Peace of Mind
How well do you sleep when you are out of touch with your portfolio? Appropriate risk, diversification, and a robust process help, as do markets reaching all-time highs…
Contributed by Doug Walters , Max Berkovich ,
I spent much of the week out of the office and out of touch with the daily financial news flow. I know many in our industry who are on edge in such situations, but I was at ease. If you have set your risk tolerance right and built a well-diversified portfolio designed to benefit across the economic cycle, then you should not care about the day-to-day, week-to-week, or even month-to-month fluctuations. Of course, it did not hurt that markets breached new highs this week…
Headlines This Week
Equities were higher across the Globe, with U.S. markets touching all-time highs. Bonds too moved higher as yields fell. The U.S. 10-year flirted with the 2% level. Gold did not sit this party out either, reaching a multi-year high.
Federal Reserve Chairman Jerome Powell indicated that the case for a rate cut has strengthened. While the inflation rate remains below their 2% target, Fed members want to see persistence in the data before they pull the trigger on a rate cut. One member was reported to be clamoring for a 0.5% cut at that meeting.
- The Bank of England (BOE) left its rates unchanged, signaling more uncertainty ahead.
- The Bank of Japan (BOJ) kept its monetary policy unchanged but signaled they would ease if needed.
President Trump met with Canada’s Prime Minister Trudeau in Washington to discuss the United States-Mexica-Canada Agreement (USMCA).
- Mexico became the first nation to ratify the (USMCA) as a replacement for the North American Free Trade Agreement (NAFTA).
Geopolitics reared its ugly head this week but did not derail the risk-on party. Iran shot down a U.S. military surveillance drone. In a last-minute decision, President Trump called off a retaliatory missile strike, which could have had up to 150 casualties. While a bigger disruption to markets was avoided, crude prices were not spared as oil prices jumped 10% during the week.
The Week Ahead
An economic data dump will characterize the last week of the quarter. Notable releases include the final Q1 U.S. Gross Domestic Product (GDP), Person Consumption Expenditures Index (PCE), Durable Goods Orders, Personal Spending, Consumer Confidence, and several housing-related reports.
With oil prices rising in response to Iran related tension, the Organization of the Petroleum Exporting Countries (OPEC) meeting should receive more attention than initially expected. Experts do not see OPEC’s output rising.
The G20 summit in Osaka, Japan kicks-off on Thursday. A highly anticipated meeting between China’s President Xi Jinping and President Trump is the centerpiece, but a meeting with Russia’s Putin and Turkey’s Erdogan are also newsworthy.
20 for 20
Twenty Democratic party hopefuls for the Presidential nomination will square off in a two-night debate on NBC. Wednesday night, Senator Warren, Senator Booker, and Congressman O’Rourke headline the event. The Thursday line up will pit Senator Bernie Sanders and former Vice President Biden against each other.
Stock Highlights from Max
Markets at a new all-time high helped pull all sectors up, but it wasn’t equal. Utilities and Financials were the laggards, putting in only a slightly positive week. Our REIT sector was technically the top sector thanks to a well-received growth plan from our lone holding, the health care REIT Ventas Inc. (VTR), but Technology was the star thanks to microchip stocks bouncing back from recent woes and a positive earnings report from…
- Oracle Corp. (ORCL) not only beat earnings expectations but also showed revenue growth. While the $11.14 Billion quarterly revenue figure was only 1.2% more than a year ago, expectations were for a decline in revenue.
- The parade of M&A continued this week with UnitedHealth Group Inc. (UNH) shelling out $3.2 billion for a privately held payments firm Equian, in hopes of branching out beyond health care. Cognizant Technologies Corp. (CTSH) spent an undisclosed amount to acquire Zenith Technologies. The biggest matchmaking coup this week came from Pfizer Inc. (PFE), who inked a deal to acquire Array Biopharma Inc. (ARRY). The total enterprise value of the transaction is $11.4 Billion. The acquisition will add a pipeline of cancer therapies to Pfizer’s shelf and is expected to be dilutive to earnings by $0.04 – $0.05 this year and next. While Merck & Co. Inc. (MRK) did not strike any deals this week, it did find itself mentioned as a shopper of small to medium size targets in the cancer therapy and animal health spaces.
- Also, this week, Facebook Inc. (FB) announced its cryptocurrency Libra. A nonprofit association will run the cryptocurrency. The open-source digital currency is set to launch in the first half of next year and should empower consumers to spend money around the globe. Facebook will launch Calibra, the digital wallet for the currency, which should generate income for Facebook. Not surprisingly, it did not take long for politicians to call for hearings on the issue.
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