The Third Quarter: Strong Economy and Surging Corporate Profits

By Eric Schopf

The third quarter brought wet conditions to many areas of the country. We in Maryland experienced the soggiest July ever with nearly 17 inches of rain measured at Thurgood Marshall Airport. Not only was this the wettest July ever, it was within a few inches of being the rainiest month ever for our area.  Although we may have been shrouded in clouds, the sun was shining brightly on Wall Street. The Standard and Poor’s 500 provided a total return of 7.71% for the quarter. The total return for the year stands at 10.56% as of September 30.

The impressive market returns reflect a strong economy and surging corporate profits. Second quarter Gross Domestic Product (GDP) grew at 4.2%. Preliminary estimates for the third quarter are 3.1% growth – quite respectable. Third quarter year-over-year earnings growth for the S&P 500 was 18%. We are also gaining clarity on the trade front. The United States – Mexican – Canada Agreement (USMCA) was reached at the end of September. The USMCA will replace the North American Free Trade Agreement, which was implemented on January 1, 1994. Major provisions of the new agreement will impact dairy farmers and automobile manufacturers. More importantly, the USMCA eliminates the uncertainty surrounding nearly $1.2 trillion of combined trade with Canada and Mexico. Trade negotiations, particularly with China, are continuing behind the scenes. The European Union is also unresolved business. These discussions promise to be contentious and may stretch out longer than we like. (more…)

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Company Spotlight: State Street Corporation (Ticker: STT)

By Eric Schopf

Founded in 1792, State Street Corporation (STT) is headquartered in Boston, Massachusetts. State Street provides a range of financial products and services to institutional investors worldwide. The company has two lines of business: Investment Servicing and Investment Management.

The Investment Servicing business offers accounting, custody, fund administration and shareholder recordkeeping. The company offers its products and services to mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations, endowments and investment managers. They provide some or all of these integrated products and services to clients in the U.S. and in many other markets, including Australia, Cayman Islands, France, Germany, Ireland, Italy, Japan, Luxembourg and the U.K.

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Funding the Next Generation’s Education

Being able to dote on children is one of the advantages of being a grandparent. But some gifts, like a college education, are a bit too big to just be handed out. For grandparents (or other extended family members) who want to support a child’s education there are a number of methods available for use—each with its own advantages and uses. All provide financial support for the student, of course, but each has its own challenges and tax considerations to take into account. (more…)

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The Road To 5G And The Rise Of The Internet of Things (IOT)

By Scott Murphy

Generally, we as value investors steer clear of thematic investing. We tend to be bottoms up rather than top down investors and let price, fundamental valuation and temporary business setbacks guide us to new investment opportunities. However, this doesn’t take us off the hook when it comes to understanding important business trends, especially in the technology area. Keeping track of major themes in technological change helps us gain a better understanding of where technology is heading and allows us to “fact check” and make sure our existing portfolio companies are keeping pace and have a shared vision of where things are headed.  Today’s topic is the pending move and upgrade from the current fourth generation (4G LTE) standards to fifth generation (5G) standards in our communication networks. (more…)

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The Weekly View (10/22/18)

Last Week’s Highlights:

After a crazy week on Wall Street, filled with major earnings reports, Fed minutes and a volatile stock market, the S&P 500 ended the week almost exactly where it started – at 2767.78.  The Dow Jones Industrial Average (DJIA) gained 104 points for the week, or 0.4%, to close at 25444.34.  Despite weakness in many technology stocks, the tech-heavy NASDAQ managed to close down just 0.6% for the week to 7449.03.  As mentioned above, the stock market was quite volatile – it started last week lower, rallied 548 points, or 2.2%, on Tuesday, fell 327 points on Thursday, and failed to hold on to a 200-point gain on Friday.  Volatility is indeed back (more on that below).  Corporate earnings seasons for third-quarter results picked up steam last week.  With the exception of a few negative surprises in the industrial sector, early indications point to strong revenue and earnings growth in aggregate.  Some 72% of companies that have reported Q3 earnings so far have topped analyst forecasts.  Revenue growth, while still impressive, has not been as strong as the profits seen in the third quarter: some 58% of companies have exceeded top-line analyst forecasts.  The suspected killing of Washington Post columnist Jamal Khashoggi in the Saudi consulate in Istanbul dominated headlines late last week, as Saudi Arabia is a very important business partner to the U.S. and many other developed countries.  This escalating situation hurt attendance at an investment conference hosted by Crown Prince Mohammed bin Salman, as major figures, including Treasury chief Steven Mnuchin, called.

Looking Ahead:

Earnings season is well underway, as more than 30% of the S&P 500 companies report their third-quarter results over the next five days.  On Monday, Halliburton (HAL), Hasbro (HAS), Kimberly-Clark (KMB) and TD Ameritrade (AMTD) lead the earnings charge with their reports.  The Chicago Fed releases its National Activity Index for September (consensus estimates call for a 0.18 reading).  Tuesday brings another very busy day for corporate earnings, as we’ll hear from 3M (MMM), Caterpillar (CAT), Harley-Davidson (HOG), McDonald’s (MCD), Verizon Communications (VZ), among others.  Wednesday includes New Home Sales and the Fed Beige Book on the economics-front, and corporate earnings will be released by Boeing (BA), General Dynamics (GD), Ford (F), Visa (V) and United Parcel Service (UPS).  The Census Bureau releases its Durable Goods Report for September on Thursday (consensus calls for a decline of 1.8%).  Many technology companies will report that day, including Alphabet (GOOG), Amazon.com (AMZN), Intel (INTC) and Twitter (TWTR).  The week ends with the Bureau of Economic Analysis releasing its advance estimate for Q3 GDP (estimates are for 3.3%).  Companies reporting that day include Colgate-Palmolive (CL), Weyerhaeuser (WY) and Charter Communications (CHTR).  Phew!!

The Tufton Capital Team hopes that you have a wonderful week!

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The Weekly View (10/15/18)

Last Week’s Highlights:

The major indices declined last week, as fears of rising interest rates outweighed several strong corporate earnings reports. The Dow Jones Industrial Average fell 4.2% for the week, while the S&P 500 declined 4.1%. The tech-heavy Nasdaq was down 3.7%, and the small capitalization companies in the Russell 2000 were hurt the most with a 5.2% selloff. On the economic front, investors received insight into inflation with the Producer Price Index (PPI) report. Producer prices were up 2.6% year-over-year. Energy prices fell 0.8% in September, as did food prices, which fell 0.6%. The prices for intermediate unprocessed goods increased 1.7% in the month. The Consumer Price Index (CPI) was also released, offering investors another indicator of inflation. Consumer prices were up 2.3% year-over-year. From last September, fuel and energy commodities were up 16% and 10%, respectively. Transportation services also rose 4%. On the downside, the prices of used cars and trucks fell the most, at 1.5%. Women’s and Girl’s Apparel prices also declined, falling 1%. In other economic news, the NFIB Small Business Index hit its third highest level of all-time. The Michigan Consumer Index dipped slightly in October, reflecting some concerns about personal finances and the long-term economic view. The index, however, remains near historic highs, as the consumer generally has a favorable view of the economy.

Looking Ahead:

Earnings season is underway! Three of the four big banks reported last Friday, and Bank of America reported on Monday morning. The banks reported strong earnings, but overall loan growth continued to slow. Over the weekend, the big-box retailer Sears filed for bankruptcy. Sears was at one point part of the Dow Jones Industrial Average. Quarterly earnings will be the main focus for the remainder of the week. On Tuesday, Morgan Stanley (MS), Johnson & Johnson (JNJ) and Goldman Sachs (GS) will all be reporting in the morning. After the closing bell, investors will hear from International Business Machines (IBM) as well as Netflix (NFLX). On Wednesday, Wall Street will gain further readings from the banking sector when U.S. Bancorp (USB) and M&T Bank (MTB) release their quarterly results. On Thursday, BB&T (BBT) and Phillip Morris (PM) will report before the opening bell and American Express (AXP) will report after the market closes. Finally, on Friday, investors will hear from Procter & Gamble (PG) and V.F. Corporation (VFC).

The Tufton Capital Team hopes that you have a wonderful week!

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The Weekly View (10/8/18)

Last Week’s Highlights:

U.S. stocks were lower on the week, as volatility returned along with plenty of news and economic data for investors to digest.  After hitting an all-time high early in the week, the Dow Jones Industrial Average (DJIA), along with many other indices, declined largely due to a sudden jump in the 10-year Treasury yield.  The yield spiked from 3.055% to 3.227% last week, marking its highest level since May of 2011.  As a result, the blue-chip DJIA dropped over 11 points for the week, to 26,447.05, while the S&P 500 fell 1%, to 2885.57.  The tech-heavy NASDAQ felt even more pain for the week, dropping 3.2% to 7788.45.  Why don’t stocks like these higher interest rates?  Aren’t interest rates rising because of solid economic growth, which is a good thing?  The answer is yet, BUT this uptick in bond yields brings on concerns that this good economic news may lead the Federal Reserve to tighten more aggressively than has been anticipated.  We at Tufton Capital continue to believe that strong earnings and economic growth justifies this rising rate environment, and equities can still perform well despite the increased volatility.

Looking Ahead:

The U.S bond market is closed on Monday in observance of Columbus Day.  Markets are closed in Canada for Thanksgiving and in Japan for Health and Sports Day.  Proctor & Gamble (PG) holds its annual shareholder meeting in Cincinnati on Tuesday, and the National Federation of Independent Businesses reports its Small Business Optimism Index for September.  On Wednesday, the Bureau of Labor Statistics releases its producer price index for September.  Honeywell International (HON) hosts an investor conference in New York that day, where it will discuss its spinoff of Resideo Technologies.  Thursday brings earnings reports from Commerce Bancshares (CBSH) and Walgreen Boots Alliance (WBA).  We’ll also see plenty of economic reports that day, including the consumer price index for September and August’s real average weekly earnings results.  The week ends with three of the four largest U.S. banks reporting their third quarter results:  Citigroup (C), J.P. Morgan Chase (JPM) and Wells Fargo (WFC) all report results on Friday.

The Tufton Capital Team hopes that you have a wonderful week!

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The Weekly View (10/1/18)

Last Week’s Highlights:

Most of the major US indices were down last week as tariff talks and the Federal Reserve weighed on strong quarterly performance. The Dow Jones Industrial Average was down 1.1% while the S&P 500 was down 0.5%. On the other hand, the technology heavy Nasdaq rose 0.75%. For the quarter, the three major indices posted their best quarterly performance since 2013. On the economic front, the biggest headline news was the Federal Reserve raising interest rates another quarter of 1%. The Federal Funds Rate now stands in a range of 2% to 2.25%. Housing was also in focus last week. New Home Sales were reported at 629,000 for the month of August, which was slightly below Wall Street’s estimate, but 21,000 higher than the number reported in July. Home Prices, as evidenced by the S&P/Case-Shiller Index, rose 0.1% for the month of July. Lastly, Durable Good Orders surged 4.5% in the month of August, beating the Wall Street estimate of 1.9%.

Looking Ahead:

This week, stocks are off to a strong start as the US, Canada, and Mexico agreed on a new trade agreement that will replace the current North American Free Trade Agreement (NAFTA). Jobs will also be in focus this week starting with the ADP Employment Survey on Wednesday. On Friday, investors will gain further insight on the job market with Average Hourly Earnings, Nonfarm Payrolls, and the Unemployment Rate all being released by the Bureau of Labor Statistics. With the end of the calendar quarter, many companies will be preparing for quarterly earnings calls in the next coming weeks.

 

The Tufton Capital Team hopes that you have a wonderful week!

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The Weekly View (9/24/18)

Last Week’s Highlights:

U.S. large-cap stocks edged higher Friday, finishing off their strongest two-week stretch since February.  This recent strength in domestic equities reflects that inflation- and trade-related anxieties that have affected the markets in recent months may be abating.  For the week, the Dow Jones Industrial Average gained 589 points, or 2.3%, to 26,743.50 – a record close.  The S&P 500 rose 0.8% last week to 2929.67, narrowly missing a record of its own.  It was an unusually weak week for the FAANG stocks (Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), Alphabet (GOOGL)), as the tech-heavy NASDAQ dropped 0.3%, to 7886.96.  There was an unusual move last week between the U.S. dollar and the 10-year treasury yield, as the two usually move up (or down) together.  Last week, however, the yield on the 10-year rose to 3.068% (its sixth-highest close of the year), while the U.S. Dollar index fell 0.8%, its second consecutive weekly decline.

Looking Ahead:

The trade war heats up on Monday, as U.S. tariffs of $200 billion on Chinese goods are expected to take effect.  China is also expected to impose tariffs of $60 billion on U.S. goods.  The Federal Reserve meeting begins on Tuesday, and we’ll see earnings out of Nike (NKE) and comments from the General Mills (GIS) annual shareholder meeting in Minneapolis.  On Wednesday, the Fed will announce its interest-rate policy decision:  consensus estimates anticipate that the Fed will raise the federal-funds rate by a quarter percentage point, to 2%-2.25%.  On Thursday, the Census Board reports durable-goods orders for August, and the National Association of Realtors releases its Pending Home Sales Index for last month.  We’ll see earnings reports from McCormick (MKC), Accenture (ACN) and Conagra Brands (CAG) that day as well.  The week ends with the Bureau of Economic Analysis’s release of personal income and outlays for August, as well as earnings reports from BlackBerry (BB) and Vail Resorts (MTN).  The New York Film Festival officially opens on Friday.

The Tufton Capital Team hopes that you have a wonderful week!

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The Weekly View (9/17/18)

Last Week’s Highlights:

The major indices rose last week as investors expected that the U.S. and China were going to resume trade talks. The tech-heavy Nasdaq led the way, with Microsoft (MSFT) contributing the most to the index’s return by gaining 1.36%. A plethora of economic data was released last week. The Producer Price Index (excluding food and energy) fell 0.10% month over month, showing that the cost of producing goods declined. The Consumer Price Index (excluding food and energy) rose 0.1% month-over-month and 2.2% year-over-over. This rate of inflation is near the Federal Reserve’s target, signaling that the Fed will likely raise interest rates again later this month.

 

Looking Ahead:

While Monday does not bring market moving economic data, the housing market will be in focus throughout the remainder of the week. On Wednesday, information on Building Permits will be released for August. Wall Street is estimating that 1.3 million building permits were issued, on par with the 1.3 million building permits issued in July. Existing Home Sales information will be released on Thursday. Consensus estimates are for 5.4 million homes sales for the month of August. On the earnings front, there will not be many releases, as the third calendar quarter is coming to an end.

Have a wonderful week!

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The Weekly View (9/10/18)

Last Week’s Highlights:

Technology stocks were hit last week, largely due to Wednesday’s congressional testimonies by senior executives of two leading social media companies (Facebook (FB), Twitter (TWTR)).  Additionally, the Department of Justice said it would meet with state attorneys general on what it called the “stifling” of voices online by social media.  As a result, the tech-heavy NASDAQ fell 2.55% for the week to 7902.54.  August’s solid jobs report was released on Friday, showing that the economy added more than 200,000 jobs and that wages grew at the fastest pace since 2009.  However, this strong report failed to overcome pressure of escalating trade tensions: the Dow Jones Industrial Average slipped 0.19% for the week, and the S&P 500 fell 1.03%, to 2871.68.  Amazon.com (AMZN) briefly joined Apple (APPL) last week with a trillion-dollar-plus market capitalization on Tuesday, before slipping back to $995 billion.  The pair are the first two U.S. companies to join the trillion-dollar club.  Congratulations to Novak Djokovic and Naomi Osaka for winning tennis’s U.S Open – it was his third victory in the New York event and her first.

 

 

 

Looking Ahead:

Monday starts the first day of Rosh Hashanah, and AT&T will host an investor conference to discuss the recent acquisition of Time Warner.  Tuesday marks the 17th anniversary of the 9/11 terrorist attacks.  On Wednesday, Apple (APPL) hosts its annual Gather Round event, where the company is expected to unveil new iPhone models and a redesigned Apple Watch, among other products.  Wednesday will be a busy day on the economics front, as we’ll hear from the Bureau of Labor Statistics on the August producer price index as well as the Federal Reserve, which will release its sixth of eight beige-book surveys for 2018.  Thursday brings the consumer price index report for August and earnings reports from Adobe System (ADBE) and Kroger (KR).  And on Friday, we’ll see more economic news, including the August retail sales report and the Consumer Sentiment survey for September.

Have a wonderful week!

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The Weekly View (9/4/18)

Last Week’s Highlights:

Last week, the major indices trekked higher as an agreement with Mexico signaled that new regulations could replace the North American Free Trade Agreement (NAFTA). The Dow Jones Industrial Average rose 0.7%, while the S&P 500 increased 0.9% and the Nasdaq jumped 2.1%. The S&P 500 and tech-heavy Nasdaq both reached all-time highs – surpassing their records set this past January. For the month of August, the Nasdaq surged 5.9%, the S&P 500 had a total return of 3.3% and the Dow Jones Industrial Average lagged with a total return of 2.6%. Of the 3.3% for S&P 500, Apple was the largest contributor representing 24% of the index’s return.

 

 

Looking Ahead:

This week, investors will be focused on the Trade Balance report, to be released at 8:30 AM Wednesday. Wall Street is expecting a deficit of $50 billion for the month of July. On Thursday, data on the Durable Good Orders for July, as well Unit Labor Costs for the 2nd Quarter, will be released. Consensus estimates forecast that Durable Good Orders declined 1.7% in July and Unit Labor Costs declined 0.9%, respectively. Friday is “Jobs Day” as a plethora of information is released regarding the Labor Market. Wall Street is estimating that the economy added 190,000 Nonfarm Payroll Jobs in the month of August. The Unemployment Rate is expected to decline from 3.9% to 3.8% and Hourly Earnings are expected to rise 0.3% month over month.

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The Weekly View (8/27/18)

Last Week’s Highlights:

After almost seven months since its January 26th top, the S&P 500 once again hit a new all-time high.  The S&P is now up over 7% for 2018, while the Dow Jones Industrial Average and NASDAQ are up 4.33% and 15.1% YTD, respectively. Stocks posted their largest gains on Friday, following Federal Reserve Chair Powell’s speech in Jackson Hole, where he noted that while the committee’s measure of inflation has moved near its 2% target, an inflation overshoot or an overheating economy does not seem likely. This will likely keep the Federal Reserve on pace to raise short-term interest rates at a measured pace, hopefully helping extend the bull market.

Looking Ahead:

It’s the (unofficial) last week of summer and traditionally a slow one for Wall Street.  After the U.S. Open tennis tournament kicks off on Monday, we’ll see earnings from Tiffany & Company (TIF) and Best Buy (BBY) on Tuesday.  Wednesday will bring the GDP revision data, pending home sales, and earnings reports from Salesforce (CRM) and Dick’s Sporting Goods (DKS).  On Thursday, we’ll get economic readings on personal income, consumer spending and core inflation.  Warren Buffett will celebrate his 88th birthday that day, and we’ll get financial results from Dollar Tree (DLTR), Campbell Soup (CPB) and Abercrombie & Fitch (ANF).  Friday will round out the week with the consumer sentiment index.

All of us at Tufton Capital wish you an enjoyable and safe Labor Day weekend!

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The Weekly View (8/20/18)

Last Week’s Highlights:

Last week, the Dow Jones led the major indices with a 1.41% increase week-over-week. Walmart (WMT) helped lead the index higher rising 8.5% after beating Wall Street estimates for both sales and earnings-per-share. The Arkansas-based company also raised their sales guidance for the year. Nielsen Holdings (NLSN) was the largest gainer in the S&P 500 increasing nearly 20% week-over-week. Activist Elliott Management took a stake in the information and data management company with intention of pushing the Board-of-Directors for a strategic review of the business. In economic news, retail sales beat Wall Street estimates rising 0.5% month-over-month versus a consensus estimate of 0.2%. Housing starts came in slightly below consensus at 1.17 million.

Looking Ahead:

This week, investors will get further results from the retail sector with Kohl’s (KSS) and TJX (TJX) both reporting quarterly results on Tuesday. Target (TGT) and Lowe’s (LOW) will report before the opening bell on Wednesday with Williams Sonoma (WSM) reporting after the closing bell. On Thursday, investors will hear from L Brands (LB), The Gap (GPS) and The Children’s Place (PLCE). On the economic front, housing will continue to be in focus with the release of July Existing Home Sales on Wednesday morning. July New Home Sales as well as July Building Permits will be released on Thursday Morning.

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The Weekly View (8/13/18)

Last Week’s Highlights:

U.S large-cap stocks finished lower on the week, their first weekly decline since the end of June.  The DJIA fell 149 points on the week (0.6%), while the S&P 500 declined 0.2% to 2833.28.  The NASDAQ eked out a gain of 0.3%.  Weighing on equities were worries of financial and currency turmoil in Turkey as well as continued tariff talks between the U.S. and China.  Turkey’s lira tumbled 14% on Friday, as a standoff over an imprisoned U.S. pastor led to President Trump doubling tariffs on that nation’s steel and aluminum exports.  From there, the strain in Turkey spread to other markets.

We also saw some active Tweeting last week, but this time it wasn’t just from the Oval Office.  Elon Musk of Tesla Inc. (TSLA) informed his Twitter followers on Tuesday that he’d like to take his electronic car maker private for $420 a share.  Tesla’s board is weighing the deal, and Musk claimed that the necessary funding has been secured, largely from the Saudi Arabian sovereign wealth fund.

Looking Ahead:

Earnings season continues to wind down this week, as we’ll see results from fewer than 3% of companies in the S&P 500 reporting their second-quarter numbers.  Earnings that Tufton’s research team will be especially focused on this week include Home Depot’s (HD) results on Tuesday, Cisco (CSCO) and Macy (M) numbers on Wednesday, and Nordstrom (JWN) and Walmart (WMT) on Thursday.   Important economic reports this week include retail sales (Wednesday), housing starts (Thursday), and the leading economic index to wrap up the week.  And of course we can’t forget the very important “Left Handers Day” celebrated on Monday and “Men’s Grooming Day” on Friday!

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