Sifting Through the Noise
Doug Walters
Stocks fell on concerns of economic weakness overseas. A surprisingly low U.S. jobs number added to the poor sentiment, but is likely just noise…
Contributed by Doug Walters , Max Berkovich ,
It was a forgettable week for stocks, with investors having to stomach declines every day. The S&P 500 fell nearly 3%, with Small-Cap stocks off even more. Some might say that after a 12% run we were “due” for a pullback. We do not subscribe to such trivial market characterizations. What we would say is that the pullback we experienced this week is well within the range of normal variation and not surprising given signs of weakness in Europe and China. A surprisingly low jobs number did not help sentiment, but we see this as mostly noise.
Headlines this Week
- The economy added about 20,000 new jobs in February. While this number was well below expectations of 180,000 new jobs, many analysts brushed off the low number as a one-off event skewed due to the government shutdown. Despite the weak number, the U.S. economy has added on average about 209,000 new jobs per month during the last year.
- The European Central Bank’s (ECB) president Mario Draghi announced the intention to postpone plans to increase rates and rolled out some stimulus instead. This was a major reversal in the ECB’s monetary policy and a very quick response to the first signs of economic weakness in the region. The news helped the U.S. Dollar strengthen against the Euro and a basket of major global currencies.
- China cut its economic growth target to 6-6.5%, which is slower than the 6.6% growth in 2018. China’s exports also declined more than expected in February fueling worries over a global economic slowdown. The Economic weakness in China might have pressured Beijing to speed-up trade negotiations with U.S. and add more stimulus to their economy. These worries, coupled with the sour news from Europe, helped U.S. bonds post fresh gains this week as U.S. Treasury yields declined.
Unemployment Falls
U.S. unemployment fell to a very low rate of just 3.8% in February. Low unemployment is finally starting to meaningfully impact wage inflation. Employers are having to increase salaries to entice workers in this tight market. Average hourly earnings are now growing at about 3.5% annually, which is at the highest level since the 2008 financial crisis. Importantly, wages are now growing meaningfully faster than the price of goods (inflation is closer to 2%), meaning spending power is going up!
The Week Ahead
- Earnings are due from Oracle (ORCL), Williams-Sonoma (WSM), and Ulta Beauty (ULTA).
- Brexit – Parliament votes on the Brexit Plan a second time on Tuesday, if the vote fails, a second vote will take place deciding on hard exit. A hard Brexit is one that has no deal with the EU. Also, a vote on delaying the process would be taken. The biggest hold-up is around the “Irish backstop.” If this is not resolved, it would leave the U.K. bound to EU rules on its Irish border indefinitely.
- A Bank of Japan Rate Decision is scheduled for Friday (no change expected).
- JOLTS (Job Openings and Labor Turnover Survey) and the University of Michigan Consumer Sentiment survey wrap up the week on Friday.
Stock Highlights from Max
Family Ties
The Health Care sector had another sickly week. The fear of Medicare-for-All continues to spook investors. The Communication Services sector was the leader, but by a slim margin as both Consumer Staples and Consumer Discretionary were hanging tough. Speaking of the consumer…
- Dollar Tree Inc. (DLTR) reported an in-line quarter, but investors had to read beneath the headline and shake the tree for goodies. The company expanded same-store sales by 3.2% in the DollarTree branded stores in the 4th quarter and the Family Dollar branded stores grew by a much slower rate of 1.4% but grew none the less. On the negative side, the company’s gross profit margin declined as costs of doing business went up. The company also had to write-off $2.73 Billion of Family Dollar related goodwill and lowered guidance for the next quarter and full year. All the negative news was brushed aside as the company unveiled a plan to fix the Family Dollar problem. The plan involves closing 390 stores and renovating 1,000 others. The renovated stores will expand a $1 price point section, expand its freezer/cooler section and sell alcohol. CEO Gary Philbin, expects to progress from this in the back half of 2019. Another retailer that impressed this week…
- Costco Wholesale Corp. (COST) blew past expectations on earnings despite a slight miss on revenue. The company really impressed with a 6.7% comparable sales increase in the quarter and a 25% increase in online sales.
About Strategic
Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets of over $1.8 billion.
OverviewDisclosures
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.