Market Minutes for the week of November 26th:
“Walking with a friend in the dark is better than walking alone in the light.” – Helen Keller
Here’s what I am thinking and hearing: *1.) Jon Najarian, co-founder of Investitute.com shines a pretty good light on what these trading algorithms are all about: “[These] are not AI or true neutral networks. They are a series of what-if scenarios responding to other what-if scenarios and executed at near the speed of light by computers, not human beings…[The action] of the past five or six weeks appears to be a selective selling of stocks with the highest multiples and stocks that have had the best returns year-to-date. The algos seek out those targets of opportunity and hit these stocks rapid-fire, selling them harder as they drop. That is not what we’re used to seeing when human beings are behind the trades. Ten years ago, before algos dominated the markets, we’d see more buyers (generally hedge funds, many of which have now closed their doors) interested as prices declined, but since so many algos are programmed to lower bids and the number of shares as stocks drop, the selling generally accelerates. The algos pushing on and through these thinner bids are the equivalent of throwing gasoline on a fire.” *2.) I feel like “conventional wisdom” has swung too far to the side of “nothing good” for 2019. And I am ok with that because conventional wisdom is seldom right. *3.) Consider this in the “nothing good” category, according to Deutsche Bank, 90% of the 70 asset classes that it tracks are on course to produce negative returns for the year. If nothing changes between now and the end of the year, it will be the worst year for this data set since 1920. For some perspective, last year only 1% of the 70 asset classes posted negative returns. *4.) Canaccord Genuity’s Tony Dwyer: “I’ve been one of the biggest bulls during throughout this entire cycle. I’m going to remain that way until you invert the yield curve, shut down credit and the Fed takes us into recession. We are still just not there yet.” *5.) Is the Fed underestimating the impact of its balance sheet reduction when combined with its rate increases? The Council on Foreign Relations calculates that asset-runoffs so far in 2018 have increased 10-year Treasury yields by about 17 basis points. Historically, an effect of that magnitude is roughly what would equate to a 68 basis-point hike in the Fed’s policy rate. CFR says that at the Fed’s announced pace of $50 billion per month, by the end of 2019 they will have tightened monetary conditions as much as a policy-rate increase of 220 basis points. Conclusion: the combined effects of balance sheet reduction and conventional rate hikes will produce an equivalent tightening in monetary conditions much sooner – by the end of 2018. *6.) It looks like Fed Chairman Powell “blinked” in his speech on Wednesday when he walked back his October comments on rates. He said that the current level of interest rates is “just below” neutral. He realizes the economy has downshifted and as Jim Cramer points out, he now “gets it.” *7.) The markets clearly liked what he had to say by moving sharply higher. This weekend begins the G-20 Summit in Buenos Aires and if trade talks with the Chinese president go well…a strong December for stocks could be in place. Stay tuned.
The Conference Board said that November consumer confidence came in light at 135.7 vs 137.9 in October.
The Commerce Department reported that consumer spending increased by 0.6% in October, the largest increase in 7 months.
The S&P CoreLogic Case-Shiller U.S. National Home Price Index for August showed that U.S. home prices rose at an annual rate of 5.5% in September vs an increase of 5.7% in August. It is the lowest monthly gain since January of 2017.
Remember Bitcoin? The world’s largest digital currency fell below $3,500 on Saturday for the first time since September of last year, shedding as much as 15% on the day and 40% for the month.
From Bloomberg: “Odds the U.S. will fall into a recession in the next year stands at 15%, according to Bloomberg’s U.S. Recession Probability Forecast index. While they see the economy losing a bit of speed next year and in 2020, the median estimate of economists calls for 2.6% economic growth in the next 12 months.”
Fed Vice Chairman Richard Clarida said in a speech to New York bankers this week that he thought the Fed was “much closer” to a neutral rate of interest than it was back in 2015 when it started its rate hikes. He said that from here on out, the central bank should take a “gradual” approach to rate hikes and that it should be more “data dependent.”
Very accurate bull Jeffrey Saut, chief investment strategist at Raymond James: “You can carry this market up over 3,000 by the end of the year. That’s how bullish I am…If this thing starts up, I think the pros are going to have to chase it because their performance has been abysmal this year…We think the bottom is in and stocks will trade higher into year-end.”
According to RENTCafe, the average size of newly built apartments in 2018 is 941 square feet, 5% smaller than it was a decade ago. For studio apartments, the change is more pronounced – they are 10% smaller. The smallest apartments can be found in Seattle and Chicago, respectively, while Tallahassee, Florida has the largest (at 1,038 sq. ft.) followed by Marietta, Georgia and Columbia, South Carolina.
“TV dinners started with a mistake. In 1954, the frozen food company C.A. Swanson & Sons over-ordered for Thanksgiving and found themselves scrambling to figure out a way to sell more than 500,000 pounds of turkey. Gerry Thomas, a Swanson salesman who earned $200 a month, had an idea. Inspired by the metal meals trays used by airlines and the meal kits he encountered during his time in the military, Thomas developed a three-compartment meal tray that could hold a frozen dinner and keep each item separate. He dubbed the product a “TV Dinner,” drawing on the growing popularity of the appliance at the time…The meals flew off the shelves: More than 10 million units sold in the first year alone”, reports CNBC. For his idea, Mr. Thomas earned a $1,000 bonus.
The Instant Pot is the invention of Robert Wang. After Mr. Wang (who has a Ph.D. in computer science and a background in AI) was laid off his job at a mobile messaging company in 2008, he turned his attention to solving a personal problem he was pondering. Mr. Wang and his wife, Tracy, both worked full time in the tech industry and had little time to cook fast and tasty meals for their two young children, so he began dreaming of making an all-in-one automated cooking machine. He sank $300,000 of his own money into the project and over 18 months he ironed out the kinks in the software, found a manufacturer and began selling it on Amazon in October of 2010. As they say, the rest is history. Millions of foodies have purchased an Instant Pot, making it one of the top-selling products sold in Amazon’s Prime Day in July of 2016, 2017 and in 2018, Instant Pot broke its own Prime Day record with 300,000 units sold in over 36 hours. Kohl’s reported that on Thanksgiving Day they were selling 60 Instant Pots per minute online. More than 5.5 million people follow an Instant Pot-related account on Facebook and 1.5 million follow Instant Pot’s Facebook page alone.
British rock band Queen hasn’t released an album in nearly 30 years, but thanks to “Bohemian Rhapsody,” a biographical film about the band and its late front man, Freddie Mercury, its music is topping the charts. The day before the film’s release on November 2nd, the song “Bohemian Rhapsody” went from #87 on Spotify to #15 one week later. In just three weeks the film has grossed $130 million domestically which puts it second to the $161 million biopic “Straight Outta Compton” which grossed in 2015.
Where will you find the world’s largest marijuana dispensary? In Las Vegas of course. Planet 13 is housed in a 40,000 square foot building just off the strip in the shadow of the Wynn. Planet 13 boasts 15-foot lotus blossoms on the ceiling, a floor that lights up when you step on it, retail space, a tasting room, a cultivation area and cashiers at more than 40 registers. In addition to its store, Planet 13 owns two growing facilities housed in a former brothel about 120 miles north of Las Vegas.
Adobe Analytics said that online sales for Thanksgiving Day totaled $3.7 billion, up 28% from a year ago. Smartphones accounted for 37% of all sales.
Adobe Analytics also said that online sales for Black Friday jumped 23% from a year ago and pulled in a record $6.22 billion.
Adobe Analytics went to say that Cyber Monday sales set a new record with 7.9 billion spent online. That is a 19.3% increase over a year ago.
Amazon reported “record levels” of Black Friday shopping in the U.K. as international retailers turned toward more U.S.-centric shopping.
Amazon said Cyber Monday was once again the single biggest shopping day in the company’s history. Customers ordered more than 18 million toys globally. The best-selling products included the all-new Echo Dot, the book “Becoming” Michelle Obama, the Amazon Smart Plug, the QuietComfort 25 Acoustic Noise Cancelling Devices and the Instant Pot DU0N60.
FactSet is forecasting Amazon to report 4th quarter earnings of $5.51 per share, more than double the $2.16 the e-commerce giant reported last year. Amazon’s earnings will account for more than half of the earnings growth for all of the S&P 500 retailers in the 4th quarter.
General Motors said that it is cutting an estimated 14,700 jobs and will close 3 U.S. plants as it looks to strengthen its core business and capitalize on the future of personal mobility. Outplacement firm Challenger Gray & Christmas says it is the seventh-largest largest layoff in the automotive sector since 2001.
Paychex has agreed to acquire Oasis Outsourcing Acquisition Corp. for $1.2 billion in cash. Oasis serves more than 8,400 clients across the country with HR solutions, employee benefits, payroll administration, and risk management services.
Google said that it just spent $1 billion for a new office park in Mountain View, California where it is already the main tenant of the 12 buildings on the 51.8-acre site. The company has now spent almost $3 billion on real estate in the Silicon Valley over the past 2 years.
United Technologies has confirmed that it will split into three independent companies with completion of the Rockwell Collins acquisition. The three stand-alone companies will focus on aerospace, climate control and elevators.
Cracker Barrel reports fiscal 1st quarter earnings of $1.96 per share on revenue of $733.54 million, an increase of 3.3% year over year.
Next week: Earnings from: Vail Resorts, Dollar General, Lululemon and Five Below. Economic reports: ISM Manufacturing Index for November, ISM Service Index for November, U.S. Construction Spending for November, U.S. Auto Sales for November, Fed Beige Book for November, U.S. Factory Orders for October, ADP Private payrolls for November, U.S. Non-Farm Payrolls for November and U.S. Wholesale Inventories for October.
WTI crude oil: $51.17 per barrel. 10-year U.S. Treasury note: 3.01%. Gold: $1,231 per ounce.
Sources: CNBC, Real Money Pro, 361 Capital, First Trust Economics, Morningstar, The Wall Street Journal, Bloomberg, Seeking Alpha, MarketWatch, The Calafia Beach Pundit, The Council on Foreign Relations and Real Clear Markets.
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.
At the time of publication, Cascade Investment Group and or its clients owned shares of AMZN, GOOG, UTX, PAYX and ADBE.
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.