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."
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.