Earnings, Friday’s Jobs report and a rate decision were supposed to drive the market this week. Instead, fears of global slowdown took a toll on equity markets around the globe after a tweet from the President. The market was at the time, attempting to bounce back from Federal Reserve related sell-off the previous day. As the dust settled, the S&P 500 was on track for the worst week of the year.
The White House announced intentions to 10% tariff on the remaining $300 billion of Chinese goods on Thursday. The tweet on tariffs from the President stated, “tax the hell out of China” and reassured the markets that trade negotiations are not moving towards a resolution. Once again, global markets reacted to fear of a global slowdown, with China at the epicenter.
The U.S. Federal Reserve (Fed) cut the overnight lending rate by the widely expected 0.25%. The cut was the first in over a decade. Federal Reserve Chairman Powell stated that the Fed’s decision to cut rates is not “the beginning of a lengthy cutting cycle.” However, after the tweet on Thursday, the Fed might be pressured to act more aggressively. The rate cut translated to big move down in yield for the U.S. Treasury. The 10-year at 1.85% yield was down significantly from where it started the week.
The U.S. economy added 164,000 jobs in July, matching the consensus expectations. Unemployment remains at historically low 3.7%, while wages increased 3.2% from a year ago.
More than half of S&P 500 companies reported earnings for the second quarter. Healthcare and Financials have exceeded earnings estimates, while industrials and materials have missed the mark so far.
Several of our portfolio holdings release earnings next week, including Walt Disney Co. (DIS) and CVS Health Corp. (CVS).
- Disney has been helped by strong performance at the box office, earning $7.67 billion YTD
- CVS continues to focus on its integration of recent acquisition Aetna Inc.
Japan and the United Kingdom are set to release 2nd Quarter GDP data toward the end of next week.
- UK GDP growth is expected to be stagnant, but due to increasing Brexit concerns, experts would not be surprised by a small contraction.
Domestically, the focus will be on the July services Purchasing Managers Index (PMI), Institute for Supply Management (ISM) Non-Manufacturing Index for July and Producer Price Index for July.
- The U.S. Services sector represents roughly 80% of GDP, and is much more sensitive to changes in the services PMI.
Tough pill to swallow
Consumer discretionary sector was the worst performer thanks to renewed China tariff news. Financial sector though, gave a strong run for last place thanks to lower interest rates and an unwelcomed earnings report from a life insurer. With interest rates falling, utility and REIT sectors shined, and health care sector managed to keep itself mostly in good graces thanks to…
- McKesson Corp. (MCK), the pharmaceutical distributor, reported consensus topping results and raised guidance. The company boosted its dividend slightly and announced that once an IPO of Change Healthcare Inc. is completed, McKesson’s ownership will drop from 70% to 58.5%. The process of that transaction will be used to pay down debt. Merck & Co., Inc. (MRK) also topped expectations and boosted guidance. The cancer drug franchise of Keytruda produces $2.6 Billion in sales a 58% boost from the previous quarter.
- A major deal was announced as Pfizer Inc.’s (PFE) Upjohn unit and Mylan N.V. (MYL) will combine. Pfizer will own 57% of the combined company. Upjohn unit is off-patent medication which includes Lipitor, Celebrex and Viagra, while Mylan is known for EpiPen and Lisinopril. The combined entity will have $19-20 Billion in expected revenue in 2020.
- Apple Inc.’s (AAPL) quarter also beat consensus, with record revenue from services helping rebalance the company’s sales to be less iPhone centric. The company’s cash pile ended the quarter at $102 Billion.
- Prudential Financial Inc. (PRU) fell short of expectations. Lower interest rates and people living longer hurt the life insurance business.
Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets over $1.6 billion.Overview
Strategic Financial Services, Inc. is a SEC-registered investment advisor. The term “registered” does not imply a certain level of skill or training. “Registered” means the company has filed the necessary documentation to maintain registration as an investment advisor with the Securities and Exchange Commission.
The information contained on this site is for informational purposes and should not be considered investment advice or a recommendation of any particular security, strategy or investment product. Every client situation is different. Strategic manages customized portfolios that seek to properly reflect the particular risk and return objectives of each individual client. The discussion of any investments is for illustrative purposes only and there is no assurance that the adviser will make any investments with the same or similar characteristics as any investments presented. The investments identified and described do not represent all of the investments purchased or sold for client accounts. Any representative investments discussed were selected based on a number of factors including recent company news or earnings release. The reader should not assume that an investment identified was or will be profitable. All investments contain risk and may lose value. There is no assurance that any investments identified will remain in client accounts at the time you receive this document.
Some of the material presented is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. Strategic Financial Services believes that such statements, information, and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.
No content on this website is intended to provide tax or legal advice. You are advised to seek advice on these matters from separately retained professionals.
All index returns, unless otherwise noted, are presented as price returns and have been obtained from Bloomberg. Indices are unmanaged and cannot be purchased directly by investors.