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Strategic Insights

Volume 8, Edition 7 | February 11 - February 15, 2019

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What Emergency?

Doug_Walters Doug Walters | Articles

Read Time: 2:00 min | Video: 1:41

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Stocks managed to put up another strong performance this week, riding a wave of optimism surrounding U.S. and China trade negotiations along with positive corporate earnings…

Contributed by Doug Walters , Max Berkovich , Aleksey Marchenko

Stocks were up this week largely on perceived progress between the U.S. and China on trade discussions. In the absence of a deal, U.S. imposed tariffs will increase by $200bn on March 2nd. Investors would prefer the certainty of a deal to the uncertainty of no agreement and a potential prolonged trade war which could have real economic implications. Not worrying investors this week was the declaration of a national emergency on Friday.

 

Headlines this Week (Feb 11 – Feb 15, 2019)

  • Progress this week on a trade deal between the U.S. and China, along with the avoidance of a government shutdown, improved market sentiment, helping U.S. equities to advance higher.
  • Small Cap and Value stocks led the rally this week. Both have had an impressive start to the year, yet valuations remain below their historical median leaving room for outperformance compared to Large Cap Growth or even a broad index like the S&P 500.
  • Developed International stocks were able to shake off some of the recent worries concerning the economic slowdown in Europe and the ongoing Brexit hullabaloo. The European Central Bank (ECB) has kept interest rates artificially low for years in hopes of reigniting Europe’s growth and inflation, but signs of meaningful improvement have been scarce.
  • December Retail Sales data was reported this week – a key indicator of consumer health. The data showed a meaningful decline in sales. However, we believe this may have been impacted by data collection issues during the government shutdown, as earnings reports from retailers have been more encouraging. Headline seekers will call this data point “the biggest drop in retail sales since 2009.” Watch this week’s video to see why this is very misleading.

The Week Ahead

  • Presidents Day on Monday. U.S. stock and bond markets are closed.
  • Earnings reports are due from Strategic holdings Walmart (WMT), CVS (CVS), and Medtronic (MDT).
  • On Wednesday the Federal Open Market Committee releases their meeting minutes.
  • Brexit talks will heat up with a month to go. May looking for an extension.
  • China trade talks move to the U.S. The deadline for tariffs to increase by $200bn is March 2nd.

Stock Highlights from Max

Cisco

All-Star Weekend

A very nice week for the stock market in general, but several sectors were all-stars; the Industrial sector boxed out Health Care, Financials, and Technology to notch this week’s MVP trophy. Conversely, Telecommunication Services was cold, in particular…

  • Facebook, Inc. (FB) received a flagrant foul call from The Federal Trade Commission (FTC). The regulatory agency will impose the largest fine it ever imposed on a tech company. The exact dollar amount is still to be announced, but multi-billion is the whisper. This fine is a negotiated settlement for the social network’s privacy practices. For the record, the previous biggest tech fine by the FTC was $22.5m to Google (GOOG, GOOGL), which we also own in our Growth strategy. Speaking of technology…
  • Equity Income holding Cisco Systems, Inc. reported earnings Thursday. The company reported a slight beat on sales and earnings but managed to dish out some other goodies. The company raised its dividend by 6%, boosted its stock buyback program by $15bn, and provided above-consensus guidance for next quarter. Speaking of earnings in our Equity Income strategy…
  • PepsiCo, Inc. reported an in-line quarter but pumped up the crowd with 4.6% organic revenue growth. The 4% revenue growth from Snacks (or Frito-Lay-up as it was previously called), helped fuel the company past its biggest rival, The Coca-Cola Co. (KO) which we do not own.

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets over $1 billion.

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