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 31, 2019.
US markets rose significantly last week as second quarter economic growth was reiterated at 2% and durable goods orders were reported ahead of expectations (see Economic Data below). The S&P 500 rose 2.83%, the Russell 2000 advanced 3.14% and the NASDAQ added 2.74%. Overseas markets gained also, although at a slower rate: developed markets (MSCI EAFE) rose 0.91% and the emerging markets (MSCI EM) gained 1.16%. In the US industrials and communications services were the best performing sectors while consumer staples and utilities were the poorest performing sectors although they were still higher. (1)
Interest rates continued to fall last week and values rise, with the benchmark 10-year Treasury rate down 2 basis points to 1.50% (equal to that of the 2-year Treasury rate) while 30-year government bond rates dropped 6 basis points to 1.96%. (1) This decline occurred in anticipation of lower rates at September meetings from both the European Central Bank and the Federal Reserve.
Palladium (PALL), a recent addition to the Precious Metals strategy, rose 5.6% last week (2) following a report that the Chinese government intends to offer incentives to buy vehicles in an effort to boost their economic growth. (3) Palladium is an important metal in the production of catalytic converters required to reduce pollution in vehicles.
The pending home sales index declined 2.5% in July versus June, beyond the -0.3% consensus expectation and somewhat surprising given the recent decline in mortgage interest rates. On a year over year basis, pending sales declined 0.3% which offset the prior month’s gain. The drop was attributed to economic uncertainty combined with continued low numbers of homes available for sale. (4)
Durable goods order rose 2.1% month over month for the second consecutive increase and ahead of expectations for a 1.2% gain. Excluding defense, new orders increased 1.4%. (5)
Proprietary portfolio happenings:
Dollar General (DG), a Core Select holding, beat expectations for its quarterly sales and earnings. Management also raised guidance for the full year, stating it has plans to mitigate the impact of tariffs scheduled to have begun September 1. (6) Shares of this discount retailer rose 14% for the week to an all-time high.
Johnson & Johnson (JNJ), a G50 and Core Select holding, was ordered to pay $572 million in an Oklahoma lawsuit accusing the world’s largest healthcare company that it had caused the state to incur costs from its residents’ opioid problems. This is well below the estimated $2 billion judgment some experts had predicted and a fraction of the $17 billion the state had sought. JNJ said it will appeal the verdict. (7) Shares rose 0.5% for the week.
Malibu Boats MBUU, a G33 holding, reported quarterly revenues and earnings that far exceeded recent expectations particularly for its newly acquired Pursuit offshore fishing & cruising boats. (8) Shares rose 6.6% for the week.
Did You Know? Almost 30% of the Great Wall of China has disappeared since it was built. The Great Wall is a series of fortification systems generally built across the historical northern borders of China to protect and consolidate territories of Chinese states against various nomadic groups. Since construction during the Ming dynasty, nearly 1,200 miles of the original 3,900 mile wall has disappeared because of adverse weather conditions, the harm done by tourists and robbery of the bricks by local people to build their structures.
Sources: (1) JP Morgan Weekly Market Recap 9-3-19, (2) Morningstar, (3) State Council People’s Republic of China 8-28-19, (4) National Association of Realtors 8-29-19, (5) US Census Bureau 8-26-19, (6) Dollar General press release 8-29-19 ,(7) Reuters 8-26-19, (8) Malibu Boats press release 8-29-1, (9)