“You cannot stop the birds of sorrow from flying over your head, but you can stop them from nesting in your hair.” – Eva Ibbotson
Here’s what I am thinking and hearing: *1.) Bob Farrell was the head of technical analysis for Merrill Lynch for some four decades and during that time, became the preeminent student (and teacher) of sentiment studies and market psychology. Bob Farrell’s “10 Rules of Investing” have been the guiding light for investment professionals over the years and here they are: One – Markets tend to return to the mean [return] over time. Two – Excesses in one direction will lead to an opposite excess in the other direction. Three – There are no new eras – excesses are never permanent. Four – Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways. Five – The public buys the most at the top and the least at the bottom. Six – Fear and greed are stronger than long-term resolve. Seven – Markets are the strongest when they are broad and weakest when they narrow to a handful of blue-chip names. Eight – Bear markets have three stages – sharp down, reflexive rebound and a drawn-out fundamental downtrend. Nine – When all the experts and forecasts agree – something else is going to happen. Ten – Bull markets are more fun than bear markets. *2.) From the front lines of the trade war that is quickly becoming a Cold War, as both sides dig their heels in: According to the South China Morning Post, Beijing is in “no rush” to resume trade talks with the U.S. China is prepared to suspend talks if President Trump isn’t “prepared to be realistic.” Chinese President Xi Jinping recently said that China is on a “new Long March, and we must start all over again!” Blaine Rollins of 361 Capital: “Again, we don’t know how this ends in the short term, but we can’t figure that the White House would allow the China trade issue to impact their 2020 election hopes. We got a hint of [this]…when the Executive Office backed away from the global auto tariff issue that was due [last]…Friday.” CBNC reports, “Boston Fed President Eric Rosengren says the ongoing conflict between the world’s largest economies is a ‘prominent downside risk,’ adding it seems to be an ‘important reason for policymaker patience until this source of uncertainty is more resolved.’” According to Bloomberg, Last Friday, “The Trump administration…blacklisted [Chinese cell phone maker] Huawei – which it accuses of aiding Beijing in espionage – and threatened to cut it off from U.S. software and semiconductors it needs to make its products.” Former Trump strategist Steve “Wildman” Bannon said that “shutting down Huawei is more important than any trade deal. To be specific, he says it is ten times more important because the Chinese telecommunications company is such a rogue security risk”, reports Real Money. According to Time, “an average American family of four would pay $2,300 more in goods and services each year if Trump imposes a 25% tariff on all goods [a remaining $300 billion] from China…If tariff levels remain where they are today, the average American family is expected to pay about $770 in higher costs each year the tariffs remain in place.” *3.) Consistently accurate Perma-Bull, Dr. Ed Yardeni of Yardeni Research, says that despite the new burst of market volatility, the markets should return to all-time highs this year. “I think it moves higher partly because there’s a recognition that even companies that do business with China are going to find ways to deal with this escalating trade tension like moving some of their supply chains to other countries…This trade escalation is probably going to be more of a negative for China than it is for the United States…They desperately need a [trade] deal much more so than we do…This may last longer than was anticipated. I think a deal will be struck and probably by the end of this summer, if not before then.” *4.) Investors Intelligence said that the Bulls sank to 49.5 from 51.4 last week and is now a few weeks away from a nervously high reading of 55. “[The] Bulls went to the Correction side (they are still bullish and want to buy the dip) as Bears fell to a 14-month low to just 17.2…” The latest survey by the American Association of Individual Investors (AAII) shows the Bulls at 24.7, down from 29.8 the week before and at the lowest level since December 20. “All went to the Neutral side as Bears fell by 3.2 points from last weeks highest level since early January”, reports Real Money. *5.) Let’s see here. WTI crude oil down 7.7% this week, the worst weekly performance in five months and the 10-year U.S. Treasury down to a 2.30% yield, the lowest level since November of 2017. Pessimism is growing. I must admit as I summarized the news this morning, it was difficult to embrace my usually optimistic tone. Trade talks dead for now, hopes for a bipartisan infrastructure package blown up by reckless and childish behavior from both the Executive and Legislative branches of government and finally, a potentially escalating Middle East fight with Iran. The old saying is that Bull markets climb walls of worry and this wall looks pretty tall at the moment. Fundamentally things still look very good. First quarter earnings were solid, banks remain as well capitalized as ever and the Fed not only won’t raise rates this year, they may even make one cut. In other words, the 3-legged stool that supports the stock market is still very strong. I expect to see the market remain volatile and driven by Presidential tweets until the economic fallout from the trade fight becomes a bit more defined. That said, if irrational market behavior serves up value here and there, we will be buyers of that.
The Conference Board said that its index of leading economic indicators rose for the third straight month in April to 112.1, an increase of 0.3% over March and a 0.2% increase over February.
The University of Michigan Consumer Sentiment Survey surged to its highest level in 15 years, jumping to 102.4 in May from 97.2 in April and way ahead of expectations. The optimistic reading was recorded before the China-U.S. trade negotiations soured two weeks ago.
CNBC reports, “According to the National Federation of Independent Business (NFIB), labor quality has been the top issue for the last 16 months…The group also recently conducted a job training survey that found 22% of small employers who have hired an employee for their most-skilled position in the past two years have actually lowered the minimum requirements for applicants. In addition, about a quarter of employers said they lowered requirements for the most-common, less-skilled positions, underscoring the idea that both skilled and unskilled workers are hard to come by in the labor market. CNBC and SurveyMonkey’s latest small business optimism index echoes that sentiment, finding that 52% of small businesses say it’s harder to find workers today than it was a year ago.
The Labor Department said that first-time U.S. jobless claims fell to 211,000 in the week ended May 18 and continue to hover near a 50-year low.
The IHS Markit “flash” survey of U.S. manufacturers dropped to 50.6 in May, a nine-year low. The firm’s survey of U.S. service-oriented companies fell to 50.8 in May, a 39-month low as the uncertainty over trade tensions between the U.S. and China continue to grow.
The Commerce Department reported that durable goods for April fell by 2.1% as orders for Boeing jets and new cars and trucks dried up. Stripping out the volatile transportation sector, orders were flat for the month.
The National Association of Realtors said that single-family home sales fell by 0.4% in April (for the 14th straight month of annual declines) “as high prices and tight supply at the low end of the market continued to sideline buyers…Sales were 4.4% lower compared with April 2018”, reports CNBC.
The Commerce Department said that new-home sales for April dropped by 6.9% to an annual rate of 673,000 units but year to date sales are higher than last year by 6.7%. The median sales price was $342,200, 8% higher than a year ago.
More “Fed Speak:” The minutes of the Fed’s May 1-ending interest rate committee meeting said: “Members observed that a patient approach to determining future adjustments to the target range for the federal funds rate would likely remain appropriate for some time, especially in an environment of moderate economic growth and muted inflation pressures, even if global economic and financial conditions continued to improve.” Loosely translated: Rates aren’t going higher for a long time.
St. Louis Fed President and voting member said on Wednesday that “the U.S. central bank may need to lower its short-term interest-rate target if inflation doesn’t appear on track to rise back to desired levels”, reports MarketWatch.
Bleakley Advisors Peter Boockvar says that Americans are paying their banks an average of 17% on credit cards – the highest level ever, according to the Federal Reserve. Why? Two reasons to according to Boockvar. One, post-financial crisis regulation. “In 2009, Congress passed the Credit Card Accountability, Responsibility, and Disclosure Act. Among other things, it limited the flexibility banks would have to raise interest rates on cardholders…[Two,] banks need to pay for for all of those flashy rewards. Banks are luring customers with travel and spending offers, or the occasional cash bonus to sign up. They need to be paid for, somehow” according to CNBC.
What exactly is “5G?” Not only is it the centerpiece of Trump’s beef with Chinese cell phone maker Huawei, it is a much faster network and will change the way devices talk to one another according to CNBC. “Put simply, 5G is a next-generation wireless network that will give you much faster internet connections…Verizon’s 5G network, which is live in Minneapolis and Chicago, is already providing speeds in excess of 1Gbps, or about 10x the speeds you might get on a good day with 4G LTE, the current standard offered by wireless carriers in most places. That means you should be able to download an hour-long high-definition video in seconds instead of minutes. The lower latency of 5G also means that it takes less time for one gadget to talk to another…The greater bandwidth of 5G means that more devices can use the network at the same time. This means it should alleviate problems at places like sports stadiums or concerts where thousands of people may be trying to place a call or upload a picture at the same time. In these instances, a network can get jammed up and stops working for everyone. 5G should prevent that from happening.”
According to a new report from Airlines for America, a record 257.4 million passengers are expected to travel on U.S. airlines this summer, that’s up 3.4% from last summer’s record of 248.8 million passengers. This will also be the 10th consecutive year that passenger traffic will have increased over the previous year. The U.S. Bureau of Transportation Statistics showed that the average domestic fare for 2018 was $350, the lowest inflation-adjusted fare since 1995, when the federal agency began collecting these records. Since 2014, domestic fares are down by 15.9%.
According to MarketWatch, Barclays estimates “the market for plant-based or lab-made meat could climb to $140 billion in the next 10 years as emerging companies capture a 10% share of the $1.4 trillion meat market…The alternative meat industry has parallels with the electric vehicle industry, which is expected to disrupt the car business. But meat substitutes have the potential to grow even larger given the mainstream appeal of affordable food products…” Beyond Meat just went public and “Impossible Meat, the private company behind the Impossible Burger , was founded in 2011 and is backed by Microsoft founder Bill Gates…and Hong Kong billionaire Li Ka-shing, among others.”
“Canopy Growth Corp. the world’s biggest cannabis company by market capitalization, said…it’s acquiring London-based skincare company This Works for £43 million ($54 million) in cash. This Works offers a range of skincare and sleep products…[and] “is a key aspect of a multi-faceted hemp and CBD strategy…”, reports MarketWatch.
Facebook has said that it will continue to block the sale of marijuana on its platform but will continue to allow content for products derived from the cannabidiol, or CBD, a non-intoxicating compound found in cannabis plants.
JP Morgan Chase will acquire medical payments technology firm InstaMed for reportedly more than $500 million. “InstaMed, founded in 2004 by a pair of former Accenture consultants, automates medical billing with electronic rails for the delivery of health-care information and payments”, according to CNBC.
Sony announced that it will buy back up to 4.8% of issued shares (¥200 billion or $1.82 billion U.S.) and it also announced a partnership with Microsoft so that Sony can use Microsoft’s Azure cloud services for streaming games and media.
B&G Foods acquires Clabber Girl which makes baking soda, corn starch and dessert mixes. Terms were undisclosed but B&G expects the acquisition to be immediately accretive.
Avon Products has agreed to be acquired by Natura Cosmeticos (Brazil) in an all-stock deal. The combined entity is expected to produce revenue of more than $10 billion across 100 counties.
Domino’s Pizza of New Zealand is introducing its Hawaiian Spaghetti Pizza. For just $7.99, New Zealanders can enjoy the unique pie, made with Wattie’s canned spaghetti, pineapple chunks, glazed ham and mozzarella cheese.
Blue Apron Holdings has said that the company is planning a reverse stock split. In an effort to boost the market price of its Class A shares, the company plans to split the shares in a ratio of between 1-for-5 to 1-for-15.
Ford is planning to eliminate 7,000 jobs or 10% of its workforce by the end of August as a part of its Smart Redesign program and will save the company about $600 million per year going forward.
GM plans to end its car-sharing business Maven in about half of its markets. Maven, a car-sharing brand launched by GM in 2016, has encountered challenges as it works to expand new transportation ventures.
Tesla is once again cutting prices on its Model X ($3,000) and Model S ($2,000) vehicles for the third time in 3 months. “Perhaps Tesla has finally figured out that there is simply not enough demand for its cars at the current price point, or worse, that its business model isn’t sustainable, resulting in what has been a 2019 full of business model changes, price cuts and employee layoffs”, according to Zero Hedge.
Restaurant Brands, owner of Burger King says that traffic increased by 18.5% at its stores in St. Louis that sold the “Impossible Whopper,” a meatless burger made from plant-based products.
According to industry analysts, Boeing’s next commercial jet design, a mid-sized plane dubbed the 797, could come with a cockpit built for just one pilot. Boeing Research and Technology VP Charles Toups said that the one-pilot test would most likely begin with cargo flights and would still be a “couple of decades” away from flying passengers.
Nordstrom reports 1st quarter earnings of $0.23 per share on revenue of $3.35 billion, a decrease of 3.5% year over year.
Kohl’s reports 1st quarter earnings of $0.61 per share on revenue of $4.09 billion, a decrease of 2.9% year over year.
J.C. Penney reports 1st quarter earnings of -$46 per share on revenue of $2.56 billion, a decrease of 4.1% year over year.
TJX (T.J. Maxx) reports 1st quarter earnings of $0.57 per share on revenue of $9.28 billion, an increase of 6.8% year over year.
Home Depot reports 1st quarter earnings of $2.27 per share on revenue of $26.38 billion, an increase of 5.7% year over year.
Target reports 1st quarter earnings of $1.53 per share on revenue of $17.6 billion, an increase of 5.1% year over year.
Best Buy reports 1st quarter earnings of $1.02 per share on revenue of $9.14 billion, an increase of 0.3% year over year.
Next week: Earnings from: WorkDay, Lululemon, Costco, Ulta Beauty and Okta. Economic reports: Case-Shiller/S&P Home Price Index Composite 20 and 10 City.
WTI crude oil: $57.90 per barrel. 10-year U.S Treasury note: 2.31%. Gold: $1,284 per ounce
Sources: CNBC, Real Money Pro, First Trust Economics, 361 Capital, Estimize.com, Seeking Alpha, MarketWatch, The Calafia Beach Pundit, ZeroHedge, The Wall Street Journal, Bloomberg, Morningstar, MSN Money, Reuters and Time.
At the time of publication Cascade Investment Group and /or its clients owned shares of VZ, CGC, FB, JPM, MSFT, BGS, AVP, DPZ, F, TSLA, QSR, BA, JWN, TJX, HD, TGT, BBY, WDAY, COST, ULTA.
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.
R.I.P. Austin Eubanks (Columbine shooting survivor, recovering opioid addict and influential supporter of opioid recovery). “It’s tearing at the seams of all that’s been.” – Nathaniel Rateliff