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Msg  65353 of 65821  at  7/11/2019 10:12:04 AM  by

carswell


The Launch Pad


Daily market commentary
The Launch Pad
July 11, 2019
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Today

We can mark another milestone for the S&P 500. It breached 3000 for the first time yesterday morning, but unfortunately it couldn’t hold that level into the close. With futures up this morning, today just might be that day. It’s taken 5 long years since the index first broke through 2000, with the charge to 3000 powered largely by tech stocks. Leaders such as Apple, Microsoft and Amazon all reached the trillion-dollar market cap level.

In our Chart of the Day we plot the return attribution by sector for the S&P 500 since first breaking through 2000 back in August 2014. The total return for the SPY (our proxy) over this time period was 65.84%, thanks to dividends and compounding return. As we mentioned Tech (19.94%) was the big driver, followed by Consumer Discretionary (8.87%), and Health Care (8.26%). The Energy sector detracted from returns over the past five years with an attribution of -2.21%. Tech accounted for nearly 30% of the total return over the time periods, certainly punching above its 17% average weight.

While we’re in the weeds, we took some time to look at the attribution from the individual company level and detailed some results in the chart below. It clearly paid to be long tech and short energy. Who would have guess you should have been short two of the oldest blue chip companies out there (GE and IBM).


Ok, enough gushing about the S&P, lets get back to some real news.

Iran is not responding well to US sanctions and beginning to remind us why the initial nuclear deal was put into place. They failed to seize a British tanker yesterday (thanks to the British navy) in a tit for tat move, after the UK seized an Iranian tanker breaking sanctions yesterday. Iran has said that if European countries don’t meet their commitments under a nuclear deal, Iran will “strongly” take steps to reduce its own obligations. They’re threatening to enrich uranium far further than what they’ve been doing recently (which only break deal rules by a small amount), and potentially install new centrifuges. Kind of scary stuff when you consider they’re currently referring to US sanctions as economic terrorism.

As the U.S. housing meltdown ramped up late 2000s, Wall Street bankers at JPMorgan Chase & Co and other large banks were on the hunt for a way to move beyond the mortgage sector, finding a gold mine in the agriculture industry. However, with rising tensions in the U.S. – China trade war, bankers are heading for the exit sign once again, although the demand for farm credit continues to grow. With the lowering loan options, farms are struggling to survive.


Diversion: Nothing quite like sitting on your yacht, relaxing in the sun, and watching a volcano explode.




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Company news

Delta Airlines has boosted their profit expectations for 2019 as a variety of tailwinds spur growth. Demand for air travel remains strong, fuel cost has come in lower than expected and the grounded Boeing 737 Max aides in charging higher prices. This hike in expectations comes a day after American Airlines boosted their outlook. Retailer American Eagle has signed an exclusive deal with Green Growth Brands to sell CBD infused products in all their brick and mortar stores as well as online. The focus will be on personal care items like lotions, muscle balms and aromatherapy. Hudbay Minerals CEO Alan Hair is stepping down after 20 years at the helm. This comes just months after winning a hard-fought proxy battle against Waterton Global Resource Management.

Commodities

Oil prices are at a six-week high today as oil rigs in the Gulf of Mexico were evacuated due to an anticipated storm, and tensions with Iran are peaking after they failed to detain a British tanker in the Middle East. A British warship threatened the Iranian ships blocking the tanker, and that solved the issue in the short term. Iran is still furious that the UK detained an Iranian tanker for breaking sanctions. WTI is trading at $60.20 while Brent is trading just over $67. Powell’s speech helped support prices as well, as lower interest rates are seen as ensuring future demand for oil.

Gold is performing well through this low rate environment, enjoying being priced in a depreciating US dollar. At time of writing its trading at $1417.30/oz.


Fixed income and economics

A bevy of economic data releases is on the docket this morning headlined by the BLS announcing that inflation rose by +0.1% in the U.S. last month. That was a shade above the flat consensus and matched the prior month’s pace of price acceleration. Ex-energy, the cost of living in America rose by +0.3% and the most since January 2018. Year-on-year, the measure posted a +2.1% advance with firmer gains across virtually all categories in the index led by autos (+1.6%), apparel (+1.1%) and shelter (+0.3%). Note that this update in CPI is consistent with Fed Chair Powell’s testimony yesterday that suggested there is “a risk that weak inflation will be even more persistent than we currently anticipate”. For the employment watchers, weekly jobless claims clocked in at 209K ending July 6 and below the 221K expectation. This is the lowest reading for first-time filings of unemployment assistance since the gauge hit a historic low of 193K back in mid-April. Conversely, continuing claims (the aggregate measure of those seeking jobless benefits) tucked up to 1.723 million people ending June 29. North of the border, StatsCan reported that the price of new homes fell by -0.1% in May. Not only did that miss the flat expectation from the street, it’s also the second time in 2019 that home developers have failed to sell new builds at higher prices. This marks ten consecutive months now that the index has failed to post an increase --- the longest such streak since the global financial crisis.

Chart of the day


Markets

Quote of the day

Nobody comes here anymore, it’s too crowded.

– Yogi Berra





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