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 23, 2019.
China/US trade tensions escalated once again on Friday when the Chinese announced they will raise tariffs on $75 billion of U.S. products in retaliation for President Donald Trump’s planned Sept. 1 duty increase on $300 billion worth of Chinese imports, some of which has been postponed until mid-December. Markets were down on the report, with the S&P off 1.42% for the week, the Russell 2000 down 2.27% and the NASDAQ declining 1.81%. Overseas the international developed markets (MSCI EAFE) rose 0.86% while the emerging markets (MSCI EM) rose 0.38%. The utilities and consumer discretionary sectors squeezed out a slight gain, while materials and communications services were the poorest performing sectors in the US. (1)
Bonds were mixed last week, with interest rates on the 2-year and 30-year Treasuries rising very slightly and rates on the 10-Treasuries dropping 3 basis points to 1.52%. 1 Federal Reserve chair Powell gave no new indication about the outlook for interest rates at a major meeting in Jackson Hole, repeating the Fed’s ongoing objective: to act as appropriate to sustain the economic growth…with trade policy “the business of Congress and the administration, not that of the Fed. Our assignment is to use monetary policy to foster our statutory goals.” The Fed can “try to look through what may be passing events,” and survey how trade policy is affecting the outlook, Powell said. He described this as still mostly positive, with solid job growth and rising wages supporting consumption and moderate growth. (2)
The trade war has depressed the price of copper, with the industrial metal down 5% year to date. While China produces about 25% of global copper, it uses about half of global production. Certainly, slower industrial growth in China has slowed demand and prices but investors have also avoided this commodity due to the trade war. Once electric vehicles get mainstream acceptance, prices are likely to advance since battery electric vehicles utilize 5-10 times the copper required for a conventional car. (3)
The Leading Economic Indicators (LEI) index compiled by The Conference Board has been accurate in predicting recessions by 7-20 months over the last 50 years. In its July report the LEI rose on the strength of housing permits, unemployment claims, stock prices and credit suggesting further US economic growth at a moderate pace. (4)
Sales of previously-owned homes edged up 2.5% in July or a 10.5% annualized rate, as lower mortgage interest rates offset the affordability headwind caused by higher home prices. On a year over year basis, existing-homes rose 0.6%, ahead of consensus expectations. The median sales price increased 4.3% from the prior year to $280,800. (5) While the pace of home price appreciation has slowed this year, prices continue to rise largely due to the constrained supply of homes for sale, particularly for lower priced homes.
Initial jobless claims declined to 209,000 for the week ending August 17, the lowest level in four weeks. The four-week moving average was virtually unchanged; this is a relief that the US labor market remains strong amidst recession fears. (6) When counting the total non-farm payroll, the Bureau of Labor Statistics revised the number down by 501,000 or -0.3%. In each of the last ten years the revisions have been plus or minus 0.1-0.2%. (7)
Proprietary portfolio happenings:
Home Depot (HD), a Core Select Holding, reported earnings well ahead of expectations and noted a sequential improvement in monthly sales since May. Earnings guidance for the full year was reiterated despite lumber pricing and some cost headwinds, a positive. (8) Shares rose 6.8% for the week.
Lowe’s Companies (LOW), a G50 holding, reported sales and earnings that were ahead of expectations after cutting its guidance back in May due to weather. The company, which has been undergoing a reorganization, delivered positive comparable stores sales in all geographic regions of the US. It also reaffirmed earnings guidance for the full year. (9) Shares gained 13.3% for the week.
Salesforce (CRM), a G33 and Core Select holding, reported revenues and earnings that exceeded expectations with strength across all areas and raised guidance for the full year. (10) Shares rose 5.3% for the week.
Target Corp. (TGT), a G50 holding, reported unexpectedly strong 3.4% growth in comparable store sales, far outpacing the retail sector aided by online/mobile sales which grew 34%. Earnings also beat expectations, and management raised its guidance for the full year. (11) Shares were boosted by 22.9% last week.
Did You Know? Eating strange foods-on-a-stick is a major feature of the Minnesota State Fair (which is also renowned for its largest daily attendance of all the state fairs). New foods for 2019 include pickle-stuffed bratwurst, funnel cake with Sriracha dipping sauce, fried tacos on a stick, duck wings with tequila-lime dipping sauce, Turkish pizza, blueberry key lime pie and tipsy pecan tarts.
Sources: (1) JP Morgan Weekly Market Recap 8-26-19, (2) Federal Reserve “Challenges for Monetary Policy” 8-23-19, (3) Copper Development Association Electric Vehicles Factsheet, (4) The Conference Board LEI 8-22-19, (5) National Association of Realtors 8-21-19, (6) US Department of Labor Unemployment Insurance Weekly Claims 8-22-19, (7) Bureau of Labor Statistics 8-22-19, (8) Home Depot press release 8-20-19, (9) Lowe’s Companies press release 8-21-19, (10) Salesforce press release 8-22-19, (11) Target Corp. press release 8-21-19