Market Commentary for the week ending September 6th, 2019
- Stocks rally worldwide with the biggest winners being those outside of the U.S.
- Employment growth slows as companies remain cautious due to trade conflicts and uncertainty
- The chicken industry is not growing as hoped and putting pressure on processor Tyson Foods
Market Performance Summary
Notable Market Headlines
The U.S. and global economies continue to show signs of slowing with U.S. employment growth failing to meet expectations and falling below the recent growth trend. In spite of signs of slowing, stock markets around the world continue to rally off the August lows and are once again just a short distance from record highs for U.S. markets. Helping fuel the rally is anticipation of another rate cut by the Federal Reserve later this month.
At the close of a holiday shortened week, U.S. large stocks were higher by +1.9% and are now higher by +4.6% in less than 2 ½ weeks. Small U.S. stocks were also higher by continue to lag well behind large stocks gaining just +0.7% for the week. Year-to-date large stocks are higher by +20.4% while small stocks have gained just +12.6%.
International stocks posted stronger gains for the week but are still well behind the performance of U.S. stocks so far during 2019. For the week developed markets rallied +2.1% helped Australian markets jumping +2.5%. Emerging markets, the laggards for 2019, topped the winners list this week up +2.6% on average with the largest, China, surging +3.8%. Year-to-date developed markets are up +12.2% and emerging markets have climbed +6.4%.
Helping diversified portfolios this week were also real estate stocks and commodities up +1.5% and +1.6% respectively. Real estate remains the best performing in 2019 of all the asset classes we track up +23.0% helped by lower interest rates. Commodities were high due to the price of oil moving back above $56 per barrel. Gold was on the downside as investors turn away from this perceived safe haven down -1.3% for the week.
Bonds prices closed the week fractionally lower. The benchmark U.S. Treasury did see its yield come off the 2019 lows of 1.461% to close at 1.556%. The yield curve remains inverted leaving many market participants debating the economic outlook and risks of a recession as has often happened following a yield inversion.
Tapestry Inc. (TPR), the retailer of luxury brands including Coach and Kate Spade, announced a management shakeup the came as a pleasant surprise to Wall Street. The company’s existing chairman will assume the role of CEO effective immediately. As the accompany graph shows, the stock price is today at about the same place it was 10 years ago. This week though it posted a very strong +14.7% gain.
Western Digital (WDC), a manufacturer of computer storage devices such as disk drives, recently announced new products that will serve the rapidly growing data center market. This new combined with hopes on Wall Street the downward pricing pressure in the industry may be easing helped this stock add to its 2019 gains up +8.7% for the week and +68.4% for the year!
Tyson Foods (TSN), the largest U.S. producer of processed chicken and beef with $41.5 billion in annual revenue, said it is facing a variety of challenges including volatile commodity markets, the implementation of food safety initiatives, and a slower-than-expected chicken market. As a result earnings are now expected below prior forecasts causing investor disappointment and its stock falling -7.5% for the week. In spite of this drop, the stock remains higher by +61.1% for the year.
Other headlines and stock movers…
- Newmont Goldcorp (NEM) stock drop -3.1% as the price of gold declined but Wall Street analysts remain optimist about the stock.
- Micron Technologies (MU) and Lam Research (LRCX) both experienced meaningful stock price gains as investors hope the downward pricing pressure in the memory chip market is easing.
Economic Indicator - Reported
The Employment Report showed the U.S. economy adding 130,000 new jobs in August coming in below economists’ forecast of 170,000. August has generally been a month that is harder to predict given the number of people on vacation not responding to the government’s questionnaire. Anyway, there was strength in the professional services industries while energy companies and retailers cut employment.
The slower job growth was accompanied by a +3.2% year-over-year increase in wages which is well above inflation. The unemployment rate remains near its record low at 3.7%.
Factory orders rose +1.4% in the most recent month, better than economists had expected, helped by the volatile aircraft industry. Excluding defense goods and civilian aircraft, orders were higher by just +0.2%.
Motor vehicle sales came in at an annualize rate of 17.1 million, up from the prior month and better than expected.
Economic Indicators – Upcoming
The following economic data are expected in the coming week:
- Consumer Price Index (CPI)
- Producer Price Index (PPI)
- Retail Sales
- Consumer Sentiment Index