Market Minutes for the week of September 3rd:
“An appeaser is one who feeds a crocodile, hoping it will eat him last.” – Sir Winston Churchill
Here’s what I am thinking and hearing: 1.) In the past week, Investors Intelligence says Bulls rose to 60% from 59.6% the week prior. Bears fell to 18.1% from 18.3%. The readings show the highest percentage of Bulls since late January and the lowest percentage of Bears since April 4th. Hmmm. Anytime the Bulls go to 60% or past, it historically signals elevated risk and the need for defensive measures. 2.) History shows that September is usually the worst month for stocks. Data from the “Stock Trader’s Almanac” shows the S&P 500 and NASDAQ both fall an average of 0.5% in September while the DJIA averages a loss of 0.7% during the month. With that said, TrimTabs said that insider selling jumped to its highest level of the year in August. Insiders sold $450 million worth of shares daily in August through last Thursday. Hmmm. 3.) Economist Edward Yardeni: “What if Trump’s trade war leads to less protectionism and more global prosperity? What if Trump’s deregulation of business unchains the animal spirits of businesses, especially smaller ones that arguably have been more stymied by regulations than large ones? What if jobs actually come back to the U.S.? What if the pace of technological innovation is increasing, disrupting business models in ways that keep a lid on inflation and finally boost productivity? What if the growth in distressed asset funds has created a shock absorber in the capital markets, reducing the severity of credit crunches? What if Baby Boomers downsize, while Millennials remain minimalists?” 4.) Marc Benioff, CEO of Salesforce.com: “I’ve never seen CEOs spend so aggressively. They’ve benefited really dramatically from these tax cuts and also from the deregulation focus – especially in the United States.” Wow, did Marc read Ed’s blog before he said that? Unchained animal spirits? 5.) Scott Grannis of the Calafia Beach Pundit: “Manufacturing activity has definitely picked up, and corporate profits are not only strong but rising, leaving equity valuations only moderately above average. All of this is symptomatic of an economy that is slowly but surely ramping up its growth engines, and an equity market that is cautiously pricing all of this in. The [ISM] manufacturing index is about as strong as it has ever been, and in the past, numbers like this have been consistent with GPD growth of 4-5%. Expect Q3 to be at least 4%, which in turn would make year over year growth in GDP the strongest in 13 years.” 6.) According to the Financial Times, Franklin Templeton, one of the bond market’s biggest investors, has seen its flagship fund lose $1.23 billion in the past two weeks on just three of its biggest Argentine positions. The fund was wrong-footed as Argentina’s financial crisis spiraled out of control. 7.) Jim Cramer: “We are in a bizarre world where I now actually fear a strong employment number – not because of inflation, not because of Fed tightening, but because I think the President will use the strength to tweet pot shots and make a lot of noise about our trading enemies and how eviscerating them seems like really good business. When the president was elected, he was known to be unpredictable on pretty much everything. I think that’s changed when it comes to the economy…He uses the good news as an occasion to character assassinate our trading partners in a couple of mean-spirited words on Twitter. And that sends stocks with international business into a tailspin and shifts capital toward domestic stocks that are almost always unscathed…The end game is not to humiliate and talk trash, which I think has had very limited success, as far as I can tell. If you see some success, please let me know. I haven’t spotted it other than some possibility of some sort of agreement with Mexico.” 8.) From the frontlines of the trade war: Mark Zandi, chief economist for Moody’s Analytics: “The trade war is having an impact on large companies. They’re starting to become more cautious in their hiring.” Executive out placement and career transitioning firm Challenger Gray and Christmas: “Last month saw an increase in companies attributing job cuts to tariffs…Manufacturers are grappling with rising costs, weak demand, and competition on a global scale. We may see additional job cuts as the full ramifications of imposed tariffs are felt.” 9.) Wow, the technology and biotechnology sectors have been just crushed over the past 3 days. Is there something within the fundamentals of the group that we should be concerned about? I don’t think so unless Facebook and Twitter’s appearance in front of Congress is drawing unwanted scrutiny. It looks more like sector rotation, out of highly appreciated stocks into stocks that represent “value.” It is classic money management 101 – take your profits before someone else takes them for you. 10.) Not only does the insanity out of Washington not end, it seems like the bombs that are now landing, are carrying a heavier payload. Somethings going to give.
Payroll processor ADP announced that private payrolls rose by 163,000 in August against a forecasted 190,000 jobs and well below the average of 206,000 per month for 2018. It is the slowest pace of monthly job growth since October of 2017. Small businesses with less than 50 employees added 19,000 workers, medium-sized firms of 50 to 499 employees created 111,000 jobs and companies with more than 500 employees added 31,000 positions.
The Labor Department said that the U.S. economy generated 201,000 new non-farm payrolls in August. The unemployment rate remained at 3.9% and the average hourly wage rose by 10 cents to $27.16. Year over year, wages have risen by 2.9% to the highest level since June of 2009.
The Labor Department also said that U.S. productivity increased at a 2.9% annual rate in the 2nd quarter, a big increase from the 1st quarter when productivity rose by only 0.3%. “Productivity is a measure of output for each hour worked. It largely determines how fast the economy can grow and how much living standards can increase”, explains CNBC’s Luke Sharrett.
The Institute for Supply Management reported that its ISM manufacturing index rose to 61.3% in August to a 14-year high. New-orders rose by 3.2 points to 65.1%. The employment gauge climbed 2 points to 58.5%. 16 of the 18 industries tracked by ISM reported expansion in last month. One of the few industries that contracted in the month was “primary metals,” a group that includes steel and aluminum producers who have been impacted by tariffs.
The Institute for Supply Management announced that its Chicago PMI fell to a reading of 63.6 in August from 65.5 in July.
The University of Michigan’s monthly survey of consumers hit 96.2 in August, down from 97.9 in July, a result of fears over the impact of tariffs on the domestic economy.
The House of Representatives plans to float a bill this fall that will make modifications to 401(k) savings plans. The bill proposes making it easier for companies to offer annuities in their investment options and for small businesses to combine their resources to offer 401(k) plans to their workers. According to the Bureau of Labor Statistics, roughly one-third of employees have no access to any workplace retirement plan.
What impact are tariffs having globally? Here are some comments from Markit’s Purchasing Managers Index survey (PMI) from purchasing managers around the world. GERMANY: “New orders…rose at a much weaker rate…which partly reflected the slowdown in export sales growth to the weakest since May 2016.” FRANCE: “Export sales returned to growth in August, but the pace of expansion was only marginal and much softer than that seen for new work.” UK: “Foreign demand decreased for the 1st time since April 2016.” SPAIN: New orders continued to rise, but the rate of expansion eased to a 2-year low.” ITALY: “On the trade front, Italian manufacturers indicated another rise in new export orders, although growth was the weakest in the current 68-month sequence of expansion.” CHINA: “New orders rose at the slowest rate since May 2017, while export sales declined for the 5th month in a row.” JAPAN: “Survey data indicated new business primarily sourced from domestic markets, as exports declined.” SOUTH KOREA: “Export sales declined during August. According to anecdotal evidence, firms were struggling to attract new international clients amid softer growth in key foreign markets.” THAILAND: “Softer demand was not limited to domestic sources, but overseas markets as well.” MEXICO: “Although order book volumes continue to increase, the upturn was the slowest in the current 10-month sequence of expansion.”
The Aviation Technical Education Council says that 30% of the current ranks of aircraft mechanics are at or near retirement age and they’re retiring faster than they’re being replaced. Boeing estimates that the aviation industry will need 754,000 new aircraft technicians over the next 20 years. The ATEC says that graduates of aviation technical high schools and aviation technical colleges, after 2 years, can be making up to $72,000 per year working on the exterior of airplanes.
The Wall Street Journal reports that two academics are working on a way to speed up a Major League baseball game. They have created a rule change that they think will make baseball a more exciting and faster moving sport, cutting almost a half-hour out of a nine-inning game. It’s called the Catch-Up rule, and it’s the invention of NYU game theorist and professor Steven J. Barns and computer scientist Arron Isaksen. Here’s the deal. The Catch-up rule is pretty simple. When the game is tied or scoreless, baseball is played just like it is today—three outs per side. But when the team at-bat has or takes the lead, it gets only two outs instead of three. Hmmm. Sorry guys, baseball doesn’t need your input on this one. Good pitching always speeds up a game.
The Warner Bros. romantic comedy “Crazy Rich Asians” led North American box office for the third weekend in a row. The film collected $22.2 million in the U.S. and Canada, making the Labor Day weekend one of the best in years for theatre owners.
Bear Flag Robotics has raised $3.5 million in seed funding from True Ventures to develop self-driving tractors. Self-driving tractors and implements will allow farmers to get hard work done around the clock, and in harsh weather. Bear Flag is trying to beat established farm equipment manufactures to the market as Deere and CNS Global have announced plans to develop their own fully autonomous tractors.
United Airlines has become the latest carrier to raise checked bag fees, as airlines continue to offset rising fuel costs. JetBlue started the trend last week but also raised its fees to change tickets.
Coca-Cola has agreed to purchase coffee chain Costa for $5.1 billion. The purchase from Britain’s Whitbread, gives Coca-Cola exposure to Costa’s 4,000 world-wide outlets and further extends its push into healthier drinks.
According to IDC data, international wearable shipments grew 5.5% year over year in the 2nd quarter to 27.9 million units. Apple topped the wearable companies with 4.7 million units and 17% market share growth, up 38% year over year. Fitbit shipments fell by 21.7% year over year.
Amazon, on Tuesday, September 4th, became the second U.S. public company to reach and pass the $1 trillion market cap. Five weeks earlier, Apple became the first to hit the mark. Another factoid, Amazon’s market cap went up in August by the entire market cap of Costco!
Amazon has orders in for 20,000 Mercedes vans for delivery service as part of an ongoing plan to rely less on the services of FedEx, UPS and the USPS.
The Wall Street Journal reports that a group of Whole Foods employees are attempting to unionize to address concerns they have over the culture and compensation since Amazon’s purchase of the grocery chain in 2017.
Canadian National Railway says it will acquire 60 additional locomotives from GE to meet growing demand for more shipments. Last December CN ordered 200 new locomotives from GE to meet increased demand for shipments of grain and other commodities.
According to The Sunday Times, Ford is considering a plan to slash 24,000 jobs in Europe and kill off several models in a product mix shift toward the production of more SUVs.
Ford’s August car sales were up 4.1% to 218,504 units. Retail sales: +1.1%, Fleet sales: +15%, SUV sales: +20.1%, Truck sales: +5.7%, and passenger car sales: -21.3%.
According to Bloomberg, sources said that GM sales for August were down by 13%. Since GM no longer publishes month numbers we have to rely on “sources.”
Toyota said that August sales fell by 2.0% driven by a slump in demand for passenger cars but SUV sales were +8.9% in the month.
DocuSign reports 2nd quarter earnings of $0.03 per share on revenue of $167.05 million, an increase of 33.1% year over year.
Workday reports 2nd quarter earnings of $0.31 per share on revenue of $671.72 million, an increase of 27.9% year over year.
Broadcom reports fiscal 3rd quarter earnings of $4.98 per share on revenue of $5.07 billion, an increase of 13.2% year over year.
Next week: Earnings from: Cracker Barrel, Oracle, Adobe. Economic reports: U.S. Producer Price Index for August, U.S. Consumer Price Index for August, U.S. Retail Sales for August and U.S. Industrial Production for August.
WTI crude oil: $67.33 per barrel. 10-year U.S. Treasury Note: 2.93%. Gold: $1,202 per ounce.
RIP: Burt Reynolds and Christopher Lawford.
Sources: CNBC, Real Money Pro, 361 Capital, Estimize.com, Seeking Alpha, MarketWatch, First Trust Economics, JAF Smith Blog, The Wall Street Journal, Bloomberg, The Calafia Beach Pundit and Yardeni Research.
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.