Stocks found a way to higher ground this week and are now up 11 of the past 12 days. Concerns on how an international slowdown will impact the U.S. economy have been a constant headwind on sentiment this year. Two of the primary culprits are the U.S. trade discussions with China and Brexit. This week the news on China was on balance positive, with progress towards a deal purportedly being made. In addition, the EU kicked the can on a Brexit decision six months down the road, providing some relief on that front. For golf fans, we had the start of the Masters Tournament this week. See our spotlight section to see why you should not invest like you golf.
Headlines this Week
- The economic data from China pleasantly surprised investors as the country’s export growth rebounded sharply in March. An increase in lending by the Chinese banks eased some fears surrounding liquidity. Additionally, more progress on a trade deal was floated this week.
- European Central Bank (ECB) policymakers unsparingly held rates steady but warned that the risk to the economy is “tilted toward the downside.” The International Monetary Fund also downgraded the economy of the Eurozone this week. In other news, The European Union decided to extend the Brexit deadline until October 31st in hopes that a deal will be struck for a soft exit. Unfortunately, the extension now leaves the Brits voting in an EU election.
- JPMorgan and Wells Fargo kicked off first-quarter earnings on a positive note, with both banks beating estimates. The start of the earnings season was not the only news from banks, as they appeared in Congress to get grilled by the Financial Services Committee. The hearing was titled “Holding Megabanks Accountable: A Review of Global Systemically Important Banks 10 Years After the Financial Crisis.” This grilling by Congress is also becoming “a tradition unlike any other.”
Do Not Invest Like You Golf
The golf world is fixated on the Masters Tournament this weekend, and inevitably financial writers will be coming out with pieces about what golf and investing have in common. I love these sort of articles and have been guilty of writing a number of them in my career. They are fun, and if done well, can draw useful analogies that resonate with the reader. But there are too many, so today we play the contrarian.
Here is our take on why investing and golfing are nothing alike.
- Diversification is not allowed: You may have a portfolio of clubs at your disposal as a golfer, but when you approach a tough shot you can only choose one of them (and yes, only you can hit the ball). Intelligent investors will build a robust, diversified portfolio of securities which can be used simultaneously to navigate difficult stretches in the economy. Choosing just one security would be unnecessarily risky.
- Making changes at the bottom: When a golfer gets into a funk, it is often – to put it bluntly – their fault. Perhaps their swing is off, and they need to make an adjustment to get back on track. For investors, a bad stretch is more likely to be a result of market moves outside of their control. One of the biggest blunders an investor can make is to lose their nerve and de-risk their portfolio when things are at their worst. When the inevitable rally comes, they miss out. Often in investing, doing nothing would have been the appropriate option.
- Golf is a short-term game: A round of golf, be it nine holes, 18 holes, or 72 holes at Augusta eventually comes to an end. When you begin your next round, you have a clean slate. It’s a new game. Investing, however, is a lifelong endeavor where your “score” is continuously accumulating. Mistakes made early on will never go away. As such, investors must always have in mind what is best for the long term.
- You cannot pay a pro to play for you: You would be hard pressed to convince Rory McIlroy or Tiger Woods to play on your behalf at your local club. While the rest of your foursome might enjoy the experience, they would never give you credit for the score. In golf, only you can swing those clubs. Yet for investors, professional wealth management is just a phone call away. At Strategic, we are happy to take that call so we can focus on your investments while you focus on what makes you happy. Golf?
The Week Ahead
Investors may be distracted next week getting their EGGS ready for Easter and Passover.
- Earnings season gets going full steam next week with banks M&T Bank (MTB), U.S. Bancorp (USB), The Bank of New York (BK), and BB&T (BBT) joining asset manager BlackRock (BLK) early in the week. Health Care bellwethers Johnson & Johnson (JNJ) and UnitedHealth (UNH) will add some diversification to the earnings picture as well.
- GDP from China will be released on Wednesday. The report may steal some thunder from the earnings season, as global economic growth is very dependent on China.
- Good Friday will be celebrated on Friday, April 19th, which also starts the eight-day Passover holiday. Bond and equity markets will be closed this Friday.
- Speeches from the Chicago Fed’s Charles Evans and Boston Fed’s Eric Rosengren and a release of the Beige Book are items of note on the economic front in an otherwise slow week.
Stock Highlights from Max
Stocking up for the Masters
The start to the second quarter has been very unkind to the Health Care sector. Government investigations into drug prices has the sector trying to get out of the rough. While Technology and Consumer Discretionary posted bogeys in the early holes of the quarter, it was the Communications sector that took the lead on Friday thanks to a big shot off the tee from…
- The Walt Disney Co. (DIS) hosted an investor presentation focused squarely on the streaming service. The services include Disney Plus, ESPN Plus and Hulu (Disney has a 60% stake). Disney Plus will launch in the U.S. on November 12th and will cost $6.99 per month. The service will be available globally over time as well. ESPN Plus and Hulu are also focused on expanding overseas. The company expects 60 to 90 Million subscribers by the end of 2024 for Disney Plus, 8 to 12 Million for ESPN Plus and 40 to 60 Million subscribers for Hulu. A bundling program will undoubtably be available as well. Maybe we will get more information on May 8th when Disney reports 1st quarter results. Speaking of Earnings…
- Fastenal Co. (FAST) was our first holding to report and it did not disappoint. The company beat expectations narrowly, but an eighth straight quarter of double-digit revenue growth propelled the stock to all-time highs. The next to tee-off was JP Morgan Chase & Co. (JPM). The bank topped expectations thanks to a rebound in Investment Bank profits and strong results from Consumer & Community Banking. Average core loans in that unit increased by 4%, client assets grew by 13% and credit card volume rose by 10%. Lastly…
- It was revealed on Friday that Chevron Corp. (CVX) was acquiring Anadarko Petroleum Corp. (APC) in a deal valued at $33 Billion. Anadarko shareholders will receive $16.25 in cash and 0.3869 shares of Chevron for each of their shares. Chevron will enhance its Upstream portfolio, strengthen its shale, deep water, and natural gas operations. $2 Billion of synergies are expected from the deal.
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