HIGHLIGHTS

• Stocks are up.
• A deal with China appears closer.
• Fed unwind might end soon.
• Stocks appear oversold based on percent selling above the 50-day moving average.
• Poor economic reports continue.
• Kraft Heinz takes a big hit on a huge markdown.

MARKET RECAP

The Dow Jones Industrial Average extended its winning streak to nine-weeks as the US market increased by 0.72%. International stocks were up by 1.31%. President Trump gave positive signals on talks with China regarding trade, and the minutes released by the Fed confirmed their recent dovish posture. It also appears that the unwinding of the balance sheet will end soon. The minutes said, “almost all participants thought that it would be desirable to announce before too long a plan to stop reducing the Federal Reserve’s asset holdings later this year.” The market continues to rise in the face of weakening economic reports, especially from overseas.

In the sell-off between September 20th and December 24th, the S&P 500 declined by 19.78%. US stocks are now up by 20.1% since that low and are only 3.97% below the all-time high on September 20th. The NYSE advance-decline line, a measure that tracks the number of stocks rising minus the number falling each day, has hit new highs, a positive technical sign. But at the same time, stocks appear overbought, 92% of S&P 500 stocks are trading above their 50-day moving average.

This has some similarities to 2011. At that time, the S&P 500 declined by 19.39% between April 29 and October 3. The market then rallied by 16.86% in quick fashion until October 27. The percent of stocks selling above their 50-day moving average was 94% on that day. The market would then sell-off by 9.8% until November 25th.

ECONOMY

The Philly Fed’s Manufacturing report went into negative territory. The report said “Manufacturing conditions in the region weakened this month … the indicators for general activity, new orders, and shipments fell into negative territory, but the indicator for employment remained positive…the index for current manufacturing activity in the region decreased from a reading of 17.0 in January to -4.1 this month. This is the index’s first negative reading since May 2016. Both the new orders and shipments indexes also fell this month. The current new orders index decreased nearly 24 points to -2.4, and the current shipments index decreased 17 points to -5.3.”

Unemployment claims dropped to 216,000 from 239,000 in the prior week.

German business sentiment fell to a four-year low in February, indicating that economic troubles are continuing into 2019. Germany’s gross domestic product increased by an annualized rate of 0.1% in the fourth quarter, barely escaping recession.

The weak German numbers were confirmed by the IHS Markit preliminary purchasing managers indexes for February which showed that factory activity in Japan dropped to a 32-month low and the eurozone to a 68-month low.

KRAFT HEINZ

Kraft Heinz stocks got slaughtered on Friday as its market value dropped by $16 billion. Kraft Heinz wrote down assets by $15.4 billion including $7.1 billion in goodwill, essentially admitting that a good portion of the value attributed to the Heinz merger does not exist. The Kraft Heinz formula of aggressively cutting costs has not worked out as planned, to put it mildly, as sales have been hurt and some of their brands have lost relevance as the company’s focus on revenue waivered while they concentrated on cutting costs.

SCOREBOARD

HIGHLIGHTS

• US and international stocks were up by 2.71% and 1.77%.
• Trade news on China appears to be moving in the right direction.
• A government shutdown is avoided.
• Economic news has generally been negative.

MARKET RECAP

US stocks were up by 2.71% and international stocks advanced by 1.77%. The Dow Jones Industrial Average is now on an 8-week winning streak. Stocks were helped by positive news on China. Trump said if negotiations with China are going well, he would consider delaying the deadline before the next increase in tariffs are scheduled to start: “If we’re close to a deal…I could see myself letting that slide for a little while.” Congress agreed on a compromise to avoid another shutdown, although Trump then went on to declare a “national emergency” to try to get the balance of the funding for his wall that was not included in the compromise bill.

ECONOMY

The market continues to go up despite economic news that has been negative. The OECD US Composite Leading Indicator fell by 0.2 to 99.4 in December, it was the eighth straight decline and the lowest level since October of 2016, indicating below-trend growth. The six-month annualized rate of change is declining at the fastest pace since January of 2016.

Retail sales for December came in way below expectations. The data was delayed to the government shutdown. The number showed a 1.2% month over month decline, which would be the biggest drop since September of 2009. However, many economists are of the opinion that the number just does not add up with the other reports from December, in other words, there is a mistake in the data. The retail sales report is often subject to big revisions so time will tell.

As a result of the weak retail sales report, the Atlanta Fed’s GDPNow model dropped forecasted Q4 growth from 2.7% to 1.5%. Obviously, a big negative change.

Job openings hit an all-time record in December. Openings were greater than the number of unemployed by 1.04 million. However, jobless claims were up by 4,000 to 239,000 last week. The last couple of weeks have been higher than the prior trend. The four-week moving average is at its highest point since January of 2018.

AMAZON

Amazon backed out of their plan to move to NYC after weeks of protests. The proposed deal, that was negotiated by the Governor and the Mayor, included about $500 million in capital grants and about $2.5 billion in incentives. The $3 billion investment would be over 10-years, but the payoff would be $27 billion in tax revenue over 20-years, 25,000 jobs at an average pay of $150,000 per year, plus all of the positive multiplier effects from having what is probably the world’s best-run business and technology company in NYC.

But that wasn’t good enough for many of the politicians and “progressives”, who immediately went into attack mode from the day the deal was announced. There were problems with the proposed deal. Mainly that local leaders were kept out of the loop as the Governor and Mayor conducted the negotiations. And then an argument could be made that New York gave away too much to lure Amazon in. But even with that, this was a huge win for NYC and $27 billion in tax revenue for a $3 billion dollar investment over 10-years adds up to a positive present value at just about any discount rate!

The political backlash against Amazon was overwhelming, and on Thursday, the Company announced it would pull out of the deal. Incredibly, the activists and politicians celebrated, as if they had accomplished something good for their community. Here is what Representative Alexandria Ocasio-Cortez (AOC) said, “We were subsidizing those jobs, the city was paying for those jobs, so frankly, if we were willing to give Amazon $3 billion for this deal we can invest those $3 billion in our district ourselves if we wanted to.”

So according to AOC, New York can now go and spend that $3 billion in the local community, right? Wrong! You would think that a member of Congress from New York would understand basic financial math. Apparently not. What the Representative from New York does not understand is that with the exception of the $500 million in capital grants, the remaining $2.5 billion was structured mostly as tax breaks out of future tax revenue that, guess what, does not exist now. $27 billion in future tax revenue was just lost.

NY Governor Cuomo said “a small group of politicians put their own narrow political interests above their community – which poll after poll showed overwhelmingly support…above the state’s economic future and the best interests of the people of this state. The New York State Senate has done tremendous damage. They should be held accountable for this lost economic opportunity.”

The real message here is the danger that is lurking on the extremes in both political parties in the US. It manifests itself in different ways. On the Democratic extreme left, attacks on business and wealth creation may make great politics, but it is bad for the economy and the very people that these politicians supposedly represent. Creating an unfriendly and extremely difficult environment for business will mean less of it.

As the saying going, “be careful what you wish for, you might just get it.” Well, New York just got it.

SCOREBOARD

Past performance does not guarantee future results.

The purpose of this commentary is to provide readers with a summary of recent market and economic news. It is not intended to provide trading advice. Investors should have a long-term plan and should consider working with a professional investment advisor. Any discussion of investments and investment strategies represents the presenter’s views as of the date created and are subject to change without notice. The opinions expressed are for general information only and are not intended to provide specific advice or recommendations for any individual. The information and opinions contained in this material are derived from sources believed to be reliable, but they are not necessarily all inclusive and are not guaranteed as to accuracy. Any forecasts may not prove to be correct. Economic predictions are based on estimates and are subject to change. Reliance upon information in this material is at the sole discretion of the reader.

HIGHLIGHTS

• US stocks managed a small advance, but international equities fell.
• Worries about the global economy and trade talks hurt the market.
• Growth forecasts in Europe and the UK are revised down.
• Jinping and Trump won’t meet this month.
• Stocks cannot break through the 200-day moving average.

MARKET RECAP

A rally in the final 10-minutes of the Friday session helped the US markets eke out 0.17% gain for the week. Stocks were up on Monday and Tuesday, flat on Wednesday and weak on Thursday and Friday on worries about the global economy and trade talks between the US and China. International stocks fell by 1.18%.

On Thursday, the European Commission lowered its growth forecasts for Germany, Italy, and the Netherlands. Overall, the European Union GDP is now forecast to grow by 1.5% in 2019, down from 1.9% in the prior forecast. The Bank of England cut growth forecasts to 1.2% for 2019, down from 1.7%, and warned that a no-deal Brexit could cause a recession.

Markets were also disappointed when Trump said he would not be meeting with Chinese President Xi Jinping until March. A meeting between the two would signal that an agreement was close at hand. White House economic adviser Larry Kudlow said that an agreement between the two countries is still “far away.”

From a technical perspective, the market appears to have lost near-term momentum. The S&P 500 closed just under the 200-day moving average on Monday and Tuesday but failed to crack it, falling back on Wednesday, Thursday and Friday. Another negative sign for stocks was the out-performance this week by the defensive groups like utilities and REITs as interest rates fell.

ECONOMY

While the US did have a positive bounce last month in the purchasing manager’s index, the trend around the world continues to be down. China is already in contractionary territory and the rest of the world is not far behind.

The ISM Non-Manufacturing Index in the US also declined in January, although the absolute number was still strong. The index declined to 56.7 from 58. New export orders took the biggest hit, dropping to 50.5 from 59.5, more proof of a slowing global economy.

Given the continuing decline in economies around the world, it will become more difficult for recent growth in the US to continue.

A possible early sign of a slowing US economy is light vehicle sales, which fell by 5.1% in January to an annual rate of 16.6 million, the lowest level since August of 2017. Severe weather in the Midwest is getting some of the blame. Year over year, there was a 3% decline.

Jobless claims fell last week to 234,000, down from the big increase the previous week to 253,000.

SCOREBOARD

Past performance does not guarantee future results.

The purpose of this commentary is to provide readers with a summary of recent market and economic news. It is not intended to provide trading advice. Investors should have a long-term plan and should consider working with a professional investment advisor. Any discussion of investments and investment strategies represents the presenter’s views as of the date created and are subject to change without notice. The opinions expressed are for general information only and are not intended to provide specific advice or recommendations for any individual. The information and opinions contained in this material are derived from sources believed to be reliable, but they are not necessarily all inclusive and are not guaranteed as to accuracy. Any forecasts may not prove to be correct. Economic predictions are based on estimates and are subject to change. Reliance upon information in this material is at the sole discretion of the reader.

HIGHLIGHTS

• Stocks rally on a market-friendly Fed press conference.
• Another strong jobs report.
• Estimated earnings for 2019 continue to be sharply cut.
• Howard Schultz may run for President and Corey Booker is.

MARKET RECAP

Stocks advanced and were helped mightily by a Fed press conference mid-week. Fed Chairman Jerome Powell said, “I would want to see a need for further rate increases,” referring to an increase in inflation. And then to make it even better, the Fed signaled that they would maintain their balance sheet at a higher level than previously thought, indicating that the unwind of the balance sheet might be coming to a close. It was just about everything the market could ask for, and stocks shot up by 1.51% on the day. For the week, US stocks increased by 1.66% and international equities were up by 0.91%. Bonds were up on the week by 0.27% but fell on Friday on the news of a very strong jobs report.

The market has rallied by 15.9% off of the December low and is now at the midpoint between the range that was established through most of October and all of November.

JOBS / ECONOMY

The US job market made it 100 straight months of increased payrolls. Nonfarm payrolls  rose by 304,000. It was the biggest increase since February of 2018. Wages were up by 3% year over year. That is six months in a row of increases at or greater than 3%. The unemployment rate did increase to 4% from 3.9% in December, but the government shutdown probably impacted that number. The share of American adults working or looking for work increased to 63.2%, up 1/2% from last year. This indicates that the strong job market is pulling in workers that have been sidelined, a positive development for the economy.

In more good news, the ISM Manufacturing Index climbed 2.3 points in January to 56.6, the biggest increase in five months.

One weak datapoint was jobless claims. After falling to a stunningly low 199,000 last week, they shot up to 253,000 this week. That was the highest level since September of 2017. The government shutdown will get the blame for now.

Overseas, the economic reports are still coming in weak. The Markit January Manufacturing PMIs fell. Emerging markets are now at an even 50.0 versus 50.5 last month, and developed markets fell to 52.2 from 52.9, greater than 50 is considered expansionary. Italy fell into a recession.

FUTURE ESTIMATED EARNINGS

Analysts continue to aggressively cut future earnings estimates. 2019 estimates are now at $169.60, down from a peak of $178.90 in September. That is down 5.2% in about 5-months. Estimates have now been cut eight-weeks in a row and 16 of the last 17 weeks.

HOWARD SCHULTZ / CORY BOOKER

Howard Schultz, a lifelong Democrat, announced that he might run for president as an independent in 2020. The reaction was instantaneous and vicious. Democrats and the media establishment went on a rampage trashing Shultz in every way possible, from his intellect to his wealth to the way he ran Starbucks. Most of the “comments” and accusations were caricatures and inaccurate. But that is what goes for public discourse nowadays. With both parties currently ruled by the extremes, it would appear there is an opening for someone close to the center. Schultz will test the waters and consider filling that gap.

Cory Booker announced that he will run for president. Booker’s initial comments were positive and focused on uniting the entire country, “We used to be a people who could look at the sky, point at the moon and change it from a dream to a destiny. There’s no Democratic or Republican way to get there. You definitely don’t get there by fighting each other, tearing each other down or dividing people against each other.” Booker joins a field that includes Kamela Harris, Elizabeth Warren and Kirsten Gillebrand.

SCOREBOARD

Past performance does not guarantee future results.

The purpose of this commentary is to provide readers with a summary of recent market and economic news. It is not intended to provide trading advice. Investors should have a long-term plan and should consider working with a professional investment advisor. Any discussion of investments and investment strategies represents the presenter’s views as of the date created and are subject to change without notice. The opinions expressed are for general information only and are not intended to provide specific advice or recommendations for any individual. The information and opinions contained in this material are derived from sources believed to be reliable, but they are not necessarily all inclusive and are not guaranteed as to accuracy. Any forecasts may not prove to be correct. Economic predictions are based on estimates and are subject to change. Reliance upon information in this material is at the sole discretion of the reader.