Market Minutes for the week of April 1st:
“Baseball is like church. Many attend, few understand.” – Leo “The Lip” Durocher
Here’s what I am thinking and hearing: *1.) The 1st quarter is in the books and it was a good one! The S&P 500 notches its best start to a new year since 1998, up 13.1%. The DJIA gained 11.2% and the NASDAQ was higher by 16.5%. WTI crude oil rose 32% in the 1st quarter, its biggest gain since 2009. *2.) Jim Cramer: “Of the many remarkable aspects of this incredibly bullish first quarter, the one that stands out to me is the public’s amazing, headlong rush OUT of stocks and into bonds. That’s right, the figures I have so far for the first quarter show $118 billion into bonds and $60 billion coming out of stocks.” *3.) Daniel Ivascyn is the chief investment officer of the Pacific Investment Management Company, otherwise known as Pimco, and is responsible for the world’s largest bond fund. According to MarketWatch, Ivascyn says by Pimco’s own estimation, “the risk of a domestic economic contraction this year is limited, even if recent data hint at some weakness taking hold…Treasury investors’ increased pessimism over the U.S. economic outlook comes despite ultralow unemployment rates and a global economy that he believes will be steady in 2019…‘Given where our unemployment rate is currently, [a recession], holding all else equal, shouldn’t be much of a concern. When we look at the yield curve shape relative to our economic outlook, [the yield decline] is a bit overdone at least on the short-term.’” *4.) The stupidest idea ever (paraphrased from an editorial by Steven Guilfoyle): Enter Senator Ron Wyden, Democrat-Oregon. The Senator, who is the top-ranking Democrat on the U.S. Senate’s tax writing committee, would like you to pay tax (at ordinary income tax rates) every year on unrealized capital gains, rather than how the law is currently constructed where one pays tax on a profit when they actually sell the asset (a realized gain). The top capital gains rate is 23.8% and the top ordinary income tax rate is 37%…for good reason. The discount on the capital gains tax is needed to incentivize and encourage investment and helps offset the effects of inflation on an asset held long term. Senator Wyden, what if I had paid tax on the unrealized gain on an asset I held for years and suddenly December 2018 comes along and wipes out my gain in mere days? I have paid tax year after year on the asset which now sits at a loss. Boy, sign me up for that kind of risk?! No way! Guilfoyle: “I think that this plan would obviously drive investment and financial planning down to standstill levels for obvious reasons. On top of the overt negative impact that this would have on the national standard of living, it would likely destroy an industry.” *5.) From the front lines of the trade war: China’s Caixin/Markit Manufacturing Purchasing Managers’ Index increased unexpectedly to 50.8 in March. New orders rose to their highest level in four months while new export orders moved into expansionary territory. According to Trump economic advisor Larry Kudlow, the Chinese have now acknowledged the issues of hacking and IP theft as the trade talks move on. U.S. Chamber of Commerce executive Myron Brilliant (tough last name to live up to) said that “ninety percent of the [trade] deal is done, but the last 10% is the hardest part.”
ADP and Moody’s Analytics said that private payrolls rose by 129,000 in March vs economists’ expectations of 173,000 jobs. “All of the gains came from the services, which increased 135,000, while goods-producing industries lost 6,000 workers. A decline of 6,000 in construction and 2,000 in manufacturing was offset by a 2,000-job increase in natural resources and mining”, according to CNBC.
The Labor Department said that the U.S. economy created 196,000 new nonfarm payrolls in March. Hiring picked up across most major segments of the economy, most notably in healthcare and white-collar firms. Construction added 16,000 new jobs. Overall wages gained by 0.1%. The rebound in employment should fade the recession talk.
The outplacement firm Challenger, Gray & Christmas said that job layoffs hit 190,410 in the first quarter, a 35.6% increase over the previous year and the worst 1st quarter since 2009. The auto industry leads the way with 8,838 layoffs, followed by energy with 8,149 cuts.
The Chicago Purchasing Managers’ Index (PMI) for March fell to 58.7 from 64.7 in February. A reading above 50 indicates an expansion of the manufacturing sector.
The Commerce Department reported that sales of new homes for February rose by 4.9% from January for a seasonally adjusted annual pace of 667,000 units. The median price of a new home was $315,300.
The Census Bureau announced that construction spending rose by 1% in February, the third monthly increase in a row. January’s construction spending rose by 2.5%.
Realtor.com has stated that the median value of homes listed for sale in March hit a record at $300,000. “The number of homes for sale that were listed above $750,000 increased by 11% year over year in March, while the number of entry-level homes priced $200,000 or below fell 9%”, reports CNBC.
The Commerce Department said that consumer spending (which accounts for two-thirds of GDP) increased by 0.1% in January as households cut back on automobile purchases. Personal incomes rose by 0.2% in February.
The Commerce Department also said that U.S. retail sales fell by 0.2% in February as households cut back on purchases of furniture, clothing, food, electronics and appliances. Sales of building and gardening equipment were also weak.
The Commerce Department went on to say that U.S. business inventories climbed by 0.8% in January for the second month in a row. Inventory builds are a positive contributor the GDP.
The Commerce Department added that U.S. durable goods orders fell in February by 1.6%, the first decline in 4 months. Slowing was the most prominent in bookings for commercial aircraft and defense-related hardware. Ex transportation, orders were higher by 0.1%.
The Institute for Supply Management (ISM) reported that its manufacturing index rose to 55.3% in March from 54.2% in February.
The Institute for Supply Management (ISM) also reported that its services index for March fell to 56.1, the weakest print since August of 2017.
San Francisco Fed president Mary Daly said that she’s not “freaked out” by the yield curve inversion. Daly said, “Declining unionization – along with increased automation and globalization – have made it harder for workers to push for higher pay, even in very healthy job markets…This means they [firms] have a harder time passing along rising costs, such as wages, to final goods prices.”
German factory orders in February fell by 4.2% month over month far worse than the estimate of a modest increase of 0.3%. On a year-over-year basis, German factory orders dropped by 8.4%, the ninth straight month of declines and the most since 2009.
TripAdvisor has released its annual list of the best airlines in the world according to its customers. The top five in order are: Singapore Airlines, Qatar Airways, EVA Air, Emirates and Japan Airlines. The best U.S. and North American airline: Southwest. The best first class: Emirates. The best business class: Qatar Airways. The best premium economy: Air New Zealand. The best economy: Singapore Airlines.
According to AP, a Lithuanian man Skirmantas Strimaitis was flying from the capital Vilnius to Bergamo, Italy for a ski vacation and received a pleasant surprise when he boarded the plane: He was the only passenger on the Boeing 737-800. Beside himself, there were two pilots and five crew members. “The Novaturas travel agency said that it had chartered the plane to fly a group home from Italy, and to avoid flying empty, one-way tickets were sold. Only one person bought one”, reports MarketWatch.
According to Edmunds, the average interest rate on a new-vehicle loan hit its highest level in a decade in March. The APR on a new financed vehicle was expected to hit 6.36% compared to 5.66% in March of 2018 and 4.44% five years ago. About 4% of all financed deals carried a zero-percent interest rate.
According to Bloomberg, “a wine collection of almost 17,000 bottles from a single cellar – including grand cru Burgundies and first-growth Bordeauxs – has sold for $29.8 million at auction, Sotheby’s said. Although Sotheby’s hasn’t disclosed the seller’s identity, there are hints in the catalog. The collector is described as a fifth-generation property developer, and the preponderance of Burgundies suggest a younger collector as older ones have favored Bordeaux, says Sarah Heller, a master of wine at Heller Beverage Consultancy.”
According to a report by marijuana delivery platform Eaze, the number of baby boomers consuming legal cannabis grew by 25% last year. The report goes on to say that boomers are also “the biggest spenders by a fairly wide margin,” spending in excess of $95 per month on weed, 53% more than Gen Z’ers ages 21-24 years old. One reason their per person spending is so high: medical marijuana says Laura Hersch Nicholas, assistant professor in the Bloomberg School’s Department of Health Policy at Johns Hopkins.
Chicago-based Cresco has purchased Canadian cannabis producer Origin House for C$1.1 billion or $825.9 million U.S. and represents the largest public company acquisition in the history of the U.S. cannabis industry.
First quarter car sales numbers are in and most major automakers reported declines. GM -7% year over year. Nissan -12%, Toyota -5%, Fiat Chrysler -3% and Honda +4.3%. Ford’s 1st quarter sales were down by 1.6% (cars -23.7%, SUVs +5.0% and trucks +4.1%).
Constellation Brands will sell roughly 30 brands from its wine and spirits portfolio and related facilities to E. & J. Gallo for $1.7 billion. Brands include Clos du Bois, Black Box, Mark West. Mondovi, Prisoner, Kim Crawford, Ruffino, Meiomi and SVEDKA Vodka are not included in the sale.
Starting Wednesday, Whole Foods will slash prices by an average of 20% on hundreds of items as the grocer looks to rebrand its “Whole Paycheck” image.
According to the Wall Street Journal, Apple Music has passed Spotify in total number of U.S. subscribers. Apple Music has 28 million paying subscribers and Spotify has 26 million.
Bloomberg says that Amazon has plans to make an Apple AirPods rival as its first Alexa-enabled wearable. The earbuds will look and function similarly to Apple’s, but hopes to top its rival in audio quality. Amazon’s buds are expected to be available in the second half of this year.
Congratulations MacKenzie Bezos, you are now among the 5 richest women in the world! The now ex- Mrs. Bezos keeps 25% of their Amazon stock with no voting rights and gives Mr. Bezos full control of the Washington Post and Blue Origin (the rocket ship company).
Lyft has priced its IPO at $72 per share giving the ride-hailing company a fully-diluted market value of $24 billion.
Google parent Alphabet has more than doubled its money on Lyft to more than $1 billion after the ride-hailing company went public last week. CapitalG, Google’s venture capital arm invested $500 million in the company in October 2017 at $39.75 per share.
Walgreen’s reports fiscal 2nd quarter earnings of $1.64 per share on revenue of $34.53 billion an increase of 4.6% year over year.
Next week: Earnings from Bed Bath & Beyond, Delta Air Lines, JP Morgan and Wells Fargo. Economic reports: Consumer Price Index for March and Producer Price Index for March.
WTI Crude oil: $62.40 per barrel. 10-year U.S. Treasury note: 2.51%. Gold: $1,297 per ounce.
Sources: Real Money Pro, CNBC, 361 Capital, First Trust Economics, Seeking Alpha, MarketWatch, Estimize.com, Morningstar, Zero Hedge, The Calafia Beach Pundit, The Wall Street Journal, Bloomberg,
At the time of publication Cascade Investment Group and /or its clients owned shares of ADP, LUV, BA, HMC, STZ, AAPL, AMZN, GOOGL, WBA, DAL, JPM, WFC.
Disclosure: This publication shall not constitute an offer to sell or the solicitation of any offer to buy or sell any securities of the companies mentioned. This publication is solely a compilation of recent news releases from the sources cited above.
Ken Beach, President and Managing Partner of Cascade Investment Group, member FINRA & SIPC. Cascade Investment Group is not a tax or legal advisor. You should always consult with your tax advisor or attorney before taking any actions that may have tax consequences.
I wish there were visiting hours in heaven!