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 May 1, 2020.
Equities were slightly lower across the broad U.S. indices, with the S&P 500 down 0.19% and the Nasdaq off 0.33% as U.S.-China trade tensions resurfaced toward the end of the week. Small and mid-cap stocks, however, outperformed the larger cap stocks as the Russell 2000 index rose 2.24%. Overseas markets were stronger, with international developed markets (MSCI EAFE) up 3.11% and emerging markets (MSCI EM) gaining 4.27%. In the U.S., energy and communication services were the best performing sectors while utilities and health care were the laggards. (1)
Following the Federal Reserve’s two day meeting they reiterated their policy to support our economy as they are able with their existing tools until growth is underway. The Fed has injected an unprecedented amount of stimulus into the U.S. economy to battle the pandemic and looks to Congress and the president for further stimulus. It vowed to maintain the target range for the federal funds rate at 0 to 0.25% as they are in no hurry to raise rates until they have confidence that the economy has weathered Covid-19 and is on track to achieve their goals of maximum employment and 2% inflation. (2) Interest rates on the benchmark 10-year U.S. Treasuries rose 4 basis points to 0.64%. (1)
Gold (GLDM), a Precious Metals holding, was down 1.68% last week but has seen its shares rise 7.07% over the past month due to concerns for a global recession prompted by Covid-19 along with unprecedented government stimulus plans to limit the economic impact of the pandemic. (3)
The U.S. economy declined at an annualized rate of 4.8% for the first quarter, worse than consensus expectations of a 4% drop. This ended the longest expansion on record as our government chose to lock down the population in an effort to curb the Covid-19 pandemic, which choked off economic activity. (4)
New jobless claims were 3.8 million in the week ended April 25, bringing the six week total up to over 30 million due to the deliberate shutdown of most of the U.S. economy in the face of Covid-19. (5)
The index of factory production fell to 41.5 last month from 49.1 in March. This is better than the consensus estimate of 39.0 and the lowest since April 2009. (6) Note, any read below 50 indicates declines.
Meanwhile, total construction spending in March rose 4.7% on a year-over-year basis, led by highway construction and other public projects, although private spending on new homes and buildings also showed gains. (7)
Proprietary portfolio happenings:
Discover Financial Services (DFS), a G50 and Contrarian Choice holding rose 14.2% last week following their earnings report which was ahead of expectations. Management also outlined their strong balance sheet and how improved FICO scores across its loan base along with more advanced underwriting place them in a better situation than during the last recession. (8)
DR Horton (DHI), a Core Select and Contrarian Choice holding, rose 13.7% last week. The homebuilder announced quarterly results that were ahead of expectations, including 20% order growth. They noted sales picked in the last two weeks and indicated that DHI is increasing their share of the market. (9)
Fortune Brands Home & Security (FBHS), a G50, Core Select and, Contrarian Choice holding, reported revenues and earnings that exceeded expectations driven by their cabinet business. Additionally, management guided the current quarter ahead of consensus expectations. (10) Shares rose 17.8% for the week.
Paylocity Holding Corp. (PCTY), a G33 holding, rose 21.2% last week as the outlook for employment improved with the planned reopening of states in the coming weeks. This cloud-based payroll and human capital management software firm is also one of the small-cap stocks that have been gaining investor's attention in recent trading. (11)
Did You Know? McDonald's once created bubblegum-flavored broccoli?
McDonald's is always introducing new items for their loyal customers. And obviously, some are more successful than others. But their bubblegum-flavored broccoli, which the fast-food chain developed in 2014 as a tastier version of the leafy green for children, was a complete failure. McDonald's CEO Don Thompson admitted that kids were confused by the taste.
Sources: (1) JP Morgan Weekly Market Recap 5-4-20, (2) Federal Reserve Open Market Committee Statement 4-29-20, (3) Morningstar.com, (4) Bureau of Economic Analysis 4-29-20, (5) US Department of Labor 4-30-20, (6) Institute for Supply Management 5-1-20, (7) US Census Bureau 5-1-2020, (8) Discover Financial Services press release 4-22-20, (9) DR Horton press release 4-28-20, (10) Fortune Brands press release 4-30-20, (11) Seekingalpha.com