by John Kernan
Many of our clients have been asking questions about the (real or imagined) “peaking” of the market. They have seen one of the longest continuous bull markets in history and are telling themselves that the party must end sometime. One of the more confusing pieces of this puzzle is the role of the Federal Reserve and its interest rate policy. The Fed plays a delicate game with interest rates. It seems like the markets live or die by the Fed’s moves, and what the Fed does with rates has real consequences for all kinds of investors and businesses.
What is the “game,” exactly? What makes an interest rate “too low”? Wouldn’t we want the economy to grow as much as possible, all the time?
by John Kernan
We believe automation in factories, self-driving big rigs, self-driving cars, drones, automated warehouses, and countless more are going to reshape retail and the economy of this and every country in the world. This is a long-term view, but we believe it is not as long-term as one might think. The ripple effects will be profound. For example, the occupation of “truck driver” holds a plurality in every or almost every state in this country. Entire towns have sprung up and have economies based on truck stops (think Breezewood, PA). What’s more, artificial intelligence has advanced to a point where the technologies that IBM and Google have right now would have been science fiction just a decade ago. We at Tufton Capital tend to believe that the pace of this change is going to take large swathes of the population by surprise (including the government).
However, the interplay and timing of these factors are impossible to predict. We have seen the rise of populism and a leader who may not consider the long-term economic consequences of legislation and executive orders. For instance, say that Amazon and Uber are successful in driving truck drivers out of the supply chain. There are an estimated 3.5 million professional truck drivers in the country, and 8.7 million employed in the trucking industry. Suddenly we would have millions of former truck drivers who focus their blame on Amazon for “taking their jobs.” Amazon might be broken up, or a restriction or onerous tax on self-driving technologies could be levied. None of this would ultimately prevent the march of technology, of course, but it would be very bad for Amazon, or whatever player finds itself at the receiving end of displaced workers’ ire.
We are not saying any of the above will happen to Amazon or Uber. In fact, those two companies have teams of the brightest innovators in their respective spaces (the other standout being Google). But these are examples of what could happen to any given company.
As it is right now, we can’t say who the winners and losers will be. In Tech, it seems that any company that has any modicum of proven “cloud” or “hyperscale data technology” gets immediately launched into the stratosphere of valuation by West Coast investors who also see these trends coming.
Our last caveat is timing. We are confident these changes are coming, but do not know when they will take hold.
A final macroeconomic point is that the Roald Dahl-inspired idea that these workers can “get new jobs programming the trucks” is misguided. First, it will take only a handful of programmers to maintain the code on an entire fleet of trucks. Second, those who are losing the trucking jobs are far from qualified to transition into advanced computer science applications. This shift in job requirements will create a massive amount of friction in the labor market, and unemployment will be inevitable.
So, what is the investment strategy? A general overweighting in the Tech sector might be warranted, but even something as broad as that would be exposed to political moves. We expect the digital revolution to be bumpy.
Greetings from Tufton Capital, where the summer heat is finally abating, the leaves are quickly changing, and—in keeping with Baltimore business etiquette—Fridays around the office are taking on a distinctly purple hue.
With the tumult of this summer’s “Brexit” ordeal now firmly in the rear view, market commentators are busy parading new boogeymen through the headlines. And in case you haven’t heard: there’s an election going on.
As a quick glance at the morning newspaper (or five minutes in front of the television) suggests, uncertainty over our country’s next president has crept into the financial sector. From corporate taxation, to industry regulation, to international trade policy and everything in between, the implications of the outcome on November 8th are keeping plenty of capital stuck on the sidelines.
To an extent, this “wait and see” approach is appropriate: as the Brexit episode adequately illustrated, divisive macro-economic events can prove troublesome to captains of industry and individual investors alike. Yet, to paraphrase the Brits themselves, our team here at Tufton Capital is taking a more measured approach to election jitters—by keeping calm, and by carrying on.
As strident fans of hard data, as opposed to political hysteria, we are encouraged by the fact that the current bout of hand-wringing in the marketplace is, from a historical perspective, entirely unremarkable. In fact, one could even go so far as to argue that 2016 is going well. Since 1928, the S&P 500 has dropped an average of 2.8% in election years such as this one, in which an incumbent does not seek re-election. So far this year, that same index is up over 6%—not too shabby, considering the sky is meant to be falling any day now!
Of course, that’s not the sort of information you’re likely to read with the mornings news. After all, positive thinking does not sell papers. But as faithful stewards of your hard-earned capital, we encourage you to remain calm, and perhaps even cautiously optimistic, as the din grows louder in the weeks ahead. No matter what happens on November 8th, we are confident that our thoughtful, time-tested, and emphatically long-term investment approach will prove fruitful through this election cycle…and through many more to come.
by Eric Schopf
The third quarter proved to be somewhat docile for the stock market when compared to the first and second quarters. There was no interest rate increase hangover like we experienced in January, and no Brexit panic that rocked the market in June. A total return of 3.85% for the three months leaves the S&P 500 up 7.84% for the year. The bond market was much more volatile. The 10-year U.S. Treasury started the quarter with a yield of 1.47%. Interest rates steadily climbed during the quarter and peaked at 1.69% on September 21st, the day the Federal Reserve released its meeting minutes. To put the increase in interest rates into perspective, investors buying the 10-year note at a yield of 1.47% at the beginning of the quarter would have lost 3.8% of their principal when rates reached their intra-quarter peak. This 3.8% is the equivalent of over two and one half years of interest income. With only ten years to collect interest payments, there is little margin for error. Interest rates have retraced some of their gains, and the 10-year Treasury closed the quarter at 1.58%. The Fed’s dovish stance, reflective of the low growth and low inflation environment, continues to keep interest rates low and stock prices high. The S&P 500 reached all-time highs through July and August.
Although the market was more placid during the third quarter, we continue to remain on high alert. S&P 500 earnings will likely fall for a sixth consecutive quarter as we close the books in September. Corporations have responded by reducing fixed investment and slowing the rate of hiring. Productivity has slipped when comparing wage growth to the growth in GDP. If the situation does not improve, we may see a shift from slow hiring, to no hiring, to outright layoffs as corporations take measures to maintain profitability. Despite the difficult earnings environment, the S&P 500 is down only 2% from the all-time high reached in August. Equity valuations, a function of earnings and prices, are stretched. Many corporations have supported the cause by leveraging their balance sheets to repurchase shares. For the first time since before the market correction of 2000, the market capitalization of U.S. stocks is close to 150% of GDP.
Accommodative monetary policy is having a profound impact on global bond and stock markets. However, alternative views are beginning to emerge on the usefulness of ultra-low, and in some cases, negative interest rates. Rather than spurring demand, we are finding that low interest rates lead to greater savings rates as rational individuals act to offset their drops in investment income. The Bank of Japan has shifted its monetary policy to move closer to a zero interest rate instead of a negative rate. The U.S., in a position to learn from Japan’s experience, is less likely to travel down the same negative interest rate path.
The third quarter may have been the calm before the fourth quarter storm. The presidential election has the potential to be the eye of that storm. If nothing else, the rise in Mr. Trump’s popularity is an indication that fiscal austerity has lost its punch. Many members of the electorate feel disenfranchised and are ready for change. Regardless of who wins, deficit control may give way to tax cuts and expanded benefits. The Federal Reserve would then have to reassess its accommodative position in the face of fiscal policy actually being expansionary instead of neutral or negative. Higher interest rates would shift the current tailwind into a headwind for richly valued stocks.
The changing economic and political landscape has kept us busy this year. As you have noticed in your portfolio, we have sold or reduced numerous stocks over the past nine months. As always, we have been cautious and selective when buying new positions and adding to existing names. We took the opportunity in mid-September to increase bond positions in balanced portfolios when interest rates moved higher leading up to the Federal Reserve Open Market Committee meeting. Given the uncertainty that prevails and the solid equity returns, our focus has been to maintain asset allocation targets in the face of risk.
by John Kernan
We have held shares of Intel (Ticker: INTC) for many years at Tufton Capital. Intel has undergone fundamental changes and continues to adapt to the future of computing. We think that these changes merit a closer look at what is a trophy company.
Intel is the leader in its field, has a strong balance sheet, and carries an above-market yield. Furthermore, Intel is the greatest second-party beneficiary to the automation as well as the “Internet of Things” (having many types of devices connected to the Internet), trends that are coming more quickly than many realize.
We believe that the addition of more high-performance computers in daily life (e.g., cars and trucks) and the exponentially expanding need to process all of this data in large datacenters will create a huge market opportunity for Intel.
While the excitement around self-driving cars seems like a lot of hype, Intel has put down some convincing numbers for us to consider. In ten years, Intel estimates cars will need to process 250 gigabytes (GB) per second of data. For scale, an iPad holds in total 32-128 gigabytes of data. Other areas, such as manufacturing, will also adopt large-scale processing and automation. Furthermore, by 2020, Intel estimates each self-driving car will generate 4000 GB of data per day. All together, it believes that self-driving technology will require $2000-3000 worth of silicon in every car. How many cars will get this amount of silicon? The low end of Intel’s estimate for 2020 is 100 million cars in the total addressable market. That sounds like a lot, but we must remember that there are ~1.3 billion vehicles on the road today.
Some of the growth in these segments is likely priced in to the stock, especially vis-à-vis the declining PC market. However, the current valuation does not look stretched by any means, and the PC market’s decline seems to be slowing. We believe that this decline of Intel’s legacy market has led to a severe depression in the valuation given to the Client Computing segment. While the segment’s current customer base (Dell, HP, etc.) is in decline, the same infrastructure can be used for Intel’s growth markets. We believe that the stock, while not depressed to the point we would recommend buying more, is at least in part undervalued.
We are recommending that clients continue to hold Intel. It is already a significant holding in our accounts. We will continue to watch valuation and developments in the semiconductor chip industry, but we do not anticipate recommending a sale of the stock in the near future.
by Rick Rubin
The U.S. economy has grown for seven consecutive years since the Great Recession ended in 2009, marking one of our country’s longest economic expansions ever. It’s reasonable to conclude that this level of growth would have satisfied investors, workers, retirees and politicians alike. Unfortunately it hasn’t, due to factors like record low interest rates weighing on savers and retirees, as well as growing income and wealth inequality. In general, individuals at the top of the income scale have enjoyed higher real wage growth as compared to the rest of workers. In fact, real median U.S. household income peaked in 1999 and remains well below that level today. The struggle of the middle class has given rise to populist messengers… enter Donald Trump and Bernie Sanders.
We believe that U.S. investors have fared well given the challenges of uneven global growth, a strong U.S. dollar, and declining corporate profits. After all, investment returns have been strong since the financial crisis ended, with the S&P 500 and Dow Jones Industrial Average Indexes reaching all-time record highs in August. What accounted for the disparity between positive investment returns and consistently sub par economic growth? In our opinion, corporate capital allocation decisions have been, and may continue to be, a significant driver of both.
Public companies have a fiduciary responsibility to maximize shareholder returns. The management team decides how to allocate profits and what level to reinvest back into the business. For example, companies may increase capital spending (plants and equipment), raise workers’ wages, and step up hiring. Such investments should boost future profit growth and the economy over time. Unfortunately, many companies are holding off on long-term investments because of deep scars from the financial crisis. Instead, managements have increasingly selected a “safe path” by returning profits to shareholders through stock buybacks and dividends. Stock buybacks rose to $561 billion in 2015, a 40% increase from the prior year and the highest since 2007’s $721 billion.
At Tufton Capital Management, we are value investors, and we believe dividends and share buybacks are crucial to an investor’s returns. However, we believe many companies have relied too heavily on buybacks and dividends and have underinvested in their businesses, reducing growth prospects. How did we get here? Stock buybacks reduce the number of shares on the market and increase a company’s earnings per share (EPS) without the risk inherent in a new project. Further, companies are happy to leverage the balance sheet with cheap debt used to buy back more stock. Buybacks were a great use of cash when stock prices traded at a discount coming out of the financial crisis. But the market appears fully valued now, and there should be better uses of capital available to many companies.
In our view, company buybacks are a main source of the current demand for U.S. stocks. Buybacks have provided support for stock prices in the face of weak global growth and five consecutive quarters of year-over-year EPS declines for S&P 500 companies. Fortunately, stock buybacks have started to slow. Quarterly buybacks declined nearly 7% in 2Q 2016– the smallest quarterly buyback amount since 3Q 2013. We believe it’s time for companies to move away from stock buybacks and to start reinvesting in their business for long-term growth!
Before cashing out a profitable investment, consider making efficient use of its full value by donating it directly to charity.
Charitable giving provides donors with tax relief every tax season in the form of deductions. In an effort to encourage positive social action, the IRS provides incentives for all kinds of charitable contributions, from monetary donations to used cars. You can even donate your appreciated securities (stocks, bonds, mutual funds, etc. that have risen in value) to the charity of your choice. Long-term appreciated securities are the most common non-cash donations, and they can be the best way for donors to give more to their chosen charities. The tax advantages to donating stocks are such that both the donor and the charity benefit.
What are the benefits?
Donating appreciated securities yields two tax benefits for the donor. The first tax benefit is the elimination of capital gains tax. Normally when you sell an appreciated stock, you pay capital gains tax on the amount your securities have increased in value since being purchased. For example, if you bought stocks for a total of $1,000 and then sold them years later for $5,000, you would owe capital gains tax on $4,000 of income from the sale. This tax can add up significantly depending on what tax bracket you fall under, how many stocks you sell and how much they’ve appreciated over time. When you donate appreciated securities, however, you don’t owe any capital gains tax, no matter how much they’ve increased in value. The charity receiving your donation is free from capital gains tax on your contribution as well.
Tax Deductions
The second tax benefit is writing off the donation on your tax return. As long as you itemize, you can deduct charitable contributions on your return, and the more you donate, the more you can deduct. In this case, you’ll be donating more since you can donate the entire value of the asset, not the value minus taxes. Thus, your tax write-off will be greater. In other words, you can take a charitable deduction on money that hasn’t been taxed. This also benefits the charity, because they’ll get a larger donation than they’d otherwise receive.
There is a limit to how much you can deduct for charitable contributions, which varies depending on what you’re giving and what organization you’re donating to. Most organizations are subject to a 50 percent limit, meaning your charitable tax deduction cannot exceed 50 percent of your adjusted gross income. Other organizations have a 30 percent limit. You can check with the IRS or ask the organization themselves to be sure. These limits apply to monetary charitable donations. If you’re donating appreciated securities, the limits change; a 50 percent organization’s limit becomes 30 percent for appreciated securities, and a 30 percent organization’s limit moves to 20 percent.
Reducing Risk
Another benefit to donating your appreciated securities is reducing risk in your portfolio. If too much of your portfolio is dedicated to a certain kind of investment, your risk increases because your portfolio is less diversified, so your assets are all relying on that one kind of investment to succeed. To decrease that risk, you’d normally have to sell the stocks and pay capital gains taxes. Donating them, on the other hand, is a tax-free way to rebalance your portfolio.
The Details
To make this type of donation, it’s important to examine the details and learn the nuances that apply to these particular tax benefits:
• In order for a security to apply, you must have owned it for at least one year prior to donating. If not, your charitable deduction would be limited to the security’s original cost.
• If your stock is worth less now than when you bought it, donating it directly to charity won’t help you or the charity—you’d be better off selling it first, deducting the loss and gifting your charity with a cash donation.
• Not all charities can and will accept stock donations, especially small ones. Make sure your chosen charity can accept your donation ahead of time.
If you have applicable stocks, bonds or mutual fund shares and want to maximize your tax benefits, donating them to a charitable organization is one of the best things you can do. You’ll save money in taxes, the charity will receive more in donations and it’s all completely legal. The IRS creates these incentives to encourage charitable contributions, so consider taking advantage by including appreciated securities in your charitable giving strategy. n
This article was written by Advicent Solutions, an entity unrelated to Tufton Capital Management. The information contained in this article is not intended for the purposes of avoiding any tax penalties. Tufton Capital Management does not provide tax or legal advice. You are encouraged by your tax advisor or attorney regarding any specific tax issues. Copyright 2013 Advicent Solutions. All rights reserved.
Last Week’s Highlights:
Wall Street closed out a tough week, as fear returned to the markets, fed by rising Covid-19 cases, no relief bill and the upcoming election. Third quarter earnings season continued with mixed results. On the economic front, gross domestic product (GDP) rose 7.4% in the third quarter. While this is a strong number, the result followed a 9% plunge in GDP in the previous quarter. For the week, the Dow Jones Industrial Average (DJIA) lost 1,844 points, or 6.5%, to 26,502, while the S&P 500 fell 5.6% to 327. The tech-heavy NASDAQ tanked 5.5%, closing at 10,012. Merger mania continued with numerous acquisitions and mergers announced. Chip maker Advanced Micro Devices (AMD) agreed to pay $35 billion in stock for Xilinx (XLNX). In a second chip deal, Marvell Technology Group (MRVL) announced that it would pay $10 billion for Inphi (IPHI). LVMH Moet Hennessy Louis Vuitton and Tiffany (TIF) neared an agreement on a price reduction for their contentious $16.6 deal.
Looking Ahead:
Third-quarter earnings season continues with a number of S&P 500 components releasing results this week, including Clorox (CLX), Ingersoll-Rand (IR), Mondelez International (MDLZ) and SBA Communications (SBAC) on Monday. The Institute for Supply Management announces its Manufacturing Purchasing Managers’ Index for October – consensus estimates call for a 56 reading, just above September’s print. Eaton (ETN), Emerson Electric (EMR) and McKesson (MCK) report financial results on Tuesday. Americans head to the voting booths on Election Day – the latest polls lean towards a Biden presidency, a Democratic House of Representatives and a close-call for control of the Senate. Wednesday brings earnings reports from MetLife (MET), Qualcomm (QCOM), Expedia Group (EXPE) and Public Storage (PSA). ADP releases its National Employment Report for October – economists forecast an increase of 875,000 in private-sector employment, up from September’s 749,000 increase. Thursday is the busiest day of the week for earnings reports, including results from Alibaba Group Holding (BABA), Cardinal Health (CAH), Uber Technologies (UBER), Zoetis (ZTS), and many more. The Federal Open Market Committee (FOMC) announces its monetary-policy decision – the central bank is expected to keep the federal-funds rate near zero until at least 2023 to boost the economy. American International Group (AIG), CVS Health (CVS) and Marriott International (MAR) release financials on Friday.
All of us at Tufton Capital wish you a safe and healthy week.
Last Week’s Highlights:
Wall Street brushed off the uncertainties around the economic recovery and finished the week higher on optimism that Congress will reach a deal on the next coronavirus-relief bill. Continued merger activity drove stocks higher much of the week before finishing lower on Friday in the wake of the president’s positive Covid-19 test. On the economic front, the U.S. economy added 661,000 jobs in September (about 200,000 short of projections), marking a slowdown in the pace of job gains. The unemployment rate, however, came in better than expected at 7.9% last month, down from 8.4%. For the week, the Dow Jones Industrial Average (DJIA) rose 509 points, or 1.9%, to 27,683, while the S&P 500 gained 1.5% to 3348, ending four-week losing streaks. The NASDAQ advanced 1.5%, closing at 11,075.
Looking Ahead:
Cisco Systems (CSCO) and Nvidia (NVDA) report quarterly earnings results on Monday. The Institute for Supply Management releases its Services Purchasing Managers’ Index for September – economists forecast a 56.1 reading, slightly below the August print. Levi Strauss (LEVI) and Paychex, Inc. (PAYX) release financials on Tuesday, and the Census Bureau announces the trade deficit for August – expectations are for a $66.6 billion trade deficit, in-line with the July data. Federal Reserve Chairman Jerome Powell gives the keynote address at the 62nd annual National Association for Business Economics meeting, which will be held virtually. Wednesday brings earnings reports from Lamb Weston Holdings (LW), and Costco Wholesale (COST) reports September sales data. The Federal Open Market Committee releases minutes from its monetary policy meeting in mid-September. Analog Devices (ADI) and Maxim Integrated Products (MXIM) hold shareholder meetings Thursday to seek approval for their proposed merger, first announced in July. The Department of Labor releases initial jobless claims for the week ending October 3rd – weekly jobless claims averaged 867,250 in September, the lowest level since February. Duke Energy (DUK) hosts a virtual ESG Investor Day on Friday.
All of us at Tufton Capital wish you a safe and healthy week.
Last Week’s Highlights:
Wall Street closed out its worst week since June with another volatile trading day on Friday, as big technology stocks continued to weaken after their huge gains in recent months. Shares of Apple (AAPL), Facebook (FB), Microsoft (MSFT) and Alphabet (GOOG) fell 4% or more last week, weighing on the broader market. The swings in tech stocks have been especially alarming because of their outsize influence on the stock market’s gains this year. The market’s climb over the summer was largely fueled by a handful of tech companies that are expected to benefit from the stay-at-home economy created by the coronavirus pandemic. For the week, the Dow Jones declined 468 points, or 1.7%, to 27,666, while the S&P 500 fell 2.5% to 3341. The NASDAQ lost 4.1%, closing at 10,854. Oil prices fell to their lowest level since June.
Looking Ahead:
Most S&P 500 components are done with their Q2 earnings releases, so the week ahead will be especially focused on economic data rather than company-specific results. Lennar (LEN) reports quarterly earnings results on Monday, and Pfizer (PFE) hosts a two-day virtual investor day to discuss its pipeline of drugs. Adobe (ADBE) and FedEx (FDX) release financials on Tuesday. The Bureau of Labor Statistics (BLS) reports export and import prices for August – economists forecast a 0.4% month-over-month rise in export prices, compared with a 0.8% gain in July. On Wednesday, The Federal Open Market Committee (FOMC) announces its monetary-policy decision – the Committee is expected to stand pat with interest rates near zero. Thursday brings the Department of Labor’s report of initial jobless claims for the week ending on September 12th – weekly jobless claims remain elevated historically but have fallen from an average of 1.5 million in June to 992,250 in August. The University of Michigan releases its Consumer Sentiment Index for September on Friday – expectations call for a 75.5 reading, slightly ahead of August’s 74.1 print.
All of us at Tufton Capital wish you a safe and healthy week.
Last Week’s Highlights:
U.S. equity markets finished higher last week and are on track for the best August performance since 1984. The Dow Jones Industrial Average (DJIA) announced a shake-up to its components, swapping out Exxon Mobil (XOM), Raytheon Technologies (RTX) and Pfizer (PFE) for Salesforce.com (CRM), Amgen (AMGN) and Honeywell (HON). This comes after Apple’s (AAPL) 4-for-1 stock split, which reduces the index’s exposure to information technology. Federal Reserve Chairman Jerome Powell led off a virtual economic summit in Jackson Hole and presented a change in the Fed’s policy on inflation, a move that could possibly lead to an extended period of low interest rates. For the week, the Dow Jones rallied 723.54 points, or 2.6%, to 28,653.87, while the S&P 500 rose 3.3% to 3508.01. The NASDAQ gained 3.4%, closing at 11,695.63. The S&P is up nearly 52% since the bear market bottom on March 23rd and has risen over 8% for the year.
Looking Ahead:
Zoom Video Communications (ZM) reports quarterly results on Monday – the company has been a beneficiary of the work-at-home movement, and continued solid results are expected by Street analysts. H&R Block (HRB) announces financial results on Tuesday. The Census Bureau releases construction spending data for July – expectations are for a 1% monthly gain in construction spending, to a seasonally adjusted annual rate of $1.36 trillion. Wednesday brings earnings releases from Five Below (FIVE) and Brown-Forman (BF). ADP announces its National Employment Report for August – total non-farm private sector employment is expected to rise by 1.1 million after adding 167,000 jobs in July. Broadcom (AVGO), Campbell Soup (CPB) and DocuSign (DOCU) announce financial results on Thursday. The Institute for Supply Management reports its Services Purchasing Managers’ Index for August – economists call for a 57.8 reading, in-line with the previous two months’ data. The Bureau of Labor Statistics (BLS) releases the jobs report for August on Friday – estimates call for the economy to add 1.5 million nonfarm jobs, following a 1.76 million rise in July.
All of us at Tufton Capital wish you a safe and healthy week.
Last Week’s Highlights:
U.S. equities were higher last week across various indexes, as stocks were helped by encouraging employment numbers. Nonfarm payroll employment climbed by a stronger-than-expected 1.8 million in July. That was lower, however, than the 4.8 million and 2.7 million totals for June and May, respectively. Earning season continued with 82% of S&P components exceeding analyst forecasts so far this quarter, well above the 71% average during the past four quarters. Corporate America has held up better than many expectations according to these relatively upbeat results. For the week, the Dow Jones Industrial Average (DJIA) rallied 1,005.16 points, or 3.8%, to 27,433.48, while the S&P 500 rose 2.5% to 3351.28. The NASDAQ gained 2.5%, closing at 11,010.
Looking Ahead:
Second-quarter earnings season continues as a number of S&P 500 components release results this week beginning with Duke Energy (DUK), Marriott International (MAR) and Simon Property Group (SPG) on Monday. The Bureau of Labor Statistics (BLS) reports its Job Openings and Labor Turnover Survey for June – economists call for 5.1 million job openings on the last business day of June, down from 5.4 million in May. Sysco (SYY) announces financial results on Tuesday. The BLS releases the producer price index (PPI) for July, which is expected to rise 0.2% month over month after falling 0.2% in June. Wednesday brings earnings releases from Cisco Systems (CSCO) and Lyft (LYFT). The BLS releases the consumer price (CPI) data for July – consensus estimates call for a 0.7% rise from last year’s number. Applied Materials (AMAT), Baidu (BIDU) and Brookfield Asset Management (BAM) report financials on Thursday. On Friday, the Census Bureau announces retail sales data for July – economists forecast a 2% monthly rise in retail sales.
All of us at Tufton Capital wish you a safe and healthy week.
Last Week’s Highlights:
U.S. equities declined modestly last week, while long-term bond yields approached record lows. The S&P 500 turned positive for 2020 briefly before pulling back on escalating concerns over U.S/Chinese trade tensions. Initial jobless claims increased last week (to 1.4 million) for the first time since March, raising worries that the economic recovery may be starting to stall. For the week, the Dow Jones Industrial Average (DJIA) slipped 202.06 points, or 0.8%, to 26,469.89, while the S&P 500 declined 0.3% to 3215.63. The NASDAQ fell 1.3%, closing at 10,363.18.
Looking Ahead:
We’re in the thick of second-quarter earnings season, as many S&P 500 components release results this week beginning with F5 Networks (FFIV), Hasbro (HAS) and SAP (SAP) on Monday. The Census Bureau reports the Durable Goods number for June – expectations call for a 5.5% rise in new orders for durable manufactured goods, to $205 billion, after a 15.7% jump in May. Tuesday is packed with earnings as we’ll see financial results from 3M (MMM), Advanced Micro Devices (AMD), Altria Group (MO), Mondelez International (MDLZ), Raytheon Technologies (RTX) and others. The Conference Board releases its Consumer Confidence Index for June – economists look for a 95.5 reading, slightly below May’s 98.1 print. Wednesday brings earnings from Boeing (BA), Crown Castle International (CCI), General Electric (GE), Qualcomm (QCOM), among others. Alphabet (GOOG), Amazon.com (AMZN), Apple (AAPL), Ford Motor (F) and Procter & Gamble (PG) are among many companies releasing second-quarter financial results on Thursday. The Bureau of Economic Analysis reports gross domestic product (GDP) for the second quarter – consensus estimates call for a decline of 34% after a 5% decline in the first quarter. The business week ends with earnings reports from AbbVie (ABBV), Caterpillar (CAT), Chevron (CVX) and Exxon Mobil (XOM) on Friday. The Institute for Supply Management reports its Chicago Purchasing Manager Index for July – economists look for a 42 reading, above June’s 36.6 print but still below the expansionary level of 50, which the index hasn’t surpassed since last summer.
All of us at Tufton Capital wish you a safe and healthy week.
Last Week’s Highlights:
U.S. equities finished higher, capping the shortened July 4th holiday week. The second quarter came to a close on Tuesday with stocks all-but reversing the pandemic-related weakness experienced earlier in the year. The Dow Jones Industrial Average (DJIA) had its best quarter on record since 1987, closing up 17.8% in Q2. For the week, the DJIA rallied 811.81 points to 25,827.36, while the S&P 500 rose 4.0% to 3130.01. The tech-heavy NASDAQ increased 4.6%, closing at 10,207.63, an all-time high.
Looking Ahead:
The Institute for Supply Management releases its Non-Manufacturing Purchasing Managers’ Index for June on Monday – economists forecast a 54.5 reading, a return above the expansionary level of 50 after two months below it. Levi Strauss (LEVI) and Paychex (PAYX) report quarterly results on Tuesday. The Bureau of Labor Statistics announces its Job Openings and Labor Turnover Survey for May – estimates call for 4.9 million job openings on the last business day of May, down from five million in April. Wednesday brings earnings results from Bed Bath & Beyond (BBBY) and MSC Industrial Direct (MSM). Costco Wholesale (COST) releases sales results for June. The Federal Reserve reports consumer credit data for May – forecasters expect outstanding consumer credit to decline for a third month in a row. Walgreens Boots Alliance (WBA) reports fiscal third-quarter results on Thursday. On Friday, the Bureau of Labor Statistics releases its producer price index (PPI) for June – estimates call for a 0.4% monthly gain, which would match May’s increase.
All of us at Tufton Capital wish you a safe and healthy week.
Last Week’s Highlights:
U.S. equities started the week on a positive note, as business re-openings continued throughout the country and solid economic news helped boost investors’ moods. The rally was short-lived, however, as rising COVID-19 case numbers were reported across the Sunbelt. Bank stocks were hit late in the week after an unfavorable result in the Federal Reserve’s latest stress test. An advertiser boycott at Facebook (FB) dragged down the market and especially hurt large technology stocks. For the week, the Dow Jones Industrial Average (DJIA) fell 855.91 points to 25,015.55, while the S&P 500 dropped 2.9% to 3009.05. The tech-heavy NASDAQ declined 1.9%, closing at 9757.22.
Looking Ahead:
Micron Technology (MU) releases fiscal third-quarter numbers on Monday. The National Association of Realtors reports its Pending Home Sales Index for May – economists forecast a sharp rebound of 25%, to an 89 reading. Conagra Brands (CAG) and FedEx (FDX) announce their financial results on Tuesday. The Conference Board releases its Consumer Confidence Index for June – expectations call for a 90 level, up from 86.6 in May. Wednesday brings earnings reports from General Mills (GIS) and Constellation Brands (STZ). The Federal Open Market Committee reports the minutes of its June monetary-policy meeting. ADP releases its National Employment Report from June – economists expect a gain of 2.9 million private-sector jobs, a large improvement over May’s 2.8 million drop. On Thursday, the Department of Labor reports on initial jobless claims for the week ended on June 27th – jobless claims have fallen for 12 consecutive weeks since peaking at 6.9 million in late March. U.S. equity and fixed-income markets are closed Friday in observance of Independence Day.
All of us at Tufton Capital wish you a safe and healthy week.
