What’s On Our Minds:
Apple, the world’s largest company by market value, reported disappointing earnings last Tuesday which caused it to fall 11% over the week to $93.74 per share. The company’s quarterly revenue dropped 13% year-over-year to $50.6 billion. This decline goes to show that not everyone can overcome strict government regulations in China. (The Chinese government banned Apple’s iBooks and iTunes Movies sales last month.) Along with the earnings miss, activist investor, Carl Icahn, announced that he had sold his position in the company. The billionaire specified that he had grown concerned with Apple’s growth prospects in China. Last year, when he owned 53 million shares, Icahn was a huge proponent of owning the stock and even went as far as calling his position a “no-brainer”. Icahn estimates that his hedge fund made a $2 billion profit on the stock and he probably wanted to cash in on those big gains.
Last Week’s Highlights:
It was a tough week on Wall Street as the Dow Jones and S&P 500 both slipped 1.2%. The Federal Reserve met last week and announced that it had decided to hold off on raising interest rates, but did not give a clear answer as to whether or not they would make a move at their next meeting in June. The Bank of Japan decided that it would not pursue further stimulus. There were three big pharma deals announced last week. Abbot is planning a $30 billion takeover of St. Jude Medical, Sanodi’s plans on purchasing Medivation for $9.3 billion, and AbbVie is making a deal to acquire Stemcentrx for $5.8 billion.
Looking Ahead:
Economic data is heavy this week with manufacturing PMI coming out on Monday, Service Sector PMIs on Wednesday, Eurozone retail sales on Wednesday, and US employment numbers on Friday. The street is expecting that our economy gained 200,000 jobs in April which would be on track to continue the healthy additions we have seen over the last few months.
What’s On Our Minds:
Is a strong dollar a good thing? It’s a bit of a mixed bag. The dollar’s strength in recent years has been good for the American consumer, but it’s a double edged sword in that it is a disadvantage for American companies who export products, services or equipment abroad.
The strength of the US dollar can be attributed to the strength of our economy. The most obvious benefit of a strong dollar is that your dollars go further abroad or when purchasing imported goods. In theory, a trip to Europe or a car imported from abroad should be more affordable for US consumers in the current environment. Furthermore, because imported goods are cheaper in the US, domestic products will have to come down in price to remain competitive. Thus, the consumer’s dollars go further. But producers and manufacturers suffer the opposite effect.
US companies operating abroad are paid in foreign currency. When they convert this revenue back into dollars, their profits are worth less at home. Also, exported US products are more expensive for foreign consumers, which can curb demand for US exports. Manufacturing companies’ revenues and profitability are hit especially hard from a strong greenback. On the other hand, companies that import equipment or goods from abroad and do business at home stand to benefit from a strong dollar.
All in all, strength in the US dollar is great for U.S. shoppers and travelers, but it hurts big U.S. companies operating abroad. If these companies’ profits remain low for long, they will be forced to lay off employees, and then it isn’t good for the consumer, either.
Last Week’s Highlights:
The week started off strong on Monday as the Dow rose above 18,000 for the first time since last July. Markets witnessed a pullback as the week progressed while a heap of earnings announcements were released. In tech, Alphabet (Google), Netflix, and Microsoft reported earnings that disappointed investors. Caterpillar, which is often viewed as bellwether of global manufacturing, reported disappointing earnings that were weaker than analysts’ forecasts. Baltimore based Under Armour beat earnings expectations as the company’s footwear revenue jumped 64%. McDonald’s gamble to serve breakfast all day has paid off as same store sales increased 5.4% in the first quarter.
Looking Ahead:
Earnings season is in full swing again this week with notable releases from Proctor and Gamble, Capital One, and Apple on Tuesday and Chevron and Exxon on Friday. Federal Reserve policymakers are meeting on Tuesday and Wednesday where they will announce interest rate policy moving forward. The market is currently pricing in a 0% chance of a rate hike at this meeting. Weakness in retail sales, concern about China’s economy and weak international trade are factors the will likely keep the Fed on the fence. The Fed will release first quarter GDP numbers on Thursday following their meeting. Locally, Democrat and Republican primaries are held in Maryland on Tuesday. Baltimore City’s Democratic primary race for mayor will be particularly interesting.
What’s On Our Minds:
Over the weekend, some of the world’s largest oil producers met at the center of the Middle East in Doha, Qatar to discuss a potential production “freeze” from each participant. Going into the weekend, signs of the freeze deal collapsing began as the oil representative from Iran decided not to attend. Late Sunday afternoon, it was announced that the freeze deal had in fact collapsed as the Saudi Arabian oil ministers got up from the table apparently stating that they would not freeze unless their political rival Iran agreed to take the same actions.
The oil price crash began in mid-2014 when Saudi Arabia refused to cut production as oil prices declined. This coincided with US Shale Oil production rising to a record 9.6 million barrels of production per day. Many speculated that the oil kingdom’s refusal to cut was to regain market share and put the growing US shale companies out of business. Others speculated that the Saudis took action to prevent rival Iran from funding their own operations and nuclear ambitions. Like Saudi Arabia, much of Iran’s income is derived from oil sales.
Now, the ladder theory appears to be evident. Since the lifting of federal and international sanctions last year, Iran has ramped oil production by 600,000 barrels per day and continues to develop for further production. A future production freeze or even cut among large producers is still not entirely out of the question. However, without Iran’s cooperation, expect the soap opera to continue…
Last Week’s Highlights:
Last week, the S&P 500 rose 1.62% while the Dow rose 1.82%. Financial stocks helped drive the major averages higher as the big banks reported better than expected earnings. JPMorgan Chase, the largest US Bank in terms of assets, has stated that even if the Federal Reserve does not increase interest rate, they can still expect to grow their net interest income by $2 billion – an impressive feat for any financial institution in a low interest rate environment.
Investors also received some good news out of China. The world’s second largest economy reportedly grew 6.7% in the first quarter. This was slightly down from the 6.8% increase in the fourth quarter, but still a welcoming relief to investors as growth in China has recently been a concern.
Looking Ahead:
Looking forward to this week, more first quarter earnings reports will be on the docket. After the bell on Monday, technology companies Netflix and IBM will report. Subsequently to being a “high flyer” in 2015, Netflix is down 4.3% this year – under performing the market by 6.5%. On Tuesday morning, investors will hear about earnings and future plans from internet company Yahoo!. The company is shopping it’s core search business to potential bidders as a breakup of the company appears to be imminent. The week will finish off with results from industrial bellwethers Caterpillar and General Electric. As Jim Hardesty would say, “Pushing dirt is good business.” Let’s hope we hear the same from Caterpillar.
What’s On Our Minds:
Last Wednesday the United States Department of Labor unveiled its fiduciary rule in its final form. You would think it would be obvious, but the new rule requires retirement plan advisors to put their clients’ interests ahead of their own. The rule includes both investment products and fees.
Up until now, brokers (or “financial advisors”) and insurance salesmen who provided advice to retirement accounts and 401K plans were only required to follow a “suitability” standard, which allowed them to receive undue trail fees and commissions from mutual funds and insurance products. As one can imagine, these lucrative fees and commissions can influence a broker’s decision making process: they may make their suggestions based on what gets them a higher payout. The new rule forces brokers to follow a fiduciary standard, mandating that they suggest products that are truly in the client’s best interest.
Although the new rule has been met with opposition from the industry, it will inevitably benefit the average person who puts money away in a retirement account because over time, compounding costs will mathematically exceed compounding interest. As a registered investment advisor (RIA), our firm follows a fee-based business model and we have always acted as a fiduciary for our clients since our founding. Because this new rule forces others in the industry to put clients’ interests ahead of their own, we view this rule change as a positive development for Americans saving for retirement.
Last Week’s Highlights:
Both the S&P 500 and Dow Jones were down 1.2% last week. Oil prices surged 8% to $39.72 per barrel, which propelled energy stocks upwards. Investors worried about an increase in the value of the Japanese Yen while Japan’s central bank has been failing to drive its exchange rate lower with their negative interest rate policy.
In merger and acquisition news, Alaska Airlines agreed to purchase Virgin America for $57 per share. The $160 billion merger between Allergen and Pfizer collapsed. The deal had received criticism from President Obama because it would have allowed Pfizer to move offshore to Ireland and cut its corporate tax bill.
The Baltimore Orioles started the season off on Monday at Camden Yards. The team remained undefeated (5-0) in their first week of play. In golf, Englishman Danny Willett took home the coveted green jacket following Jordan Spieth’s meltdown on the the 12th hole at Augusta National.
Looking Ahead:
It is going to be a busy week on Wall Street as first quarter earnings season kicks off on Monday afternoon with aluminum producer Alcoa. Analyst are expecting a third consecutive quarter of negative earnings growth primarily attributed to lower oil prices and the strong dollar. We will get a glimpse of how this year’s persistently low interest rates, reduced trading revenue, and the IPO decline has effected big financial firms when JPMorgan reports earnings on Wednesday followed by Bank of America on Thursday. We will also see key economic data this week with Retail Sales on Wednesday and Consumer Price Index on Thursday. New York will hold its primaries on Tuesday, where Trump and Clinton have long been favored.
What’s On Our Minds:
It’s being called the “Invisible IPO Market”. This year’s first quarter Initial Public Offering (or IPO) market was the slowest of any quarter since the financial crisis of 2009. Nervousness about the financial markets and the related volatility, combined with continued uncertainty in the energy industry, was the main reason for this slowdown in capital raising. Eight deals, raising just $700 million, were launched in this year’s first quarter, compared with 34 IPOs, raising $38 billion, in last year’s same period. All eight IPOs this year were by early-stage healthcare (namely biotech) companies, led by substantial buying of company shares by existing shareholders.
The pipeline of companies looking to raise capital is strong, but most companies looking to raise initial public capital are awaiting better (i.e. less volatile) market conditions. Companies such as Univision, Albertsons, Elevate Credit and Neiman Marcus have planned their IPOs and may perhaps launch them later this year. There are over 120 companies that have already filed an S-1, the initial registration form required by the Securities and Exchange Commission for a future IPO.
Market-watchers look to the level of IPO activity as a barometer of the market’s health: a super-active IPO market often means the market is getting “too hot.” But as we can see in our inflation, interest, and employment numbers, that doesn’t appear to be the case at this time. In the past, a large swing downward in IPO activity has accompanied a major economic slowdown (see chart, below). It is possible that IPOs will rebound or at least slowly recover from this point, but caution is warranted. In finance, we say that at the top of the market, the fool says “this time is different.” At the same time, we have to recognize that the IPO slowdown came at the same time as a market correction- maybe this time was just less bad.
Last Week’s Highlights:
Strength continued in the equity markets, as stocks posted solid gains to close out the year’s first quarter. The Dow Jones (DJIA) rose 1.6% for the week, while the S&P 500 increased 37 points, or 1.8%. Bond prices were higher last week, pushing the U.S. 10-Year Treasury bond yield down slightly to 1.77%.
Comments by Federal Reserve Chair Janet Yellen on Tuesday helped the markets, as she indicated that the Fed should proceed cautiously with respect to future hikes in interest rates. Many investors welcomed these dovish comments, feeling that we may be in a “Goldilocks” economy: one that is not “too hot” and needing a cool-down in the form of a rate raise, but also not “too cold,” or growing too slowly.
March Madness lived up to its name, as the S&P rose 6.6% last month and approached new market highs. Stocks ended the first quarter slightly higher, following a very volatile period of double-digit losses followed by double digit gains.
Looking Ahead:
First quarter “earnings season,” when public companies report their financial results for the first three months of the year, takes off in a few weeks. As only a few companies will release their financial reports this week, investors’ focus will remain on any macroeconomic developments. Specifically, what is the Federal Reserve thinking, and how long can it continue saying the “right things” to help the stock market’s continued move up?
Minutes from the March meeting of the Federal Open Market Committee meeting will be released on Wednesday and closely examined by investors. Additionally, factory and durable goods orders, to be released Monday, will help determine if U.S. manufacturing growth, which has picked up, is sustainable.
What’s On Our Minds:
We try not to get political on this blog. But something that perhaps all of us can agree on: politicians don’t understand economics. Or at least, they say a lot of misleading things about the economy. One example in the headlines is trade protectionism: the “protect our jobs” argument. Here’s a non-partisan fact: those manufacturing jobs aren’t coming back. How can we say that? Because we can bring (and have brought) manufacturers back to the U.S., but we have become so good at automation that we don’t bring the factory workers’ jobs back with them. It’s not China taking those jobs. It’s our own technology.
What we should produce is based on our comparative advantage, as we economists call it. We have a comparative advantage in things like technology and services. The concept behind comparative advantage is simply that if each country specializes in what they are especially good at, every country is better off. This is true even if one country is better at everything. That far superior country (ours, of course) should specialize in what they’re good at making, since they can produce larger amounts of valuable stuff and trade for the rest.
But that arrangement creates problems for politicians who have voters to answer to. We might be able to import a million HDTVs a year from, say, Mexico and save ourselves $50 on each one- our consumers gain $50 million. But that comes at the expense of a factory that employs 50 people at $50,000 a year each, or $2.5 million per year. The net gains are a whopping $47.5 million a year- but the 50 factory workers who just lost their jobs are going to make a much bigger fuss to their congressman than the people who might not be able to buy a cheap TV.
We are not taking a political stance, but only hope that with a greater understanding of these concepts we might be able to better prepare for the future.
U.S. Manufacturing Jobs (thousands), as reported by ADP
Last Week’s Highlights:
The S&P 500 and the Dow Jones fell about half a percent last week. Overall, we are still about flat for the year. The US economy continues to show signs of improvement. Oil is finally pulling back some after surging about 50% over the last few weeks (trough to peak).
Looking Ahead:
The first of April will be an important day for USA economics- we’ll see both manufacturing PMI numbers and the March jobs report. Until then, things are quiet as we await earnings season being kicked off on April 11 by Alcoa.
What’s On Our Minds:
Last week, the 50% plunge in the stock price of Canadian drug maker Valeant displayed the importance of diversification in an investor’s portfolio. In the past two years, Valeant was considered a hedge fund darling due to its unconventional business model that has produced significant growth in earnings and cash flow. Instead of spending money on research and development to develop new drugs, Valeant has acquired smaller pharmaceutical companies with mature specialty drugs. Following the closing of the acquisition, Valeant would restructure the former company’s costs and assets, raise their drug prices and by being based in Canada, utilize a lower corporate tax rate. Many investors fell in love with this business model and held positions in Valeant that amounted to over 15% of their total portfolio.
For some time, these investors looked like geniuses as the stock climbed from $50 in 2012 to $263 in July of last year. Then, in the Fall of 2015, accusations arose regarding the company inflating sales and price gouging – the stock tumbled. Next came legal investigations from customers and the regulators – the stock tumbled more. Last week, the company provided weak guidance and stated that they lacked cash to make further acquisitions, planned on spending more on compliance and reporting, and that first quarter earnings would be cut in half. As a result, the company’s stock lost $12 billion dollars – or 50% – in value.
One of the largest holders in Valeant is activist investor Bill Ackman, who runs hedge fund Pershing Square Capital Management. Prior to the company’s decline, Valeant was the largest of the fund’s nine holdings. According to the Financial Times, Ackman has now lost more than half of his client’s money since the stock peaked last July.
It pays to be diversified.
Valeant Pharmaceuticals (VRX)
Last Week’s Highlights:
The S&P 500 rose 1.35% and the Dow Jones rose 2.26% on the week. The Federal Reserve held their March Federal Open Market Committee (FOMC) meeting and left interest rates unchanged and implied two possible rate-hikes during 2016. The markets cheered the lower-for-longer near zero interest rate policies. Increases in oil and other commodity prices also improved market sentiment.
Looking Ahead:
The week is somewhat light on economic data. The condition of US oil and gas companies will be in focus at the annual Howard Weil Energy Conference in New Orleans. On Thursday, investors will get a gauge of the industrial sector when the Flash Manufacturing PMI for March is released at 9:45 AM. Any reading above 50 implies that there was growth in the period – Wall Street is estimating a reading 50.3. The markets will be closed on Friday in observance of Good Friday as traders prepare for Easter.
Remember – don’t put all your eggs in one basket.
What’s On Our Minds:
Our Investment Committee has been especially focused on recent employee figures and what they “really” mean. One of our crack analysts (who also writes for the Weekly View) prepared the below chart for the committee. It shows the timeline of a very familiar data point (in blue): Initial Claims. This figure is the number of people filing for unemployment benefits for the first time, and is widely considered to be an important leading (forward-looking) indicator of the stock market. The initial claims number shows that the number of people filing for first-time benefits is as low as it was in the late 90s.
The conclusion is not, however, “Sell everything.” We can see that between about 2005 and 2008, we were also at levels suggesting full employment. We certainly would not have wanted to be out of the market for that entire three year period
Last Week’s Highlights:
The S&P 500 was up 1.2% on better economic data and a rally in oil prices. The market has bounced off of February lows and is now down 1.2% Year to Date.
Last week we marked the seven year anniversary of the current bull market. Although it feels like investors have been beaten up over the past nine months, the bull market that began on March 6, 2009 continues: we have not seen a drop of more than 20% in the market in over seven years. We have seen two 10% corrections since last summer, but the market recovered on both occasions and the volatility presented tremendous buying opportunities. The average bull market since World War II has lasted 56 months and posted a 144% gain. In comparison, the current 84 month bull has posted a 193% gain in the S&P 500. Clearly, this bull has come a long way!
Looking Ahead:
After unexpectedly resorting to negative interest rate policy in January, the Bank of Japan will announce its updated interest rate policy on Tuesday. So far, the bank’s radical move has failed to assuage the country’s deflation and stagnation woes.
At home, investors will be watching the Federal Reserve this week as they hold their two-day policy meeting on Tuesday and Wednesday. We expect the Fed to keep another interest rate increase on hold this time around, but Janet Yellen could give an indication of future moves during her press conference on Tuesday at 2:30 PM.
On Tuesday we will get one step closer to electing our new president as Florida, Illinois, Missouri, North Carolina, and Ohio voters head to the polls in their respective primary elections.
What’s On Our Minds:
As talk about negative interest rates in Europe and Asia increases in the financial news, we’ve received more and more client inquiries asking what this means for global markets and their portfolios. After all, the financial system is built around positive interest rates, and the current overseas rate structure seems to be “upside down.” We spend a lot of time thinking about, discussing and structuring portfolios around various interest rate scenarios, whether they be positive or negative. We’ll first explain how and why rates can go negative, and then discuss the chances of negative rates entering our domestic financial system.
A negative interest rate policy means that a central bank will charge commercial banks negative interest: instead of receiving money on deposits, depositors must pay to keep their money with the bank. Central banks, specifically several in Europe and Asia, have introduced such a policy to stimulate their weak economies and increase inflation levels, which have been well below comfortable levels. By introducing negative interest rates, it is hoped that commercial banks will lend more money at very low interest rates. Doing so should entice bank customers to borrow more, spend more, and save less, thus boosting economic activity. As importantly, negative interest rates often drive down the value of a country’s currency, making its exports more affordable and competitive with overseas trade partners (which also helps economic growth). Banks must be careful, though, to avoid the specter of deflation.
While negative rates in the US are always a possibility, we think that such a scenario is highly unlikely, as the domestic economy would have to get much worse before the Fed would contemplate such a move. We are not forecasting such weakness or a related recession in the near term and therefore do not foresee negative rates in the US during this economic cycle. Moreover, introducing such a strategy would be an extreme move in the history of our country’s monetary policy. Such a move would likely have broad political implications, possibly provoking Congress to limit the powers of our country’s central bank.
Last Week’s Highlights:
Strength continued in the equity markets, as stocks posted solid gains for the third week in a row. The Dow rose 2.2% for the week, the S&P 500 was up 2.7%, and the Nasdaq increased 2.8%. Many investors are becoming more confident in the US economy’s growth (slow growth though it is), and talk of a recession in the near term is less alarming.
Friday’s jobs report came in well above expectations, with the US economy adding 242,000 jobs in February (above economists’ 195,000 estimate). The unemployment rate remained 4.9% (as expected by the Street), and wages declined 0.1% for the month.
Looking Ahead:
Front and center for investors this week will be Thursday’s meeting of the European Central Bank (ECB), which is expected to push a key interest rate even further into negative territory. Doing so would boost its current stimulus program in order to help economic growth in the Eurozone. More volatility is expected with this week’s meeting, especially if the ECB provides less stimulus than investors are anticipating. Please read our thoughts on the negative interest environment and its impact on global markets (in the above “What’s On Our Minds” section).
There is little US economic data to be released this week, so all eyes will be on Europe.
What’s On Our Minds:
In the last two and a half weeks, the S&P 500 is up nearly 8%. This weekend, we were asked, “Does this mean that the market will go down again before it goes up more?” Our response was, “Yes, either that, or it will go up more before it goes down again.” The upward movement doesn’t seem to be because of any fundamental shift. Rather, what is improving is sentiment, the” wild card” of the market. The market recovered from its despondency that was building as a result of China worries, oil prices (fears of $20 crude), credit weakness, and more. Then, we got better US data, a rally in crude, waning China concerns, and the Fed came out against negative interest rates.
We are a bit worried, though, about pro forma (adjusted) earnings that have been reported over the last year vs. GAAP earnings (those adhering to strict accounting rules). While there can be good reason to present adjusted earnings that do not “reflect the realities of the business as a going concern,” a market-wide trend in the ballooning of these adjusted earnings is a bad sign. Adjusted numbers show that earnings grew just 0.4% last year, a very poor showing as it is. But the more-stringent GAAP numbers show a 12.7% earnings per share decrease, a number more reminiscent of 2008. Could stocks be more expensive than market participants believe them to be?
Last Week’s Highlights:
Last week was another relief, as stocks rose farther out of their earlier depths. While not as stellar as the previous week, it was still very rosy, with the Dow up 1.5%, the S&P 500 up 1.6% and the Nasdaq up 1.9%.
Looking Ahead:
Economic numbers come out this week- that is, real fundamentals. We will see the manufacturing price index PMI on Tuesday, auto sales also on Tuesday, and February US jobs on Friday. Something we will certainly be watching are the results of Super Tuesday’s primary races. We can’t make any hard calls at this point but the leaders in both parties are looking more and more inevitable…
The Baltimore Business Journal featured Tufton, and explained our vision of rebranding the company for a new era. Click here to read the article.
The Baltimore Sun featured Tufton, and briefly explaining our vision for the rebrand. Click here to read the article.
Effective February 23, Hardesty will being operating as Tufton Capital Management, LLC
Hunt Valley-based Hardesty Capital Management has rebranded and officially changed their company name to Tufton Capital Management effective immediately. The independently owned investment advisory firm is one of the largest in the region with nearly $1 billion dollars in assets for individual clients and institutions.
The firm previously known as Hardesty was founded in Baltimore, Maryland in 1995 by Jim Hardesty and Randy McMenamin. The namesake of the company, Jim Hardesty, retired from the firm in April of 2015 and passed away the following month. In explaining the name change, Chad Meyer, President of the firm remarked “The Hardesty name will always connote trust, financial acumen and a deep devotion to our clients. We feel strongly, however, that the contributions of all of our employees, and not just those of our co-founder, be reflected in our corporate name. While Jim Hardesty’s legacy and invaluable contribution to our organization will live on, we believe that a new name will best represent our entire firm as we move forward.”
The Tufton Capital Management name was selected after a thorough evaluative review and was ultimately voted on unanimously by the entire firm. The offices of Tufton Capital, a 13 person firm, overlook the beautiful Tufton Valley of northern Baltimore County. The company will celebrate their 21st anniversary this year.
Tufton Capital Management is an independently owned wealth management and investment advisory firm located in Hunt Valley, Maryland with nearly $1 billion in assets for individual clients and institutions. The 13-person firm, founded in 1995, provides a value-oriented investment approach to high net worth individuals, families and institutions.
For more information, please contact Dana Metzger Cohen or Karen Evander at Clapp Communications at 410-561-8886 or dana@clappcommunications.com or evander@clappcommunications.com.
What’s On Our Minds:
Recently, equity markets have been volatile and wild intra-day price swings have many investors on the edge of their seats. In times like these, it’s more important than ever to stick to your guns and focus on your long term portfolio. In this sort of environment, we are reminded of Ben Graham’s “Mr. Market” whose view on an individual company’s share price changes from wildly optimistic one day, to overly pessimistic the next. According to Graham, the only way to beat Mr. Market was to perform fundamental analysis on a company to determine it’s fair market value and trade shares with Mr. Market accordingly. This oversimplified version of investing rings true today.
Last Week’s Highlights:
Last week was a breath of fresh air for investors as stocks rose out of correction territory. We saw the best week of the year with the Dow up 2.6%, the S&P 500 up 2.8% and the Nasdaq up 3.9%. Crude oil prices rallied last week on news that Saudi Arabia and Russia would agree to freeze production levels as long as other countries agree to participate. The Federal Reserve said that they would not change their economic outlook for the year but would keep a close eye on the global economy and developments in both the energy and stock markets.
Looking Ahead:
We will be monitoring economic and company data this week as we reach the end of 4th quarter earnings season. On Tuesday, January Existing Home Sales will be reported and J.M. Smuckers, Home Depot, and Macy’s will report earnings. On Wednesday we will see results from Target, HP, and Lowe’s followed by Campbell’s Soup, Best Buy and Kraft Heinz on Thursday. Finally, on Friday, J.C. Penney and EOG Resources will report their 4th quarter results and we will get a look at January’s consumption and personal income levels.
What’s On Our Minds:
Early Tuesday morning, it was announced that four oil producers (importantly Saudi Arabia and Russia) will “freeze” oil production levels. Though this may seem as a sign of higher oil prices, production levels for both the world’s largest producers were at an all-time high in January. However, a compromise among these producers appears to be an apparent sign of financial stress in these commodity dependent economies. If the price of oil does not stabilize or move higher, additional deals could be on the table. Furthermore, the markets have been consistently focused the price of oil as investors have increasingly been quick to sell their stock positions when the oil price declines.
Last Week’s Highlights:
Stocks rallied on Friday before the long-weekend as West Texas Intermediate crude oil had the largest daily gain since February of 2009. Nevertheless, markets were still down for the week without a clear catalyst for a global selloff. Investors cited a multitude of reasons for the market turmoil. The list included, but was not limited to Federal Reserve Chairman Janet Yellen’s observation that she was not in a hurry to raise interest rates, investors taking money out of China due to an economic slowdown, fear of slowing growth in United States, and additional in declines the price of oil. As a result of Chairman Yellan’s view for lower for longer interest rates, the financial stocks were the worst performers declining 2.4% on the week.
Looking Ahead:
This week, investors’ eyes will be on data for January housing starts and building permits on Wednesday morning. Housing starts have recently been hurt by harsh winter weather around the country. Following housing data, investors will get a gauge of the industrial sector with the release of Industrial Production. Output has been in decline since the beginning of the fall in the price of oil in mid-2014. And lastly, it will be hard to forget about South Carolina Republican Primary this weekend. This Primary is historically known for dirty politics – get your popcorn ready.
