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 16, 2019.
Last week saw an initial rise in global stock markets in response to the temporary lifting of some proposed US tariffs on Chinese goods and the confirmation of new trade talks in the next couple of weeks between the two largest economies. On Wednesday, however, the markets sold off due to gyrations in the US bond market (see below). The S&P declined 0.94%, the Russell 2000 dropped 1.24% and the NASDAQ was down 0.74% for the week. Overseas the emerging markets index (MSCI EM) declined 1.01% while the international developed markets index (MSCI EAFE) dropped 1.45%. Leading sectors in the US were consumer staples and utilities, while the energy and financials sectors posted the sharpest declines.
The yield on the government’s 10-year Treasury moved below the yield on the 2-year note briefly mid-week, creating a situation known as an inverted yield curve. This situation, which occurred last in 2007, is believed to indicate a coming recession although the timing is has been 10-24 months out in prior situations. We note that international buyers are particularly heavy buyers of US debt due to extremely low, and even negative, yields in their home countries. In fact, there is $16 trillion or 27% of global markets debt now yielding less than 0%. (2) By Friday the inversion had evaporated as the 2-year Treasuries closed at a 1.48% yield down 15 basis points for the week and below the 1.55% yield of the 10-year maturities which had dropped by 19 basis points for the week.
Silver (SIVR), a Precious Metals strategy holding, rose 0.9% for the week and is up 10.2% for the past month. Its rise has followed that of gold as safe-haven demand is lifting the price of both precious metals. Silver prices are now up 16.5% over the past year. (3)
West Texas Crude (WTI) oil prices rose a slight 0.6% following the strong retail sales report despite a report of rising US inventories by the Energy Information Administration – an increase of 1.6 million barrels. WTI closed the week at $54.82 per barrel. (1)
Retail sales, a primary indicator of US economic strength, increased 0.7% in July from the prior month, well ahead of the 0.3% gain anticipated by most economists. On a year over year basis, retail sales rose 3.4%. When excluding volatile auto and gas sales, retail sales were even stronger with a 0.9% monthly gain or a 4.2% increase year over year. (4) These gains reflect strong recent consumer confidence at a time when employment is at record highs and average weekly wages have been on the rise while inflation is contained. As consumer consumption accounts for about two-thirds of the total economy, this was very positive news. Note last week’s reported decline in the University of Michigan’s consumer sentiment index was below expectations at 92 vs. 97 anticipated for July. (5)
US inflation (CPI) was reported at a 0.03% rate for July, in line with expectations. When measured excluding volatile food and energy prices, core inflation rose 0.3%, the same rate as the prior month, beating expectations of 0.1%. On a year over year basis, core inflation at 2.2% is in line with the Federal Reserve’s goal. (6)
Proprietary portfolio happenings:
Alibaba Group (BABA), a G33 holding, reported solid core commerce growth and a high-teens user growth rate while reducing costs on commerce-related new initiatives for the most recent quarter. These ongoing trends gave added confidence for full year results. Shares of this Chinese online and mobile commerce company rose nearly 10% for the week.
Sysco Inc. (SYY), a G50 holding, reported sales and earnings that were ahead of recent management guidance. Earnings were boosted by stronger sales of private label products and a turnaround in international profits for this food distributor to restaurants. Shares rose 4% for the week.
Walmart Inc. (WMT), a Core Select holding, reported sales and earnings that beat expectations. Particular focus was on U.S. comp sales which increased on a two-year stacked basis by the strongest growth rate in more than 10 years. Shares rose 5% on the news.
Did You Know? Trigger, Roy Rogers’ golden palomino stallion, was preserved after Roy’s death in 1964 by Bishoff's Taxidermy of California. The stallion was on display for many years at the Roy Rogers-Dale Evans Museum in Branson, Missouri until it closed in 2009. Trigger was then auctioned to a rural Nebraska TV station that featured Roy Rogers movies in its Happy Trails Theatre weekly show hosted by Roy Rogers Junior.
Sources: (1) JP Morgan Weekly Market Recap 8-19-19, (2) Financial Times “Negative Yields Force Investors To Plunge Into Riskier Debt” 8-15-19, (3) Morningstar.com, (4) US Census Bureau 8-15-19, (5) University of Michigan Surveys of Consumers 8-16-19, (6) Bureau of Labor Statistics 8-13-19, (7) Alibaba Holdings press release 8-15-19, (8) Sysco Corp. press release 8-12-19, (9) Walmart press release 8-15-19