Week in Review

On Monday, the yield curve briefly inverted. By inverted, I mean that for a short amount of time on Monday you could make more money owning a 2-Year Treasury Bond than a 10-Year Treasury bond. And this is seen by many as a reliable indicator of a coming recession. This is why the market selloff happened. If you dig a little deeper you'll find the actual significance of this event is debatable—for several reasons.

The first is that historically the yield curve needs to stay inverted for more than a few hours—more like a few weeks or months—for the indicator to be reliable. The second is that even when the curve does stay inverted it could take anywhere from 10 to 36 months for a recession to occur. And last but not least, a recession does not necessarily mean that a bear market is coming. The two are correlated. But unlike a high school romance, the two aren’t codependent on each other.

The big question is what is the actual culprit of this inversion? It isn't GDP—that's still growing. Unemployment is still low. Retail Sales and Consumer Confidence continue to increase. So what gives? All signs point to a market worried about a prolonged trade war with China (which is slowing global growth) and a global economy looking for yield—and finding it in US Treasury Bonds—which in turn is causing the curve to invert.

Here are two of my favorite quotes from financial analysts commenting on what happened.

“The contradictions in the shape of the US yield curve versus the economic data and credit conditions have been reinforced by two other variables – risk aversion and the carry trade. The former has been caused by the grinding US-China trade dispute and the latter by the interest rate differential between the US and other developed markets. In turn, this has underpinned the US dollar and money markets with last week’s inflows running at the same rate as last December. Moreover, August historically produces the worst monthly returns.”

- Jefferies

And my personal favorite...

“Damn the trade war torpedoes sowing the seeds of uncertainty, it is full speed ahead for the American consumer as they pull out all the stops to keep the economy humming as we start the second half of the year. This is not what a recession looks like. We know. We checked it. The rule of thumb for recession is three consecutive months of declining retail sales. Instead, retail sales are soaring with sales jumping 0.7% in July and non-auto retail sales up 1.0%.”

- MUFG

What's the takeaway? Go enjoy your weekend.

As always, thanks for reading!

*These are the general views of Stanton Burns and they should not be construed as investment or financial advice for any individual. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Stanton Burns does not maintain positions in any securities mentioned as of the writing of this article. Past performance is historical and does not guarantee future results.

Week in Review

Good morning everyone. In case you missed it, here’s what's happening in the markets...


Wall Street’s Roller Coaster. The last week on the market has been an absolute roller coaster. Last week, Fed Chairman Jerome Powell gave the market what it wanted; and then he didn't. He cut interest rates 0.25% to support the economies ongoing expansion and the market reacted positively. Then the post-meeting interview happened. The market had been planning a road trip with the Fed for the remainder of the year. One that included multiple rate cuts. They were hoping Powell was planning the same, and that he'd reveal his map to them. Instead, Powell revealed he had no map, and was perhaps unclear on the actual destination as well. And stocks tumbled as a result.

Not to be outdone, President Trump followed up this market selloff with his announcement of a new round of tariffs against China on Friday. A 10% tariff on some $300b of Chinese goods starting in September, to be exact. The market reacted the way you would expect it to when it looks as if a new round of tariffs will eat into company profit margins.

To make matters worse, on Monday the value of the Chinese yuan began to fall. It appeared China was devaluing its currency in retaliation to the tariff announcement (essentially nullifying the effect of any additional tariffs).

Was the markets response to these events a knee jerk reaction based on short term data? Or, is the economy finally starting to weaken?

Let's look at a few numbers from this past quarter.

GDP +2.1%. Gross domestic product grew at 2.1% last quarter, beating the consensus estimate of 1.9%. While this number is not the 3.1% growth the economy posted during the first quarter of the year. It is, however, in line with the 2%-2.5% growth the economy has averaged since 2008.

Tim Mullaney of MarketWatch had this to say on the topic: “Two conclusions jump out. First, things aren’t that bad; as I’ve said before, the slowdown is likelier a reversion to the 2% to 2.5% mean that U.S. growth has shown since the 2008 financial crisis than it is the opening act of a recession. Second, to the extent things are weaker, it’s because of softness in China’s economy, which has several causes — and the one the U.S. can do the most to make better, or worse, is trade policy.” You can read the rest of his opinion piece here.

Unemployment Rate: 3.7% (unchanged). Joel Naroff of Naroff Economic Advisors had the following to say, "Job growth is right where it was expected to be and with [consumer] confidence remaining high, the only concern remains trade wars, which look to be heating up again...We have a volatile president and an unanchored Fed and what that means for the economy is anyone's guess."

You can read more about his opinions here.

These data points seem to indicate that trade is the biggest roadblock to continued expansion. The economy is growing and unemployment remains low. But trade war issues seem to be here to stay. With little clarity on what our President's next moves will be, or how the Fed will react to them, uncertainty will likely continue to reign. And uncertainty often leads to volatility. In lieu of a crystal ball, the best antidote to volatility is often a well diversified portfolio built to withstand these "market shocks."


Independence Day

The following stocks have decided to take their destiny in to their own hands.

Since 2009, Apple CEO Tim Cook has guided the company under the belief that Apple needs to own the technology behind their products. This belief is coming to fruition as Apple is set to acquire the majority of Intel's smartphone chip unit. The deal means that some 2,200 Intel employees and 17,000 patents will now be a part of Apple. This is good news for both Intel and Apple. Intel's smartphone unit has been losing money to the tune of $1 billion a year. Divesting away from this portion of their business means Intel will now be able to focus on their core profit centers. And Apple will now have direct control over a critical component of their smartphone business.

Amazon has officially severed ties with FedEx. The company has been working for some time to build out its delivery infrastructure--cargo planes, delivery vehicles, and warehouses. In fact, a new warehouse just opened down the road from us in Saint Charles, MO. And as Amazon is prone to do, they have decided not to keep this new aspect of their business to themselves. Amazon has quietly begun to roll out their freight service to companies.

And last but not least, Disney. Disney plans to debut it's streaming competitor to Netflix on Nov. 21 this year. As far as pricing, the company announced that a combo package of Disney+, ESPN+, and Hulu will cost $12.99/Month. This is the same price Netflix charges for their streaming package and creates, at least for me, an awfully tough decision. 

Have a great weekend everyone!

*These are the general views of Stanton Burns and they should not be construed as investment or financial advice for any individual. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Stanton Burns does not maintain positions in any securities mentioned as of the writing of this article. Past performance is historical and does not guarantee future results.

Week in Review

Good morning everyone. In case you missed it, here is what's happening in the markets. The S&P 500 crossed the 3,000 mark this week. The index is up over 20% year to date, and up 8.5% over the past 12 months.

Interest in Interest Rates. Fed Chairman Jerome Powell spent last Wednesday and Thursday testifying before the Senate. At this hearing, Powell signaled an interest rate cut is likely later this month. Or, to be more precise, Powell said nothing to discourage this expectation. And this in and of itself has investors happy.

Why is this significant? Interest rate cuts are one way the Federal Reserve can help a weakening economy. While the U.S. economy isn't weak. It isn't exactly strong either. Record-low unemployment numbers have still not created significant increases in wages or inflation. The economy is in limbo. So, are rate cuts the answer? If you believe the main factors harming world growth are tariffs and the threat of a re-escalation in our trade dispute with China, the answer is "not likely". Lower interest rates would not lower the cost of tariffs. And a 0.25% cut is unlikely to help rate-sensitive sectors of the economy either (e.g. housing). In other words, people probably aren't going to rush out to buy a home because mortgage rates went down ~0.25%.

Where does this leave the market? Tax stimulus supported business last year, with many companies reporting record growth. But in the absence of additional tax stimulus, this year is a different story with many companies lowering or missing their revenue projections. However, the market is still doing extremely well. The S&P 500 is up over 20% year to date. One reason the market is doing so well is interest rates are still very much below normal levels. Unable to earn money in bonds or cash, investors have turned to stocks. And this has caused the price of stocks to continue rising. The question now becomes, at what point do these price increases become unsustainable?

So what's an investor to do? Ray Dalio, the founder of Bridgewater Associates, offered his thoughts this week. According to Mr. Dalio, every 10 years or so the economy goes through a "paradigm shift." Each new paradigm lasts until the majority of investors adapt. And this causes another shift to happen. As this current paradigm has lasted over 10 years (since 2008), Ray offered the following thoughts.

In a nutshell: Investors will soon experience diminishing returns as equity markets become overbought and it becomes harder and harder to justify high stock prices. He believes the next shift will be towards assets that excel when money is depreciating and domestic and international conflicts increase. The asset he’s referring to is gold.

His reasoning for this claim is the "easy money" the market has received since the financial crisis has created a system flush with cash. Case in point: Boeing. From 2009-2017 Boeing spent close to $30 billion buying back shares of its own stock. Meanwhile, it's underfunded pension received only $10 billion in contributions. Add significant government liabilities (Medicare and Social Security) on top of this and eventually, Dalio believes, central banks will run out of stimulant.

Speaking of Earning Misses…Shares of Netflix fell this week after the company reported fewer paid subscribers globally than projected. Far fewer. Netflix projected that its subscriber base would increase by 5 million last quarter. The actual total came in at 2.7 million. Netflix has blamed this miss on price increases and the platforms original content. This in and of itself is surprising given the $12 billion the company spent on content last year. To make matters worse both The Office and Friends will soon be leaving Netflix's platform, and competition is increasing from Apple, Disney, and AT&T. On the bright side, Netflix kicked off the 3rd quarter with the premier of Stranger Things season 3. The show drew in 26.4 million views in its first four days.

Have a great weekend everyone!

*These are the general views of Stanton Burns and they should not be construed as investment or financial advice for any individual. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Stanton Burns does not maintain positions in any securities mentioned as of the writing of this article. Past performance is historical and does not guarantee future results.

Week in Review

Good afternoon everyone. In case you missed it, here's what happened in the markets this week. It was a short trading week with the markets closing early on Wednesday and closed all day Thursday for the Fourth of July holiday. But fireworks weren’t the only thing going off with a bang as an explosive jobs report showed the U.S. created 224,000 new jobs in June (well above the expected 170,000).

In a nutshell: Under normal circumstances, this would be cause for celebration. However, when you’re Wall Street, and when you are expecting the Fed to cut interest rates in July, a strong job market is the last thing you want to see. And while the worst-case scenario around China trade and tariffs has been avoided to this point, as investors we must prepare for the fact that it could occur at any time.

Meeting of the minds. World leaders from 19 countries and the European Union met this past weekend at the annual G20 summit in Osaka, Japan. Perhaps the biggest news to come from the weekend was the temporary truce agreed upon by President Trump and Chinese President Xi Jinping. President Trump said he will postpone additional tariffs on China while trade negotiations are underway. And, that he will allow the sale of American technology to Chinese company Huawei.

For his part, President Xi agreed to buy massive amounts of agricultural goods from the United States while also accusing rich countries (such as the United States) of, “destroying the global trade order.”

Thirsty for new markets. Speaking of China…The Asian Pacific division of AB InBev has an IPO set to debut on July 19th on the Hong Kong exchange. The IPO, valued at $63.7 billion, will be the largest so far this year. And possibly the largest food and beverage IPO ever. This decision is a combination of two trends. The first being the move by consumers in North America away from beer to wine, spirits, and non-alcoholic drinks. The second being the prediction that by 2021 China will become the world's largest beer market by sales.

Just don’t do it. Nike, no stranger to footwear controversy (see: Market Wrap-Up 2/17/2019), pulled their special edition Air Max 1 Quick Strike Fourth of July's after former NFL quarterback Colin Kaepernick announced that he, and others, felt the shoe evoked a symbol connected to an era of slavery. This prompted Arizona Governor Dough Ducey to withdrawal financial incentives from a proposed Nike facility in Arizona, Senator Martin Trevor Heinrich of New Mexico to off his state as a replacement, and an entire nation to voice their opinion on this topic through social media. It seems the only thing not affected by this issue is Nike stock, which is still up over 15% year-to-date.

And last but not least. Music label Big Machine, the owner of Taylor Swifts first six albums, was just bought by celebrity talent manager Scooter Braun. Taylor issued a statement saying this was a "worst case scenario" due to the bullying Braun has subjected her to for years. Selfishly, we look forward to seeing how she will turn this latest heartbreak into another chart-topping single. Rolling Stone has more on this here.

Have a great holiday everyone. We’ll see you next week!

*These are the general views of Stanton Burns and they should not be construed as investment or financial advice for any individual. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Stanton Burns does not maintain positions in any securities mentioned as of the writing of this article. Past performance is historical and does not guarantee future results.

Week in Review

Good afternoon everyone. In case you missed it, here’s what happened in the markets this week. Today’s summary will be light compared to what you’re used to. And the Blues Stanley Cup victory is 100% to blame.

Three major themes this week were tensions in the Middle East that disrupted oil markets, China’s push to allow extradition from Hong Kong, and growing concern over “deep fake” videos.

Let’s start with oil. Two oil tankers were attacked yesterday in the Gulf of Oman. Secretary of State Mike Pompeo issued a statement after the fact saying Iran was responsible. This comes on the heels of a similar attack, also attributed to Iran, which happened to two Saudi Arabia tankers last month. As Gulf states supply much of the worlds oil and gas, any disruption in this area can lead to price instability. However, as oil production in the U.S. is at a record high, this could potential cushion any blows to the oil market related to tension in the MIddle East.

Protestors in Hong Kong are preparing for another mass rally this week. This is in direct response to a bill which would allow those accused of crimes in Hong Kong to be extradited to China. As Hong Kong is the worlds gateway to China this has left many worried over what the future holds for China’s ‘One Country, Two Systems’ policy. For more on the potential implications of this CNBC has an article on the topic here.

And last but not least…artificial intelligence has now developed to the point that videos can be created of people saying or doing things that they have never said or done. The problem is that no one can seem to agree on how to handle this. Should it be the FBI? The Department of Homeland Security? The media? For now, Facebook has decided to allow these videos, including ones of CEO Mark Zuckerberg to remain on its platform. To be fair, anyone who’s ever watched Forest Gump should’ve seen this coming.

Weekend reading:

16 Things Everyone Should Stop Doing in Order to be Successful, from Medium

250 Ivy League Courses You Can Take Online Right Now for Free, from Medium

Have a great weekend everyone. We’ll see you next week!

*These are the general views of Stanton Burns and they should not be construed as investment or financial advice for any individual. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Stanton Burns does not maintain positions in any securities mentioned as of the writing of this article. Past performance is historical and does not guarantee future results.