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 August 2, 2019.
Markets dropped across the globe last week, with the S&P down 3.07%, the Russell 2000 declining 2.85% and the NASDAQ down 3.90%. Overseas the developed markets index (MSCI EAFE) was 2.64% lower and emerging markets (MSCI EM) fell 4.24%. In the US real estate and utilities were up while the other nine sectors showed declines— consumer discretionary and technology were the hardest hit. With the U.S. economy a bit mixed, and global manufacturing activity under pressure, the Federal Reserve reduced its primary rate by 25 basis points at its July meeting (see below), which some perceived as insufficient. (1)
As widely anticipated, the Federal Reserve cut its main interest rate by 25 basis points, the first cut since the financial crisis and signaled that it was prepared to ease monetary policy further if necessary. The Fed stated this monetary easing was due to uncertainties stemming from weakness in the global economy and simmering trade tensions as well as muted inflation. The new Fed funds rate is 2-2.25 per cent. Interest rates on the benchmark 10-year Treasuries dropped 22 basis points for the week. (1)
The Fed also decided to end the shrinking of its balance sheet earlier than expected. In a third move last week, the Fed also said it would cut the interest rate it pays banks to keep their excess reserves at the US central bank, from 2.35 per cent to 2.10 per cent, another move designed to stimulate lending and pump money into the economy. The Fed’s statement left the door open for further changes to rates. (2)
Gold traded at its highest price in six years to $1,450 per ounce as Trump’s latest threat of additional tariffs on Chinese goods lifted demand for the safe haven asset. For the week it closed at $1,442 per ounce, up 12.7% year to date. A diverse range of countries added to their official gold reserves and healthy ETF inflows were the driving forces behind an 8% increase in gold demand throughout the first half of 2019. Solid growth in both mine production and recycling fed into a 2% increase in total gold supply in the first half. (3)
The employment report for July showed jobs growth slowing and wages re-accelerating. As the unemployment rate held at 3.7%, the pace of jobs growth is cooling off while workers are enjoying faster wage growth. Digging into the details, manufacturing payrolls had the best month since January – which is surprising given the sluggish growth in the global economy – and professional & tech services was particularly strong. Average hourly wages over the last three months re-accelerated to a 3.4% at an annual gain. (4)
The consumer confidence index jumped to 135.7 in July, nearly reaching an 18-year high set last October according to The Conference Board. Consumers are optimistic about current and prospective business and labor market conditions, which is expected to continue to support robust consumer spending in the near-term despite slower economic growth. (7)
Proprietary portfolio happenings:
BlackLine (BL), a G33 holding, reported revenue and earnings growth that again beat expectations with bookings that accelerated to the 30% growth rate. Management noted higher revenue per customer due to large deal sizes with both new & existing customers of this financial accounting software firm. (7) Shares rose 18.7% for the week.
Cloudera (CLDR), a G33 holding, shares rose after it was disclosed that activist investor Carl Icahn acquired a 13% stake in the data analytics and management software company. Icahn acquired the position believing that shares are undervalued and plans to speak with the board and management to discuss enhancing value. (8)
Equinix (EQIX), a G50 holding, reported very strong revenue and bookings both here and abroad. This data center REIT appears to be leveraging its strong US franchise and global footprint to drive global results ahead of expectations. (9) Shares rose 7% for the week.
ING Groep (ING), a G40i holding, shares declined after net interest income fell short of expectations causing profits to drop. (10) Shares of this Netherlands-based financial firm were down 11% for the week.
Did You Know?
Dalmatians as firehouse dogs have become so common in books and movies that it’s practically a stereotype. Dalmatians actually have a strong history in the firehouse dating back to times when horse-drawn carriages raced to bring the water and firefighters to the flames. Not wanting the horses to spook or to slow down for all the pedestrians using the road, the firefighters used the Dalmatians to rush ahead and clear the way. They were known for forming strong bonds with horses and perfectly suited for travelling long distances.
Sources: (1) JP Morgan Weekly Market Recap 8/5/19, (2) Federal Reserve Statement 7-31-19, (3) World Gold Council 8-1-19, (4) Bureau of Labor Statistics 8-2-19, (5) Trading Economics, (6) Conference Board 7-30-19, (7) BlackLine, Inc. press release 8-1-19, (8) Cloudera SEC filing 8-1-19, (9) Equinix, Inc. press release 7-31-19, (10) ING Groep press release 8-1-19