Last week’s weakness was followed by a week in the green as the S&P 500 found its way to new highs; up nearly 13% on the year as we head into St. Patrick’s Day. It is an excellent reminder that markets are by definition volatile, but have historically rewarded the patient investor. All-time highs should not in themselves scare investors. If they are scaring you, perhaps you might be taking on too much risk. Equities have historically generated high single-digit returns annually. So, by definition, a healthy market will regularly be hitting new highs. The level of the market is irrelevant to us. Instead, we look at valuation and economic indicators to gauge the health of equities. We are currently comfortable on both fronts.
Headlines this Week
- Most equity markets moved higher this week, with domestic markets propelled by growth stocks. U.S. economic data showed signs of stability and headlines of continued progress on a China trade deal fueled the move. Bonds finished in the green on the back of tepid inflation growth.
- BREXIT– British lawmakers voted to extend the Brexit deadline which is scheduled for March 29th. Investors around the world were glad to see the option of “Hard Brexit” or “No-Deal Brexit” is not preferred by the British. The ball is now in the European Union’s court. Meanwhile, the British Pound is at a 9-month high against the dollar thanks to the most recent development.
- Last week, equity exchange-traded funds (ETFs) received the largest weekly cash inflows in a year according to flow data provider EPFR. While ETFs saw inflows, mutual funds continue to see net outflows. Trim Tabs Investment Research (an aggregator of fund flow data) believes the data points toward a continued stock rally. They note that $10.2 Billon was pulled from equity mutual funds and ETFs this year, while $86.4 Billion of flows have gone into fixed income funds. The imbalance could fuel future flows to equities as demand normalizes.
You are not alone…
Fittingly, as we approach St. Patrick’s Day, the big sticking point is over the border between Ireland and Northern Ireland. This entertaining, yet oddly informative, video gives you some sense of what is making a final agreement on BREXIT so challenging.
The Week Ahead
- The U.S. Federal Open Market Committee (FOMC) has a rate decision, but more importantly a press conference where more color on Quantitative Tightening (QT) is expected.
- The Bank of England also has a rate decision this week. No change is expected.
- The European Union summit is Thursday, with the most significant item being a vote on a Brexit extension. All 27 members must vote to approve.
- Speaking of BREXIT, a delay of a year is what is in discussion. Opponents of BREXIT hope it may lead to another memorandum to stay in the Union.
Stock Highlights from Max
The Health Care sector bounced back from recent pressure but came away shy of the lead. Technology was the top sector. The Industrial sector, on the other hand, was the laggard as a result of an unfortunate plane crash that grounded The Boeing Co.’s (BA) 737 Max 8 & 9 planes and halted delivery of new planes. This is the second crash in the past five months. This development not only weighed heavily on the company’s stock but on aerospace suppliers as well. The monthly impact is expected to cost Boeing $115 Million per month. The fix may take 3-6 months according to Bank of America. In other news…
- Ulta Beauty, Inc. (ULTA) reported one good looking quarter. The purveyor of beauty products topped expectations on all fronts. A comparable sales increase of 9.4% for the 4th quarter was stronger than the 8% analysts expected. Transactions were 7.1% higher in the quarter, and each transaction was spending 2.3% more per purchase. The all-important online sales were 25% higher from the 4th quarter of the previous year as well. The company continues to see strong success in mass cosmetics by identifying trendy brands and making them exclusive to Ulta stores. Examples are Kylie Cosmetics from highly influential Kylie Jenner, Morphe, and Colourpop. Also this week…
- Oracle Corp. (ORCL) reported a slight beat on earnings, but virtually flat year-over-year sales. The company increased its dividend by 26% but lowered guidance due to a strong U.S. Dollar.
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