877-534-3700

Market in a Minute: Sept 9-13, 2019

Sunday, September 15, 2019

by Rich and Sheila Jamison

Executive Summary

Equities rose for a third week and interest rates spiked sharply. Markets were boosted by easing US recession fears and hopes for progress in US/China and Brexit talks. Value stocks and recently lagging sectors led the market back near all-time highs. Energy, financials, retail, transports, small- and mid-caps posted 3.4%-6.2% gains. The trade-sensitive Philadelphia Semiconductor Index gained 2.4%. Meanwhile, US Treasuries, “overpriced” growth stocks, and defensive-oriented stocks fell out of favor. Information technology, consumer staples and real estate finished in negative territory.

Stronger-than-expected August core CPI pressured bond yields, steepening the yield curve (i.e., further from inversion). The US 10-year Treasury soared to 1.90%, up by 35 basis points, while the 2-year rose by 27.

WTI crude oil fell 2.8% to $54.88/barrel. Factors weighing on price included a possibly easing of Iranian sanctions, a lowered OPEC oil demand forecast and lower EU growth forecasts. Today’s attack on the mid-east’s main oil facility, Abqaiq, caused Saudi Arabia to shut down about half its facilities, likely creating a spike in price when the markets open on Monday.

Volatility fell to 13.7 from 15.0 based on the CBOE’s Volatility Index, VIX.

Image

Details

Trade

Amid mounting speculation of an interim US/China deal, President Trump said he would at least consider it, though he prefers a comprehensive agreement. Each side took steps to ease tensions ahead of this week’s ministerial talks in Washington, which will prep for high-level talks in early October. China suspended tariffs for a year on certain imports from the US, including agricultural products such as soybeans and pork, cancer drugs and other products. Trump said, at China’s request, he postponed a tariff hike scheduled for October 1 until mid-October to avoid clashing with the People's Republic of China’s 70th anniversary. There was widespread media speculation that a limited, interim trade agreement — e.g., the US freezing or rolling back certain tariffs and China resuming agricultural and energy purchases — will occur in the coming weeks but that major points of disagreement (e.g., Chinese government subsidies for state owned enterprises and theft of intellectual property) will be left unresolved.

Economy

Data continued to suggest the consumer could continue to support growth and ward off a recession. Retail sales increased 0.4% in August vs. an expected 0.3%, weekly initial jobless claims remained at historically low levels and September consumer sentiment rebounded. 

Interest Rates

The Fed meets this week. Recent economic reports have moved the odds in favor of another rate cut happening. President Trump called on the Fed to cut interest rates to zero or less so that the US can refinance its debt and lengthen the debt's term (in the now infamous “boneheads at the Fed” tweet). Treasury Secretary Mnuchin said the administration would consider a 50-year bond next year, not in 2019.

Earnings

Analysts expect S&P 500 Q3 earnings/share to decline 3.6%. That would be the third straight quarterly earnings decline, and event that hasn’t happened since the Q4 2015 through Q2 2016 period.

Globally

Europe

The European Central Bank (ECB) announced a package of “quantitative easing” measures:

  • Pushed its deposit rates more deeply negative, to -0.50% from -0.4%
  • Resumes buying back bonds at a monthly pace of €20 billion
  • Sweetened the terms of cheap loans to the banking sector, and
  • Saying rates will stay low until inflation nears the ECB's 2% target

Outgoing ECB president Mario Draghi suggested that the ECB had exhausted its policy tools. He appealed to Eurozone governments to take the lead in shoring up Europe's economy via more proactive fiscal policy now. Former IMF Managing Director Christine Lagarde will replace Draghi in November.

The UK and Brexit

UK recession fears eased as the economy expanded faster than expected in July, growing 0.3%, up from June's flat reading. More notably, signs of flexibility emerged on both sides of Brexit talks that may break the stalemate. To keep its Irish border open, Northern Ireland could be treated differently than the rest of the UK. Previously, a key faction in the UK’s ruling Conservative coalition had objected to separate treatment for Northern Ireland. With Parliament suspended after PM Johnson’s latest political setback, any agreement would need to be rushed through the legislature before the October 31 deadline.

Asia

Profit margins in China are under pressure as plunging producer prices limit pricing power amid declining input costs. A steady drip of stimulus designed to limit the damage from the trade war is expected.

Reuters reports that the Bank of Japan may be open to debating additional easing measures.

 


Sources:
Bloomberg News; Briefing.com; BusinessWeek.com; CNBC’s Power Lunch & Squawk Box; Crain’s New York Business; Dol.gov; Dorsey-Wright Associates; MarketWatch.com; Markit.com; MFS research; Morningstar.com; NASDAQ; NYMEX.com; NYSE; Reuters.com; Standardandpoors.com; Streetinsider.com; The Associated Press; The Financial Times.com; The New York Times; The Wall Street Journal Online; Thomsonreuters.com
 
The data above were taken from sources deemed reliable. However no guarantee can be made as to their completeness and accuracy.
Nothing in the above is meant to be, nor should it be construed as, investment advice or recommendations to buy or sell any security. Individual securities, whenever mentioned, are for illustrative purposes only and may not be relied upon as investment advice.
All indices are unmanaged and are not illustrative of any particular investment. A direct investment cannot be made in any index.
Tax and/or legal information contained herein is general in nature and for informational purposes only. It should not be relied upon as advice. Consult your tax professional or attorney regarding your unique situation.
Past performance is no guarantee of future results.

 

© 2019 Jamison Financial Group. Please feel free to distribute copies to individuals you feel may benefit from the information presented. Commercial use is prohibited.