing manufacturing data. (1) See Economic Data below for details.
EIA Crude oil prices rose 1% to $56.21 per barrel after inventories were reported down 10.8 million barrels vs. an estimated decline of 4.4 million barrels. They are now down 40 million barrels from their ’19 peak with six consecutive weeks of declines. (3) Meanwhile supply is still expected to slightly exceed demand next year, keeping a cap on oil prices.
US economic growth (GDP) was reported at 2.1 % for the second quarter vs. the first quarter, clearing the 2% hurdle that had been the focus of investors. On a year over year basis, GDP grew by 3.6% compared with 1.9% in the prior quarter. Strength was noted in durable goods including vehicles, furniture and appliances which reported their strongest growth in five years. Strength was also notable from government spending; however, much of the growth in the first half of this year reflects monies not spent last year and rolled over into 2019. Business investment in equipment held up well for the quarter overall. An updated estimate of second quarter GDP will be released at the end of August. (4)
US manufacturing growth for June slowed, continuing its slide in recent months, as the IHS flash purchasing managers index (PMI) hit 50.0—indicating neither growth nor decline. (5) As discussed in Gradient Investments July 22nd Market Reflection, many investors use PMI surveys as a leading indicator of the state of consumer demand and economic growth. We believe persistent uncertainty surrounding trade tariffs and global trade conditions are weighing on purchasing managers outlooks, affecting about one-third of our economy. (6) This report may be the deciding factor for the Federal Reserve Board to cut interest rates by 25-50 basis points at its meeting next week.
Proprietary portfolio happenings:
Alphabet Corp. (GOOG), a G33 holding, reported results that beat consensus expectations as revenue growth returned to over 20% and free cash flow grew by 25%. The board also announced a $25 billion share repurchase program which was welcomed by investors. (7) Shares rose 11% on the report.
Nokia (NOK), a G40i holding, reported revenues and earnings that beat expectations and reaffirmed guidance for this year and next driven by a ramp up in demand for its 5G technology in multiple countries. (8) Shares rose 11% for the week.
Raytheon (RTN), a G50 and Core Select holding, reported results that exceeded expectations, an increasing backlog, and raised guidance for the full year. (9) Shares of this defense systems contractor rose 6% for the week.
United Parcel Service (UPS), a G50 holding, reported volume growth of 7% in US packages shipped along with stronger than expected pricing in the second quarter, a dramatic improvement from the prior quarter which pleased investors. Guidance for the full year was reaffirmed. (10) Shares increased 17% for the week.
Did You Know?
Greenland sharks are known to be some of the oldest living animals in our world. Researchers performed a carbon dating test on a Greenland shark that was caught in 2014 and found it to be around 390 years old. Further testing revealed that our fishy friends could be up to 500 years old. That means that our geriatric friends would have been alive when Leonardo Da Vinci painted the “Mona Lisa.”
Sources: (1) JP Morgan Weekly Market Recap 7-29-19, (2) FactSet Earnings Insight 7-26-19, (3) Energy Information Administration 7-24-19, (4) US Bureau of Economic Analysis 7-26-19, (5) IHS Markit Flash US PMI 7-24-19, (6) Gradient Investments Market Reflection 7-22-19, (7) Alphabet Inc. (a.k.a.Google) press release 7-25-19, (8) Nokia press release 7-25-19, (9) Raytheon press release 7-25-19, (10) UPS press release 7-24-19