Stocks in the Balance
Doug Walters
Stocks continued their winning ways this week (barely), thanks to the relatively positive economic commentary…
Contributed by Doug Walters , Max Berkovich ,
Stocks did just enough this week to keep the positive momentum going. GDP was better than expected, while geopolitical news was balanced (the North Korean summit ended without a deal, but the administration continues to hold out carrots to investors, hinting that a China trade deal is nearing). Behind the scenes, the Biotech sector had a standout week particularly for investors like us who favor the small-cap end of the scale.
Headlines this Week
- U.S. GDP quarter-on-quarter growth dropped from 4.2% in Q2 to 2.6% in Q4 as the sugar high from last year’s tax cuts wore off. However, the year-on-year growth of 3.1% paints a picture of steady economic progress. When combined with wage growth, which is finally outpacing price inflation, the economic picture remains robust.
- The global index provider MSCI, announced this Thursday that it would increase the weighting of China A-shares from 5 to 20 percent in three steps to November of this year. The exposure to the second largest economy is heavily underrepresented in the global indices (based on relative GDP). The change by index provider MSCI will likely bring over $60 billion in inflows to the Chinese A-share stock market… perhaps just in time for a U.S.-China trade deal?
- The UK’s Prime Minister Theresa May pushed back the vote in Parliament further, giving herself some time to gain more support for the Brexit deal. While the vote delay may help May, the party members against Brexit are calling for a second referendum.
- In his testimony to Congress, Fed Chairman Jerome Powell reassured investors that the U.S. economy remains on solid footing. Powell sighted meaningful wage and inflation growth and intention to pause rate increases amidst signs of economic slowdown in Europe and China.
The Week Ahead
- The ECB will make its rate decision Thursday, with no change expected
- Friday’s non-Farm Payroll always garners attention, with expectations for 180K jobs created
- Earnings are due out from a pair of retailers, Costco (COST) and DollarTree (DLTR)
- Speech Circuit: Due to speak are the Bank of England Governor Carney, Bank of Japan’s Harda, and the U.S. Federal Reserve’s Williams.
Stock Highlights from Max
Tripped-up
The Health Care sector was tripped up this week thanks to a Medicaid for All Act proposed in Congress. The proposed law spooked not only the insurers and providers but also Healthcare REITs. Since our lone REIT exposure is in the Healthcare space, our REITs sector was the biggest laggard. The Technology sector was the leading sector, edging out both Energy and Communication Services by a slim margin. Speaking of tripping…
- Booking Holding Inc. (BKNG), operator of travel sites priceline.com, booking.com, kayak.com and many others, reported a sizeable earnings beat, despite a slight miss on revenue, but was tripped up by a guidance cut for next quarter. The guidance cut was unwelcomed by investors and masked a healthy gross booking increase of 9% in the quarter and a 13% increase in room nights. The clear takeaway was that events in Europe are weighing on the Euro-centric travel company. The market has now narrowed the valuation gap between Booking and fellow Strategic Growth travel stock Expedia, Inc. (EXPE), its closest competitor.
- TJX Companies Inc. (TJX), a retailer under the brands Marshall’s, TJ Maxx and Home Goods, also reported earnings this week. Earnings were in-line with expectations and sales came in a bit better. But the company offered up a dividend hike and a boost to its share buyback on top of 6% higher sales in the holiday quarter this past year versus the previous year.
| Indices & Price Returns | Week (%) | Year (%) |
|---|---|---|
| S&P 500 | 0.4 | 11.8 |
| S&P 400 (Mid Cap) | -0.4 | 15.8 |
| Russell 2000 (Small Cap) | 0.0 | 17.9 |
| MSCI EAFE (Developed International) | 0.2 | 8.9 |
| MSCI Emerging Markets | -0.7 | 8.8 |
| S&P GSCI (Commodities) | -0.7 | 13.9 |
| Gold | -2.9 | 0.5 |
| MSCI U.S. REIT Index | -1.9 | 11.5 |
| Barclays Int Govt Credit | -0.3 | 0.4 |
| Barclays US TIPS | -0.5 | 1.1 |
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