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 9, 2019.
US stocks closed slightly down last week after markets bounced around after China elevated the trade tensions by devaluing its currency. The S&P declined 0.40%, the Dow was down 0.61% and the NASDAQ declined 0.51%. Overseas, the international developed markets declined 1.14% and in the center of the trade tensions, emerging markets dropped 2.22%. Defensive sectors that benefit from lower interest rates were the best performers led by real estate and utilities, while energy and financials were the worst-performing sectors. (1)
Investors rushed into U.S. Treasuries and other “safe haven” assets last week, pushing yields sharply lower. The benchmark 10-year Treasury yield fell 12 basis points to 1.74% after a round of unexpectedly large interest rate cuts some central banks overseas combined with a worse than expected manufacturing report out of Germany. Since their recent peak last November, 10-year U.S. Treasury yields have fallen 150 basis points. This has not only been driven by slower global growth, lower inflation expectations and, a more accommodating Federal Reserve, but also by escalating U.S.-China trade tensions, the end of Federal Reserve balance sheet reduction and an increasingly growing share of negative-yielding global debt. There is currently about $15 trillion on loan to central banks around the world at negative interest rates. (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 percent to 2.10 percent, 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 (IAU and GLDM), held in our Endowment Series and Precious Metals strategies, is a “safe haven” asset in times of economic uncertainty, continued its recent rally to top the $1,500 per ounce mark for the first time in six years. This reflected rising concerns over global growth prospects and negative interest rates which have attracted $15 trillion. Year to date, gold is up 17% with much of that gain generated in the last three months. (2)
West Texas (WTI) crude oil prices tumbled to a 7-month low on concerns for global economic growth together with an unexpected increase in unsold inventory. WTI prices closed at $54.48 per barrel. The Energy Information Administration reported crude inventories rose 2.4 million barrels versus expectations of a 2.8 million barrel decline. Similarly, gasoline inventories were far ahead of expectations, rising 4.4 million barrels versus expectations for a 1.8 million barrel drop. (3)
Germany’s total industrial output (manufacturing, energy and construction) decreased 1.5% in June from the month before, far short of the 0.3% decline forecast by economists. On a year over year basis, total German industrial output fell 5.2%. Although industrial orders were encouraging, the high inventories were disappointing and are believed by many to represent the general trend in European manufacturing. (4)
Proprietary portfolio happenings:
Copa Holdings (CPA), a G40i holding, announced higher average unit revenue and expanding profit margins that exceeded estimates. Further, the company raised guidance for the full year for these key metrics. (5) Shares of this Central & South American airline rose 12% for the week.
Insulet Corp. (PODD), a G33 holding, reported revenue and earnings that exceeded expectations as adoption of their new diabetes management systems were faster than anticipated. Management also guided revenues and earnings higher for the year. (6) Shares rose 26% for the week.
Parsley Energy (PE), a G33 and Energy Sector Focus holding, announced oil volumes and operating profit margins ahead of expectations. For the balance of the year management now expects these volumes and profitability to exceed recent investor expectations. (7) Shares rose 10.5% for the week.
Quotient Technology (QUOT), a G33 holding, lowered guidance when the firm reported second-quarter results that beat estimates. They also announced the departure of their chief executive officer. The weaker forecast for the second half of the year was due to reduced spending by three major customers and delays on some new products. (8) Our holdings are under review. Shares were down 29% for the week.
Did You Know?
The earliest known record of a football/soccer-like sport was in 1004 B.C. in Japan. There are many references to similar sports in 50 B.C. China, even being played between teams from China and Japan. The ancient Romans also played several types of football games, one of which was included in their Roman Olympic Games. This version featured 27 men per side and was extremely rough; it was common for most of the players to require medical attention after the game.
Sources: (1) JP Morgan Weekly Market Recap 8-12-19, (2) Morningstar.com, (3) Energy Information Administration report 8-7-19, (4) Bloomberg 8-7-19, (5) Copa Holdings press release 8-7-19, (6) Insulet Corp. press release 8-5-19, (7) Parsley Energy press release 8-6-19, (8) Quotient Technology press release 8-6-19