CWS Market Review – May 12, 2019
“The greatest ability in business is to get along with others and to influence their actions.” – John Hancock
Fourteen years in the past, Twitter didn’t exist. As we speak it will possibly assist destroy trillions of dollars in international market cap. Bloomberg ran the numbers and found that President Trump’s 102-word tweet storm relating to Chinese language tariffs sparked a selloff that totaled $1.36 trillion. The volatility index jumped 50% in simply two days—and it all started with two tweets.
Does this mark the beginning of the top? Eh…I doubt it. Let’s keep in mind that the bulls have had a superb run this yr, so it’s pure for the bears to strike back. First, some current historical past. On April 26, the S&P 500 completed the session at an all-time excessive shut. In different phrases, we made back the whole lot we lost from the ugly market we had late final yr. Then on Tuesday, April 30, the index closed out the month at 2,945.83, yet one more all-time high shut.
On Friday, May 3, the government reported that the unemployment price fell to its lowest level in 50 years. That day, the S&P 500 closed at 2,945.64, a hair under its all-time excessive close from three days earlier than. That can typically be a nasty omen, when the index fails to make a brand new high, even by a tiny bit.
After that, we acquired the president’s tweets, after which dangerous things started to occur. The S&P 500 fell four days in a row for a complete loss of 2.54%. In fact, in the giant scheme of things, that’s not a really huge loss. Plus, the market gained another 0.37% on Friday.
So what’s happening? In this week’s situation, we’ll take a better take a look at the president’s tweets and their impression available on the market. We’ll also give attention to our three Purchase Listing earnings reviews from this week. I’m additionally pleased to say that our Purchase Listing has been performing fairly properly versus the market in current days. As traditional, when buyers get scared, they find solace in high-quality shares, and that’s us. But first, let’s take a look at the superb April jobs report.
The Lowest Jobless Fee in 50 Years
On Friday, May 3, the federal government reported that the unemployment fee fell to three.6%. That’s the lowest degree since December 1969. If we take a look at the peacetime fee, then it’s the bottom in 70 years. For ladies, we now have the lowest jobless fee since 1953. The temporary slowdown we noticed earlier this yr has clearly handed.
The jobs report stated the U.S. financial system created 263,000 internet new jobs final month. When you recall, we had a reasonably lousy jobs report just two months ago. The government stated the financial system created simply 20,000 internet new jobs in February. That report shocked a lot of people, and some even thought it is perhaps the beginning of a recession. As it seems, the February slowdown was a minor blip in the financial system. The jobs achieve for February has now been revised upward to a achieve of 56,000 jobs.
There is a weak spot amid the excellent news, and that’s wage progress, which continues to be sluggish. Over the past yr, average hourly earnings are up 3.2%. That’s better, however I’d wish to see it larger. Larger wages means extra revenue for companies. Plus, there’s no evidence that inflation is heating up. On Friday, the government stated that shopper prices rose zero.three% final month. That’s not much, and the “core” price increased by 0.1%. That’s the third month in a row that core inflation is up by 0.1%. During the last yr, inflation is up 2%, while core inflation is up 2.1%. That is excellent news for buyers. Importantly, it suggests that the Fed gained’t do a lot for the remainder of this yr.
Now let’s take a look at the Twitter entrance of the commerce conflict. The stock market obtained spooked this week by a pair of tweets President Trump posted last Sunday evening. In them, he threatened to escalate the brewing commerce conflict with China. I have to stress that markets aren’t notably apprehensive concerning the tariffs the U.S. imposes. Quite, they’re concerned about retaliatory tariffs from China, or different nations, on U.S-made items. Worst of all, this kerfuffle might spark an all-out trade warfare during which tariffs are always hiked by two sides that refuse to again down.
In the brief term, tariffs on Chinese goods would give a fast increase to their U.S.-based rivals. In fact, those corporations would shortly increase prices on shoppers because the enjoying subject has been emptied. However it will get tough as a result of trade is a nonlinear relationship. For example, tariffs would additionally harm American corporations that rely on suppliers based mostly in China. The current CPI report confirmed that inflation isn’t a problem, so shoppers aren’t yet feeling the pinch of those insurance policies.
I feel the protected assumption is that the trade threats can only go to date. Each side have too much to lose. President Trump has typically mentioned that in negotiations, he likes to speak robust as an initial bid only to melt his stance because the discussions progress. That leaves the White Home in a precarious state of affairs where it needs to persuade China that it’s critical while assuring monetary markets that it’s open to bargaining.
There might be one thing to this. On Friday, the Dow staged a 450-point comeback after President Trump tweeted constructive comments on commerce negotiations. He even left the door open to tariffs being removed in the future. Certainly, a lot of this (on each side) is due to home political considerations slightly than a coherent overview of trade coverage.
As typical, I’ll skip the political angle and concentrate on what it means for us. Make no mistake, a trade warfare is dangerous for business. The current tariffs aren’t good for stock buyers. Nevertheless, it’s in everyone’s interest to work collectively on these points. That’s why the trade rhetoric might be rather more heated than precise policy. The tariffs are a thorn within the aspect, not a dagger within the coronary heart. The overall local weather continues to be excellent for buyers.
On that notice—though I’ll in all probability jinx it by even mentioning it—the market’s current slide has been quite good for our Buy Listing. I should add that I imply that in a relative sense. We’re down, however not as a lot as everybody else. I typically hear buyers criticize me for the “we suck less” argument, however for my part, these are the durations that basically separate good buyers from the pack.
During the last week, our Purchase Listing is down 0.65% in comparison with the S&P 500’s loss of 2.18%. That’s quite a bit for one week. Since April 22, the Purchase Listing is up 1.61%, whereas the S&P 500 is down zero.91%. I ought to warning buyers to not be overly frightened by short-term losses nor overly pleased by short-term good points. As all the time, we’re targeted on the long run.
By way of Friday, our Purchase Listing is up 16.59% this yr (that doesn’t embrace dividends). The S&P 500 is up 14.94%. Sixteen of our 25 shares are beating the market. FactSet (FDS) is our largest winner with a 40% YTD achieve. Eight of our stocks are up more than 22% on the yr.
At first of 2018, we added Church & Dwight (CHD) as a brand new stock. Early on, it was a flop, however I’m glad we caught with it. In a bit over a yr, CHD is up over 61%. Actually, most of our defensive shares have been doing nicely these days, names like Smucker (SJM) and AFLAC (AFL). Hershey (HSY) has additionally been robust. This is sensible. A commerce conflict gained’t have much of an impression on the chocolate-bar biz. Now let’s take a look at some current earnings information.
Three Buy Listing Earnings Reviews this Week
We had our last three Purchase Listing earnings reviews of this earnings season. On Tuesday, Broadridge Financial Solutions (BR) reported fiscal Q3 earnings of $1.59 per share. That was nine cents better than expectations.
Nevertheless, Broadridge had combined information on their steerage. The corporate lowered its full-year revenue progress forecast from three% to five% right down to about 1%. BR reiterated its full-year EPS progress of 9% to 13%. Last yr, the company made $4.19 per share, so the present outlook works out to $4.57 to $four.73 per share. Via the first three quarters, Broadridge had earned $2.94 per share.
The shares pulled back a bit on Tuesday however stabilized after which rallied on Friday. The CEO stated, “After a solid third quarter, Broadridge is very well-positioned to deliver strong full-year results.” I’ve to agree. Within the final seven weeks, the stock is up 19%. This week, I’m lifting my Buy Under on Broadridge to $125 per share.
After the bell on Wednesday, Disney (DIS) reported Q1 earnings of $1.61 per share, three cents better than estimates. There’s been so much news about Disney just lately that the earnings report virtually seems anti-climatic.
Disney stated it expects Disney+, the new streaming service, to be worthwhile by 2024. The Avengers movie continues to be crushing it at the box office, and the theme parks had a very good Q1. Internet revenue for the parks totaled $1.5 billion for the primary quarter.
Disney’s general income are down this yr, but that’s because of the large movie hits it had in 2017. That’s the character of the entertainment enterprise. I really just like the course that Disney is taking. I’m raising my Purchase Under on Disney to $140 per share.
Whereas I like the information from the previous two corporations, I wasn’t thrilled by the information from Becton, Dickinson (BDX). For Q2, the corporate reported earnings of $2.59 per share, which beat estimates by one penny per share.
Becton, Dickinson lowered its full-year income steerage of progress of eight.5% to 9.5% down to eight.0% to 9.0%. The corporate blamed the damaging impression of foreign money change. BDX hasn’t modified its currency-neutral forecast of income progress of four% to 6%. Becton sees full-year earnings starting from $11.65 to $11.75. The company blames foreign money exchanges plus “recent regulatory and market pressures related to paclitaxel-coated devices.” The earlier vary was $12.05 to $12.15 per share.
The shares dropped over three% at Thursday’s open. Luckily, the inventory didn’t fall as much as I had feared. However, I’m decreasing my Buy Under on Becton from $260 to $234 per share.
That concludes the first-quarter earnings season for our Buy Listing shares. Arising, we’ve three Buy Listing stocks with reporting quarters that led to April. The three shares are Hormel Meals (HRL), JM Smucker (SJM) and Ross Stores (ROST). Ross and Hormel are resulting from report on May 23, while Smucker is because of report on June 6.
That’s all for now. I anticipate to see more volatility out there next week. We’re going to get a number of key financial reviews. On Wednesday, the retail-sales report for April is launched. This might be considered one of our first knowledge factors to see how properly Q2 is wanting. Also on Wednesday, we’ll additionally see the report on industrial production. On Thursday, we’ll get the housing-starts report, plus another jobless-claims report. You’ll want to hold checking the blog for day by day updates. I’ll have extra market analysis for you in the subsequent problem of CWS Market Review!
Posted by Eddy Elfenbein on May 12th, 2019 at 7:08 am
The knowledge in this blog publish represents my very own opinions and does not include a suggestion for any specific safety or funding. I or my associates might hold positions or other pursuits in securities talked about in the Blog, please see my Disclaimer page for my full disclaimer.