-August 30, 2019 Weekly Capital Market Update. U.S. equity markets rallied on news both China & U.S. remain committed to some form of trade agreement, along with China indicating it would not retaliate against the most recent rounds of U.S. tariffs. For the week, the Dow Jones Industrial Average led the major indices +3.02%, followed by the S&P 500 Index +2.79% and Nasdaq +2.72%. International market participant support was also in play on the week with Europeans buying U.S. fixed income and equities as a more attractive alternative to their negative interest environment. Economic bears do not find comfort in figures where the U.S. consumer has turned in one of the all-time best quarters in Q2 2019; consumer spending grew at a 4.7% annualized clip, the second-best quarter of this cycle. Also, JP Morgan came out this week saying it is time to buy U.S. Stocks where the bank highlighted three elements which may be a catalyst for a move higher by year end: restarted EU easing, a bigger than expected Fed rate cut, and improving technical indicators on signs the market has bottomed out.
-August 23, 2019 Weekly Capital Market Update. Investor fears of outright U.S.-China trade war moved further to reality after China retaliated with $75 billion tariffs on U.S. goods and resumed auto tariffs, which in turn, prompted Trump to tweet “Get out of China” to U.S. business leaders. Already in place was U.S. imposed tariffs on $250 billion of China imports, which will rise to 30% from 25% on Oct 1st; remaining $300 billion worth of goods will be 'tariffed' at 15% instead of 10% starting Sept 1st. These events, along with growing geopolitical instability, drove markets lower for the fourth consecutive week: S&P 500 Index ‑1.44%, Dow Jones Industrial Average -0.99% and Nasdaq -1.83%. We are more concerned that heightened trade war rhetoric will dampen consumer confidence and spending, damaging the engine that has been powering economic growth (68% GDP = Consumer). However, at this point, the U.S. consumer remains in excellent shape, posting the best five-month retail sales numbers since 2005. Further, Fed Chair Powell expressed "accommodative" remarks at the Jackson Hole Summit as it relates to the US-China Trade dispute: “The three weeks since our July meeting have been eventful...Based on our assessment of the implications of these developments, we will act as appropriate to sustain the expansion.” Treasury yields have also compressed with a flight to safety given said trade concerns, Brexit, China vs. Hong Kong rights, potential of new elections in Italy, etc.
-August 16, 2019 Weekly Capital Market Update. Largely spurred by 2/10 year treasury yield curve inversion and geopolitical tensions the markets posted another week of losses: the S&P 500 Index fell -1.03%, the Dow fell -1.53% and the Nasdaq lost -0.79%. With the 10-year Treasury yield slumping to 1.58%, leaving it even further below the 3-month T-bill rate at 1.95%, the NY Fed’s recession model (based on that yield spread) suggests the odds of an economic contraction have risen to 37%. Inversion is considered a reliable harbinger of recession in the U.S., within roughly the next 18 months. On the other hand, the S&P 500 is still up by close to 10% over the past 12 months. With the notable exception of 1980, every recession in the past 50 years was preceded or accompanied by a sizeable selloff in equities. BofA’s investment team released the following: "Our official model has the probability of a recession over the next 12 months only pegged at about 20%, but our subjective call based on the slew of data and events leads us to believe it is closer to a 1-in-3 chance." Beyond the global and macro considerations, the fact remains is the world economy is still growing, albeit at a less healthy pace than in 2018. Insofar as U.S. businesses are pulling back some, jobs are plentiful, wages are picking up, credit is still easy and with cheaper oil then the U.S. consumers have money to spend. Starting through the major sectors of the economy, consumer spending has been a solid foundation for U.S. economic growth. Indeed, consumer spending has increased by +3.9% over the past 12 months, with the most recent four months even better. Disposable income grew even faster, up +4.7%, bringing the savings rate up. This sets the foundation for our economic engine and if the Fed stays supportive while the consumer continues to spend, the near-term odds of tipping into recession is low. Also, Warren Buffet is still buying and we wouldn’t want to bet against his track record.
-August 9, 2019 Weekly Capital Market Update. An uptick in trade war rhetoric continued to add downward pressure on equities: for the week, S&P 500 Index dipped -0.46%, Dow Jones Industrial Average fell -0.75% and the Nasdaq declined -0.56%. China’s yuan currency tumbled Monday, breaching a level long described by market watchers as a “line in the sand” and feeding fears of an intensifying China-U.S. trade war. The U.S. economy is also showing signs of potential slowing as companies are indicating delayed plans for new investment; however, lower rates have been a bump for real estate and would make the cost of corporate borrowing more attractive. Viewed as a safe haven by investors in uncertain times, gold prices have now jumped above the psychological threshold of $1400 per ounce. Likewise, the flight of capital to safer U.S. Treasuries moved the yield on the 10-year Bond to a three-year low of 1.71%. The spread between three-month bills and ten-year Treasuries has widened to minus 32 basis points. A yield curve inversion has preceded every recession for the last 50 years. However, the degree and duration of the inversion needs to extend much further to glean anything meaningful.
-August 2, 2019 Weekly Capital Market Update. The markets declined on fears of further U.S. economy damage from escalating trade tariffs with China after President Trump voiced frustration over trade negotiations by threatened to implement a 10% tariff on September 1st for the remaining $300 billion of Chinese exports not already subject to tariffs. In response, S&P 500 Index fell -3.10%, Dow Jones Industrial Average -2.60% and Nasdaq declined -3.92% on the week. On Wednesday, the widely anticipated Federal Reserve cut to effect, lowering the fed funds rate by -25 basis points. Fed Chair Powell also added some backdrop forward looking statements: “I said it’s not the beginning of a long series of rate cuts. I didn’t say it’s just one or anything like that.” Over 75% of companies in the S&P 500 have reported earnings and of these, 76% exceeded analysts’ modest expectations by more than 6%.
-August 23, 2019 Weekly Capital Market Update. Investor fears of outright U.S.-China trade war moved further to reality after China retaliated with $75 billion tariffs on U.S. goods and resumed auto tariffs, which in turn, prompted Trump to tweet “Get out of China” to U.S. business leaders. Already in place was U.S. imposed tariffs on $250 billion of China imports, which will rise to 30% from 25% on Oct 1st; remaining $300 billion worth of goods will be 'tariffed' at 15% instead of 10% starting Sept 1st. These events, along with growing geopolitical instability, drove markets lower for the fourth consecutive week: S&P 500 Index ‑1.44%, Dow Jones Industrial Average -0.99% and Nasdaq -1.83%. We are more concerned that heightened trade war rhetoric will dampen consumer confidence and spending, damaging the engine that has been powering economic growth (68% GDP = Consumer). However, at this point, the U.S. consumer remains in excellent shape, posting the best five-month retail sales numbers since 2005. Further, Fed Chair Powell expressed "accommodative" remarks at the Jackson Hole Summit as it relates to the US-China Trade dispute: “The three weeks since our July meeting have been eventful...Based on our assessment of the implications of these developments, we will act as appropriate to sustain the expansion.” Treasury yields have also compressed with a flight to safety given said trade concerns, Brexit, China vs. Hong Kong rights, potential of new elections in Italy, etc.
-August 16, 2019 Weekly Capital Market Update. Largely spurred by 2/10 year treasury yield curve inversion and geopolitical tensions the markets posted another week of losses: the S&P 500 Index fell -1.03%, the Dow fell -1.53% and the Nasdaq lost -0.79%. With the 10-year Treasury yield slumping to 1.58%, leaving it even further below the 3-month T-bill rate at 1.95%, the NY Fed’s recession model (based on that yield spread) suggests the odds of an economic contraction have risen to 37%. Inversion is considered a reliable harbinger of recession in the U.S., within roughly the next 18 months. On the other hand, the S&P 500 is still up by close to 10% over the past 12 months. With the notable exception of 1980, every recession in the past 50 years was preceded or accompanied by a sizeable selloff in equities. BofA’s investment team released the following: "Our official model has the probability of a recession over the next 12 months only pegged at about 20%, but our subjective call based on the slew of data and events leads us to believe it is closer to a 1-in-3 chance." Beyond the global and macro considerations, the fact remains is the world economy is still growing, albeit at a less healthy pace than in 2018. Insofar as U.S. businesses are pulling back some, jobs are plentiful, wages are picking up, credit is still easy and with cheaper oil then the U.S. consumers have money to spend. Starting through the major sectors of the economy, consumer spending has been a solid foundation for U.S. economic growth. Indeed, consumer spending has increased by +3.9% over the past 12 months, with the most recent four months even better. Disposable income grew even faster, up +4.7%, bringing the savings rate up. This sets the foundation for our economic engine and if the Fed stays supportive while the consumer continues to spend, the near-term odds of tipping into recession is low. Also, Warren Buffet is still buying and we wouldn’t want to bet against his track record.
-August 9, 2019 Weekly Capital Market Update. An uptick in trade war rhetoric continued to add downward pressure on equities: for the week, S&P 500 Index dipped -0.46%, Dow Jones Industrial Average fell -0.75% and the Nasdaq declined -0.56%. China’s yuan currency tumbled Monday, breaching a level long described by market watchers as a “line in the sand” and feeding fears of an intensifying China-U.S. trade war. The U.S. economy is also showing signs of potential slowing as companies are indicating delayed plans for new investment; however, lower rates have been a bump for real estate and would make the cost of corporate borrowing more attractive. Viewed as a safe haven by investors in uncertain times, gold prices have now jumped above the psychological threshold of $1400 per ounce. Likewise, the flight of capital to safer U.S. Treasuries moved the yield on the 10-year Bond to a three-year low of 1.71%. The spread between three-month bills and ten-year Treasuries has widened to minus 32 basis points. A yield curve inversion has preceded every recession for the last 50 years. However, the degree and duration of the inversion needs to extend much further to glean anything meaningful.
-August 2, 2019 Weekly Capital Market Update. The markets declined on fears of further U.S. economy damage from escalating trade tariffs with China after President Trump voiced frustration over trade negotiations by threatened to implement a 10% tariff on September 1st for the remaining $300 billion of Chinese exports not already subject to tariffs. In response, S&P 500 Index fell -3.10%, Dow Jones Industrial Average -2.60% and Nasdaq declined -3.92% on the week. On Wednesday, the widely anticipated Federal Reserve cut to effect, lowering the fed funds rate by -25 basis points. Fed Chair Powell also added some backdrop forward looking statements: “I said it’s not the beginning of a long series of rate cuts. I didn’t say it’s just one or anything like that.” Over 75% of companies in the S&P 500 have reported earnings and of these, 76% exceeded analysts’ modest expectations by more than 6%.