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Strategic Insights

Volume 8, Edition 33 | September 23 - September 27, 2019

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Wet Your Whistle

Doug_Walters Doug Walters | Articles

Read Time 3:30

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Autumn is here and both leaves and stocks fell, thanks to increased tensions in Washington. Investors in Upstate New York will have apple cider and apple cake to distract them…

Contributed by Doug Walters , Max Berkovich , Aleksey Marchenko , Mackenzie Evans

Fall has officially begun, and more than leaves fell this week. Stocks could not hold up to the pressure of a whistleblower report that increased the probability of impeachment. Value stocks gave up some of their recent gains as investors sought defensive sectors and low volatility strategies. In Upstate NY, the remedy for the stock market blues is to wet your whistle with some fresh squeezed apple cider and an enormous piece of apple cake from your favorite farm stand. Regardless of your locale, if you have a well-diversified portfolio appropriate for your risk profile, then you need not worry about stock market volatility. Enjoy the Fall!

Headlines This Week

  • Impeachment proceedings cast a shadow on markets this week. House Speaker Pelosi initiated the process in response to a whistleblower complaint, that, amongst other things, put a spotlight on the President’s request that the President of The Ukraine investigate his political rival, former-Vice President Biden and as well as his son.
  • The U.S. and China are planning to resume trade talks on October 10th in Washington, D.C. The meeting is set to take place before another set of tariff hikes on $250 Billion of Chinese imports is scheduled to kick-in on October 15th.
  • Crude prices around the world stabilized after Saudis were able to restore production quickly. The Kingdom announced that the impacted oil facilities will be fully restored next week.
  • A strong consumer confidence report and better than expected new home sales reassured investors that the U.S. economy still has a solid base. Personal income is rising, and durable goods orders rose in August as well.
  • An active response through repo actions from the Federal Reserve helped calm liquidity concerns in the banking system, but it is clear that a longer-term solution is necessary.

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The Week Ahead

Two of our portfolio companies release earnings next week:  PepsiCo (PEP) and Costco Wholesale Corporation (COST).

  • PepsiCo continues to finalize plans to acquire Pioneer Foods Group, based in South Africa, to grow outside of North America.
  • Costco continues to grow same-store sales, and we would expect its recent success in opening a new store in China will be a significant focus this quarter.

The U.S. Department of Labor will release Nonfarm Payroll numbers for September on Friday.

  • Many will be looking for the reported figure to provide some insight into the health and future trajectory of the economy.
  • The current consensus projects 162,000 jobs added for September.
  • There will be plenty of speaking engagements for Central Bankers next week and some minor economic releases, but the Jobs Report will be the most-watched.

Sunday night is the beginning of Rosh Hashana, the Jewish New Year.

  • We want to extend our wishes of good health, happiness, peace, and prosperity for 5780. L’Shanah Tovah!

Stock Highlights From Max

Health Scare

Yield sectors REITs, Utilities and Consumer Staples were the leaders this week as politics incited a shift back to the safety of dividend-paying stocks. Health Care, traditionally a defensive sector that often joins the three mentioned above during risk-off moments, bucked the trend and was the biggest laggard this week for two reasons…

UnitedHealhcare

  • Health insurance stocks UnitedHealth Group Inc. (UNH), Anthem Inc. (ANTM) and CVS Health Corp. (CVS) were weak due to news of declining Medicare advantage premiums for 2020. The U.S. Center for Medicare and Medicaid anticipates Medicare Advantage plans to be 23% cheaper than in 2018. Medicare Advantage is the delivery of the Medicare Part A & B services by private insurers. If that wasn’t enough…

McKesson

  • McKesson Corp (MCK) the distributor of pharmaceutical and medical supplies is facing a demand they pay a portion of $8 Billion to cover the fallout of the public-health crisis tied to addictive painkillers. The first federal trial is in Ohio, but it may open the floodgates for more demands. Well known short-seller, Citron Research, issued a report on Friday claiming that the total opioid settlement for all claims in the U.S. would be over $100 Billion. This math is based on the $572 Million settlement that Johnson & Johnson Corp. (JNJ) paid to settle in Oklahoma. The math is iffy at best, but numbers this large are scaring investors away from health care companies and arming politicians with ammunition to attack the sector.

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Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets over $1.3 billion.

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