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 October 11, 2019.
All eyes were on last Thursday’s arrival of the China trade delegation in Washington, D.C. as the US had threatened additional tariffs – without intervention—to go into effect this Tuesday. Surprisingly, a deal was struck on Friday for China to buy $50 billion of U.S. agricultural products while the U.S. suspends a tariff hike planned for this week on $250 billion worth of Chinese goods. After declines in the early part of the week, the benchmark index S&P rose 1.2% on Friday and was up 0.66% for the week. The Russell 2000 increased 0.77% for the week while the NASDAQ gained 0.94%. Overseas, the developed markets index (MSCI EAFE) gained 2.31% while the emerging markets (MSCI EM) rose 1.53%. In the US the materials and industrials sectors led the markets while utilities and consumer staples were the poorest performers. (1)
Last week’s Consumer Price Inflation reading gives us insight into the upcoming Federal Reserve interest rate decision. The core inflation rate will rise approximately 1.7% year-over-year, sufficiently below the Fed’s 2% target to be an excuse for easing interest rates. However, the Fed would likely have cut rates at the end of October anyway, even if inflation had firmed more, due to a continuation of the global economic weakness the Fed cited in its last rate decision. For the week, interest rates rose and values fell with the benchmark 10-year US Treasury bond rate up 24 basis points to 1.76%. (1)
Interest rates fell and bond values rose last week, with the benchmark 10-year US Treasuries ending the week at a 1.52% yield, down 17 basis points following a disappointing report on manufacturing (see Economic Data below). (1) We will be listening as the Federal Reserve chair speaks on Tuesday, but at this point expectations are high that the Fed will lower interest rates at their late October meeting.
With prospects for improved global trade, the price of gold (GLDM) declined 1.33% and stock in gold miners (GDX) dropped 3.23% last week. Year-to-date, these Precious Metals portfolio holdings are still up 15.25% and 28.33%, respectively. (2)
The survey of consumer sentiment compiled by the University of Michigan showed an unexpected upturn, coming in at 96.0 for the first ten days of October versus 93.2 in September and 89.8 in August. Consensus expectations were closer to 90. Respondents to the survey are anticipating larger income and lower inflation in the year ahead. (3)
The labor market improved in early October with a report of initial claims for unemployment; this measure dropped to 210,000, about 4% below expectations. The four-week average, considered a better measure of labor market trends, rose 1,000 to 213,750 last week.
Proprietary portfolio happenings:
ConocoPhillips (COP), a G50 and Energy Select holding, announced a 38% dividend boost and a $3 billion share buyback program. The buyback plan, when fully executed, could reduce shares outstanding by 5% given today’s market price on the shares. Yield on the new rate is 2.98%. Shares rose 5.4% for the week as investors prefer the cash return to shareholders versus growing energy production capacity internally or through acquisition.
Parsley Energy Inc. (PE), an Energy Sector Focus and G33 holding, announced the acquisition of Jagged Peak Energy (JAG) in an all-stock deal valued at $2.3 billion. Parsley management expects the deal to be immediately additive to cash flow and return on capital. Shares were 4.5% higher for the week.
Did You Know? The panic response when a tarantula is crawling on your leg is exactly what is happening when you are getting tickled. The body’s response to being tickled is panic and anxiety. It is thought that this is a defense mechanism for exactly the type of thing where an external touch, such as a venomous insect crawling on you or the like, might be occurring. The body needs to react quickly to this unanticipated touch and without time for much conscious thought, so it produces the panic reaction.
Sources: (1) JP Morgan Weekly Market Recap 10-14-19, (2) Morningstar.com, (3) University of Michigan Survey of Consumers 10-11-19, (4) Department of Labor 10-10-19, (5) ConocoPhillips press release 10-7-19, (6) Parsley Energy press release 10-14-19