Skip to content

Strategic Insights

Volume 8, Edition 37 | October 28 - November 1, 2019

Mailing List

There are currently 1008 subscribers.

A High-Water Mark

Doug_Walters Doug Walters | Articles

Read Time: 3:30 min

highnote

U.S. equities breached new highs this week as the Fed continues to provide an economic lifeboat in the face of slowing, albeit still robust, growth.

Contributed by Doug Walters , Max Berkovich , Aleksey Marchenko , Mackenzie Evans

The Northeast was hit with a vicious Halloween storm, drenching trick-or-treaters and causing streams and rivers to flood. U.S stocks also hit a high-water mark. The S&P 500 crested at an all-time high this week, buoyed by a Fed rate cut, robust corporate earnings, and a better than expected jobs number. Looking back on the year, those who held their nerve after the sharp declines we experienced at the end of 2018, continue to reap the rewards. Large-cap U.S. stocks are up over 30% from last December’s lows. While these market swings are significant, history shows they are not that unusual. Equity investors understand that with this volatility, has historically come long-term gain.

Headlines This Week

Earning their keep

71% of the S&P 500 companies have reported earnings thus far.

  • Utilities, Healthcare, Real Estate, Consumer Staples, and Technology have exceeded the Street’s expectations, while Financials, Materials, and Energy have missed the mark.
  • According to FactSet, the S&P 500 is estimated to report an earnings decline of -2.7%.
  • While fourth-quarter earnings estimates were lowered, analysts see growth picking up in the first quarter of 2020.

On the job

The U.S. added 128,000 new jobs in October, exceeding Wall Street’s expectations. Also, the previous two months of results were revised higher.

  • The manufacturing industry lost some jobs, though this is attributed to the strike at General Motors.
  • The Leisure and Hospitality industry added the most jobs in October.

The big bank

The U.S. Federal Reserve cut its Federal Funds rate by 0.25%, moving overnight lending rate down to a 2.00% to 1.75% range.

  • The Federal Open Market Committee indicated that Fed might pause rate cuts for the near future, but with the stock market at an all-time high and the economy minting new jobs, the market accepted the pause in good stride.
128,000 Jobs
The U.S. created 128,000 jobs in October, compared to a weak expectation of 89,000. Importantly, wage growth, at 3%, continues to outpace inflation.

The Week Ahead

CVS Health Corp (CVS), Booking Holdings (BKNG), and The Walt Disney Co. (DIS) are among the companies in our portfolio reporting next week.

  • CVS continues to realize benefits from its vertical integration of recent acquisitions.
  • Analysts will hope for some guidance from Booking Holdings as rival Airbnb aims to go public in 2020.
  • Disney gets ready for its debut in the Streaming Wars with its Disney+ service hitting the market imminently. The Mandalorian anyone?

A few more central banks are set to report their interest rate decisions next week.

  • Australia is expected to keep rates at 0.5% for the time being, with the possibility of further cuts early next year.
  • The Bank of England is also expected to hold their rates steady at 0.75%, but experts are watching to see if the political turmoil could end up forcing the BoE’s hand down the road.

The U.S. is set for a quiet week on the economic front, with the only major report being the ISM (Institute for Supply Management) Non-Manufacturing PMI report.

  • The consensus is that the Non-Manufacturing report will see a slight increase over the prior month’s figure.

Finally, don’t forget to move the clocks back one hour as Daylight Savings Time ends at 2 AM on November 3rd for those that live in impacted areas.

  • Studies show that daylight savings time harms people’s decision-making process due to a disturbance in their circadian rhythm (body clock).
  • Some of us at Strategic have become desensitized to this due to having children and watching sporting events that start in the late hours.

Stock Highlights From Max

Alpha-Fit-Bet

Another week of record high in the market was dominated by earnings. Consumer Discretionary was the laggard. While the Technology sector had a tremendous week, it was the Health Care sector that bounced back from the bottom of the pile to be the top sector, on the back of earnings from…

Merck

  • Pharmaceutical giants Merck & Co. (MRK) and Pfizer Inc. (PFE) both topped estimates. Pfizer reported 28% growth in revenue in the Oncology unit, while Merck provided a jolt with an eye-catching 62% sales growth from its cancer franchise Keytruda. Keytruda sales in the quarter were over $3 Billion. Both Merck and Pfizer boosted guidance for 2019. Not all news in the sector was rosy…

McKesson

  • McKesson Corp. (MCK), the drug and medical supply distributor, was tripped up by declining profitability in the drug distribution business. Also, earnings were negatively impacted by an impairment charge attributed to an exit from its investment in Change Healthcare, an entity into which McKesson merged its Information Technology unit. This quarter was like pouring cold water on the company that was celebrating relief from opioid-related headwinds.

Alphabet

  • Outside of earnings, major merger and acquisition news did strike our portfolio when Alphabet Inc. (GOOG, GOOGL) announced it would spend $2.1 Billion on Fitbit, Inc. (FIT). The acquisition gives Google a foothold in the wearables market and sets Alphabet up to challenge another strategy holding Apple Inc. (AAPL) in the watch market. Apple’s earnings report indicated that it had $6.5 Billion of revenue attributed to the wearable, home, and accessories segment in the previous quarter. On that note…

Apple Logo

  • Apple Inc. (AAPL) reported another solid quarter and beat expectations. The result was driven by above-consensus sales of the iPhone of $33.4 Billion and $12.5 Billion from services in the quarter. The company also announced that the iPhone 11 is now the company’s bestselling iPhone model.

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets over $1.3 billion.

Overview