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Week Ending 4/7/2017

Summary

  • Stocks around the world moved marginally lower
  • The March employment report indicated far fewer jobs created than economists expected
  • Consumer Discretionary stocks were lower in a sign of concern about consumer spending

Notable Market Headlines

Large U.S. stocks closed the week down -0.3%. This small loss masks some volatility that occurred including a gain by the Dow Jones Industrials on Wednesday of nearly 200 points that was entirely wiped away. The afternoon selloff followed news that the Federal Reserve may begin addressing their $4.5 trillion balance sheet sooner than had been anticipated.

Small U.S. stocks suffered more selling pressure resulting in a loss of -1.4% for the week. This loss leaves them higher by on 0.5% year-to-date. General consensus had been that the Trump presidency would be good for smaller companies. Small stocks surged immediately following the election in November but have done little since.

International stocks also ended lower for the week with developed country stocks down -0.8% and emerging markets of just a fraction. International emerging markets remain the clear winner so far in 2017 with a year-to-date gain of +12.5%.

Hard assets, all consider to be inflation hedges, posted gains this week. Commodities, including the price of oil, continued to recover some losses earlier in the year with a gain of +1.4% on the week. Gold also notched a gain of +0.6% to a price of $1,253.90 per ounce. Real estate gained +1.0% and is now nearly flat for the year wiping away earlier losses.

For a second week in a row there was very little movement in the price of U.S. bonds.

Investor Trivia Question

Ford Motor company was founded in 1903. The stock today sells for $11.23 and is off a high in the mid-$30’s set in 1999! That’s certain tough for investors. At today’s price the company is valued at approximately $44 billion. It was widely reported that car manufacture Tesla’s stock value exceeded that of Ford’s for the time this week.

Ford sells about 2.5 million cars per year with total revenue of $151.8 billion. How many cars is Tesla expected to sell in 2017?

Market Leaders

There were two repeats at the top of the winners list this week:

  • FMC Corp (FMC), a diversified chemical company, made an acquisition the prior week that pushed spurred a jump in price by +13.8%. The stock continued to gain this week adding another +8.1%. The stock is higher year-to-date by +33% but remains just shy of its all-time high just below $80 set about 3 years ago.
  • Vertex Pharmaceuticals (VRTX), a biotech company, surged on positive news the prior week by +21.5% and gained another +6.0% this week.

Staples (SPLS), the office supplies retailer, is rumored to be in talks to sell the company. The stock gained +11.2% on the news but this has been one that has suffered greatly the past decade. The stock peaked about 10 years ago and remains 65% below that all-time high. The accompanying graph shows the unfortunate steady decline in total revenue from its peak in 2011 at $25 billion to just over $18 billion now. This is a common challenge for multiple retailers.

Market Laggards

Acuity Brands (AYI), a provider of lighting solutions for commercial and residential use, reported quarterly earnings below expectations. The stock dropped -15.1% for the week in reaction to this surprise. Multiple Wall Street analysts then downgraded their rating on the stock. Longer-term this stock has done extremely well with gains at today’s price of about 200% during the past 5 years in spite of being about 35% off its 2016 all-time high.

Nvidia (NVDA), a computer chipmaker, stock dropped -7.9% for the week. This is another hot stock that has recently lost some steam. In 2016 the stock gained +223% and continued higher into 2017 with a peak in early February. The stock is down about -20% from its high two months ago. This week’s selling pressure came as the result of an analyst downgrade and concerns the company may not be able to continue growing at the same pace it has.

Consumer Discretionary stocks suffered this week making up have of the 50 worst performing stocks. The stocks with notable losses included many retailers and those in the automobile industry.

Economic Indicator - Reported

It was a very disappointing headline number for the March employment report with only 98,000 jobs added. Economists had been expecting 178,000 with the lowest estimate from the many economists being 125,000 (proving such numbers are impossible to predict). Poor weather was blamed for the low number.

One bright spot regarding employment was the falling unemployment rate to 4.5% from 4.7%. It is now at the same level as it was during the strong 2007 economy.

All other economic indicators for the week were overshadowed by the employment report.

Economic Indicators – Upcoming

We will get two reads on inflation in the coming week with both the Producer Price Index and the Consumer Price Index being reported for March. Concerns about rising inflation have not materialized and the consensus for the current month is a 0% change due to lower energy prices.

March retail sales are expected to have been flat. Consumers are clearly showing signs of slowing and the March number was further impacted by poor weather in parts of the country.

Investor Trivia ANSWER

Tesla is expected to sell approximately 100,000 cars in 2017! Again this compares to 2.5 million for Ford. Tesla’s total revenue in 2016 was $7 billion as compared to $151.8 billion for Ford and both companies today have a similar market value. Clearly investors believe Tesla will continue to grow rapidly and will generate great profits.

Contact Mark A. Patton :