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Capital 19 Catch-Up – Jul 2

Well, the first half of the year is done and dusted and it finished with a belter of a June month for much of the US stock market. The Dow Jones Industrials finished 7.2% higher for the month, having its best June gain since 1938 (when it gained 24%). While the S&P500 made 6.9% for the month, it’s own best since 1955 (when it made 8.2%). The Nasdaq topped them all with a gain of 7.4%, however, it couldn’t top its June performance of 2000 where it jumped 13%.

The Dow had its best 6-month start to a calendar year since 1999, The S&P500 its best since 1997. Much of the rally has been down to five of the biggest stocks on the market with Facebook (FB), Amazon (AMZN), Apple (AAPL), Microsoft (MSFT) and Walt Disney (DIS) leading the way. Together they account for 14% of the total market cap of the S&P500 and wield a huge amount of influence over the benchmark index.

It’s not surprising that each has had an impressive six-month stretch, especially considering the drubbing handed out to technology stocks at the end of 2018. Facebook is up the most of the big hitters, gaining 42% for the period, while Microsoft, who holds the largest weighting in the S&P500, gained a healthy 32%. We’ve been raving on about Disney since the start of the year, and the House of Mouse is up 28% since the start of January. Apple, the second largest weighted stock overall, has also gained 28% since the start of the year. While Amazon has also fought back from a 31% hammering in December to pull back 23% over the last six months.

Microsoft also led the Dow for the first half of 2019, closely followed by American Express (AEXP) who made 31%, Cisco (CSCO) who gained 30% along with Visa (V), followed by Apple and Walt Disney. The only two stocks in the Dow to finish with losses were Walgreens Boots Alliance (WBA) who is down 19% so far in 2019, and 3M Co (MMM) who has lost 9%. United Health (UNH) finished flat for the six months. Amazingly Boeing (BA), who has received a plethora of bad news, and a few downed planes, is still up 14% for the year.

The markets were in a holding pattern for much of last week, as Wall St waited on news from the G20 summit. The financials were the highlight however as the Federal Reserve approved stock buybacks and dividends for 18 of the banks, while all passed the Fed’s annual stress test. J.P. Morgan Chase (JPM), Citigroup (C), Bank of America (BAC), Goldman Sachs (GS), and Wells Fargo (WFC) all finished with gains of 2% or more on Friday.

US China talks

Consumer spending was only slightly higher which boosted chances of the heavily anticipated interest rate cut, while consumer sentiment was a little ahead of estimates. There wasn’t much to move the markets in either direction for much of the week, with the Trump Xi meeting implanted in the back of every good trader’s mind.

Over the weekend the planned meeting between the leaders from US and China seemed to go nicely enough. We didn’t get a resolution, and we certainly weren’t expecting one. However, things didn’t head south either, which was always a fair chance of happening. Everything has seemed cordial enough, although we only know what the publicists are spinning us so far, and that is always going to be positive.

It looks like Trump has been willing to wind back restrictions on American companies selling to Huawei, however details of the move are still thin on the ground. The existing tariffs are still in place, however, there is talk that any further moves are on hold pending further talks occurring. It is most likely we’ll have news on what actually happened trickle out to us over the next week or so.

This has been the same pattern over the last few meetings. The US comes out and suggest they won the talks, China then denies this, which gets the US angry and China on the defensive. And eventually, we’re back to where we all started. China is doing their best to delay any more tariffs while they shore up alliances with the rest of the world, and will only truly come to the table when the tariffs really start to hit the economy – which won’t be that far off. In the meantime, Wall St just wants to hear that everything is hunky dory. I’m sure the spin doctors have it covered.

In what I considered to be more alarming news over the weekend, it was revealed that designer extraordinaire Jony Ives was leaving Apple. The man who, along with Steve Jobs, helped design the iMac, iPod, iPad and iPhone has decided to start his own design company. All is not lost for the iWorld however as Apple is expected to be Ives biggest client when his business gets up and running. Phew!

Cryptocurrency

It was a wild week for all of you Bitcoin lovers out there. The crypto world was celebrating in the middle of last week as the Bitcoin price hit just under $14,000USD, levels not seen since January of last year. The surge was brought on by talk that Facebook is planning on bringing out its own digital currency, Libra, in the near future.

But the excitement didn’t take long to turn into a rush for the exits as a prominent cryptocurrency exchange reported an outage, which sent the price back to $10,000 USD in a matter of hours. Where it’s headed next is anyone’s guess. If you think you know – or you want to have a punt, don’t forget we have access to Bitcoin futures on our platform. Speak to your advisor if you’d like to get amongst the action.

The week ahead is a shortened one with the 4th of July public Holiday occurring on Thursday, and the markets closing early on Wednesday for a half day of trading. The first week of a new quarter is also very light on in terms of earnings results as well, although we will see second-quarter numbers from Pepsico (PEP) who have been crushing it so far this year.

The main focus for investors this week will come on Friday with the June nonfarm payroll numbers and the unemployment rate. The jobs report is coming off a horror number in May when only 75,000 jobs were added, so it won’t take much to impress. Economists are expecting a number around 155,000 to 160,000. Anything less than this and it will look like the economy is faltering. Ironically this could be good for the stock market as it will mean the Fed is more likely to cut rates. Another 75,000 number and they could even cut by .5%.

Elsewhere OPEC begins a two-day meeting today where it is expected that they will continue their deal with Russia and cut 1.2 million barrels of oil production per day. Iran will also test out its strained relations with the partnership after threatening to increase levels of uranium enrichment, which is against the nuclear agreements it has with other OPEC members. Iran has also been accused of attacking Saudi Arabian oil tankers so it could be a very interesting meeting, to say the least.

In terms of US data, we have Markit manufacturing PMI and the ISM manufacturing index on Monday which will give us an interesting look at the state of the economy. Car Sales on Tuesday followed by Markit Services PMI, the trade deficit, and ISM nonmanufacturing index on Wednesday. Rounded out by the nonfarm numbers after the day off.

Have a great week everybody.

Cheers, Paul.

Earnings:

  • Tuesday: PepsiCo (PEP)
  • Wednesday: Acuity Brands (AYI)
  • Thursday: Public Holiday
  • Friday: Chase Corp (CCF)

 

Economic Data:

  • Tuesday: Motor Vehicle Sales
  • Wednesday: ADP employment, Weekly jobless claims, Trade deficit, Markit services PMI, ISM nonmanufacturing index, Factory orders
  • Thursday: Public Holiday
  • Friday: Nonfarm Payrolls, Unemployment rate, Average hourly earnings

 

 

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