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Strategic Insights

volume 7, edition 42 | November 26 - November 30, 2018

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Doug_Walters Doug Walters | Articles

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Robust holiday shopping and comforting commentary from the Federal Reserve helped stocks rebound this week…

Market Review

Contributed by Doug Walters

U.S. stocks recovered last week’s losses thanks to an encouraging start to the holiday shopping season and supportive commentary from Fed Chairman Powell.

Peace Offering

The S&P 500 rose an impressive 4% in the first full week of the holiday shopping season. But it was comments from Fed Chairman Powell that buoyed the market. The Fed has been gradually increasing interest rates for the past two years to return to a “neutral rate.” When monetary policy reaches neutrality, the rate is low enough not to be an economic drag, but high enough not to be giving the economy an unnecessary push (see Spotlight: Fed Speak, in Fed up with Musk).

This week Powell referred to the current rates as “just below” the neutral rate and reiterated a solid outlook for the economy. The dovish message was a welcome peace offering to markets and implies that fewer rate hikes might be necessary than was previously anticipated.

Spotlight: Holiday Shopping

According to the National Retail Federation, 165 million Americans shopped either in stores or online from Thanksgiving Day through Cyber Monday. While online sales continue to grow quickly, most shoppers (54%) still use a combination of both online and brick and mortar options for there purchases (25% use just online, while 21% shop in-store only). Investors reacted positively to the robust retail figures, providing a welcome tailwind for U.S. stocks this week.


Strategy Update

Contributed by Max Berkovich ,


Around the World

U.S. equities and fixed income advanced higher this week on the back of Chairman Powell’s comments surrounding the path of rate hikes. Growth stocks stood out from the pack this week with value and small capitalization stocks trailing behind. Developed and emerging markets also joined in this week’s risk-on rally. Speaking of developed and emerging markets…

  • The stabilization of U.S. dollar is essential for international markets. The U.S. dollar has stabilized a bit in recent months and can potentially weaken if the Fed decides to scale back its hike path in 2019 from 4 to 3 hikes.
  • The U.S. Fed has been raising interest rates for the past few years (9 times) while most global central banks held their rates steady at historically low levels. The European Union, the United Kingdom, and Japan continue to suffer from low inflation and high unemployment. Ten years of monetary stimulation have done a great deal to stabilize their economies but have yet to show any signs of a meaningful pick-up in inflation.
  • Recent weakness in crude oil will most likely impact the BRIC countries (Brazil, Russia, India, China), which together represent a large part of the emerging markets indices. India and China are net oil importers and will benefit from lower oil prices while oil producers such as Brazil and Russia will be negatively impacted.


Tree Topper

The Health Care sector was the leading sector this week, while Consumer Staples was battling it out with Materials for last place. In other strategy news…

  • DollarTree Inc. (DLTR) reported an in-line quarter, beating on earnings and coming a bit short on revenue. Same-store sales for the DollarTree stores were 2.3% higher, but the Family Dollar brand slipped by 0.4%. The company blamed cost pressure from rising labor costs and freight costs for lackluster performance, but investors received the results enthusiastically none the less, as expectations were likely much lower.


Jingle Bells

Industrial and Consumer Discretionary had an equally awesome week. The Energy sector bounced back from recent ills (crude oil was down 22% in November) but was the lagging sector. Speaking of ills…

  • Recently, AT&T Inc. (T) has been under pressure thanks to its expensive acquisition of Time Warner. This week the telecom giant updated its guidance. The company guided for low single-digit EPS growth, free cash flow of $26 Billion, and a dividend payout ratio of 50%. The company assuaged investor concern by outlining that it will use $12 Billion of the free cash flow to pay down the massive debt load it accumulated from the Time Warner acquisition. Also, the company plans to have a 3-tier system: an entry-level service with just movies, a mid-tier with original programming and “blockbuster movies,” and a third tier combining the other two plus other WarnerMedia content.

The Week Ahead

Contributed by

Check the TUBE for G-20 Intrigue this Weekend

Twenty nations (technically 19 and the EU) are gathered in Buenos Aires, Argentina for the G20 summit.

  • President Trump will meet with Chinese leader Xi Jinping on Saturday to discuss trade and hopefully avoid another round of tariff escalations.

Ulta Beauty (ULTA) is the only Strategic holding scheduled to report earnings next week.

  • Last quarter the company announced their partnership with Kylie Jenner to sell her Kylie Cosmetics line in Ulta. We expect investors will want to see more on this.

Brexit related drama is expected as we head towards the March deadline.

  • The European Court of Justice (ECJ) will decide if the United Kingdom can stop Brexit unilaterally if they wanted to.
  • The Bank of England Governor Carney will be speaking on Tuesday. He recently predicted dire economic results if the Brexit deal is not in place.
  • The Financial Policy Committee will present a detailed analysis of the stability of the UK’s financial system, and the effects of Brexit with or without a “deal” with the European Union.

Economics data of note are Non-Farm Payrolls, Non-Manufacturing ISM Report, Beige book, Michigan Consumer Sentiment Index, and Vehicle Sales.

  • The Friday Non-Farm Payrolls report is highly anticipated, with early consensus calling for 205,000 jobs created in November, but no change in hourly earnings or hours worked is anticipated.

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets of over $2 billion.