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 September 13, 2019.
US stocks rose while the market shifted away from growth-oriented companies toward value stocks, particularly small capitalization value stocks. The S&P rose 1.02% while the Russell 2000 advanced 4.90% and the NASDAQ added 0.94%. Small cap value rose a whopping 5.51% as US all-cap growth declined 0.91%. Cyclical stocks were the best performers with energy and materials leading the way. Real estate and consumer staples were the poorest performing sectors. (1) With this weekend’s attack on Saudi oil production facilities (see Commodities below), we expect energy stocks to trade much higher today while those companies that are big users of oil (such as airlines, shipping and cruise lines) to trade lower.
US interest rates rose dramatically as values fell. The benchmark 10-Year US Treasuries rate rose 35 basis points in one week to 1.90% as 2-Years rose 26 basis points and 30-Years rose 35 basis points, effectively steepening the yield curve. (2) The Federal Reserve meets this week, and expectations are high that they will cut interest rates by 0.25%.The European Central Bank’s outgoing president pushed through an economic stimulus package that he had been advocating with a 10 basis point interest rate cut to -0.50%, restarting their quantitative easing program at a rate of €20 billion per month and utilizing a two-tier system to help the banks. The central bank also indicated that interest rates would stay lower for longer than it previously expected. (3)
Oil prices are soaring this morning following an attack on the Saudi oil infrastructure while cut more than half of the country’s oil production on Sunday. (4) An Iranian militia in Yemen utilizing drones has claimed responsibility. (5) While the country is scrambling to make repairs, oil prices have risen spiked 11% to $66.72 per barrel in Brent and 10% to $60.31 for West Texas crude before the US market opened on Monday. (6) OPEC+ (including Russia) may hold an emergency meeting in the coming days since its next scheduled meeting is not for another eight weeks.
Core inflation rose 0.3% in August for the third consecutive month vs. expectations of 0.2%. For the last 12 months, inflation for all items less volatile food and energy rose 2.4%, slightly ahead of the 2% goal set by the Federal Reserve. Medical care and shelter led the index higher. (7)
Weekly initial jobless claims totaled 204,000, below expectations of 215,000 for the first week of this month, and the important 4-week moving average also dropped, showing a decline of 4,250 from the previous week’s revised average. The total number of people claiming jobless benefits fell 2.0% year over year. (8)
Retail Sales were surprisingly strong, advancing 0.4%, ahead of consensus estimate of a 0.3% gain. On a year over year basis, sales increased 4.1% led by vehicle sales which rose 7.0%. Internet sales continued to grow in the mid-teens range on a year over year basis. (9)
Proprietary portfolio happenings:
AT & T (T), a G50 and Core Select holding, received a letter from activist shareholder Elliott Management — with a very successful reputation – disclosing a $3.2 billion stake in the telecommunications company and outlining steps to bring the stock up dramatically by the end of 2021. (10) Shares rose 4.6% for the week.
Dow Inc., a G50 holding, was a major beneficiary of the rotation from growth to value stocks last week. Shares rose 11.5% for the week.
Carnival Corp. (CCL), a G50 holding, shares rose as the impact on its business was determined to be minor following Hurricane Dorian’s hit to the Caribbean Sea and off the southeast coast of the US. (11) Shares were up 10.6% last week.
Valero Energy Corp. (VLO), an Energy Sector strategy holding, shares rose following a report that the president tentatively agreed to a biofuel reform deal, increasing the value of biofuel credits by 10% on Friday. (12) Shares rose 9.5% for the week.
Did You Know? How many grapes go into a glass of wine? It depends. Generally speaking, a bottle of wine is made up of 600-800 individual grapes. However, some grapes are larger than others, some have thicker skin (less juice) while others have very thin skins (more juice). Weather can either plump them up (rain) or dehydrate them (too much sun). It also depends on whether they were pressed via free run, bladder or basket processes.
Sources: (1) Morningstar, (2) JP Morgan Weekly Market Recap 9-16-19, (3) European Central Bank press release 9-12-19 ,(4) Financial Times, “Oil Prices Soar After Attacks Half Saudi Output” 9-16-19, (5) Financial Times, “European Powers Condemn Attack on Saudi Oil Facility 9-16-19, (6) Oilprice.com 9-16-19, (7) Bureau of Labor Statistics Consumer Price Index Summary 9-12-19, (8) US Department of Labor 9-12-19,n (9) US Census Bureau 9-13-19, (10) Elliott Associates Letter to AT & T Board of Directors 9-9-19, (11) Carnival Corp. news release 9-13-19, (12) Transport Topics, “White House Plans Biofuel Quota Boost to Offset Refinery Waivers” 9-13-19