Market Commentary for the week ending September 13th, 2019
- Trade tensions show further signs of easing helping fuel another week of gains for stocks
- Small U.S. stocks surged higher by nearly +5% on shifting investor sentiment
- The U.S. consumer continues to spend with Retail Sales increasing more than expected
Market Performance Summary
Notable Market Headlines
Stock prices continued to move higher for yet another week as trade tensions seem to be easing between the U.S. and China. This optimism was accompanied by a cut in interest rates in Europe along with expectations of the same in the U.S. in the coming week.
At the closing bell for the week U.S. large stocks were higher by +1.0% as measured by the S&P 500 while the Dow Industrials climbed +1.6% and the NASDAQ gained +0.9%. Although it appeared to be just another move higher, this week’s gains were distinctly different than most others in 2019.
Year-to-date it has been large growth stocks such as Microsoft (MSFT), Amazon (AMZN), and Facebook (FB) as examples that have been leading the market higher. This week though it was instead more value oriented stocks posting the strongest gains including such stocks as banking company State Street (STT) and fertilizer company The Mosaic Co. (MOS). The accompanying graph shows the performance of growth versus value stocks since the August market lows including the surge higher in value stocks for the week.
Small U.S. stocks surged higher for the week jumping +4.9%! This is another distinct change in the market’s leadership as small stocks have lagged behind large for the year. It could be argued that the willingness of investors to aggressively buy smaller, and considered riskier, stocks is a sign that investors expect the economy to continue to grow. Regardless of the explanation, small stocks are now higher year-to-date by +18.2% trailing large stocks 2019 gain of +21.6% by a far smaller margin than just a week ago.
International stocks posted strong gains for the week as well with developed country stocks up +2.2% with Japan’s +3.7% being the best of the developed regions. The European Central Bank lowered interest rates further into negative territory and relaunched its bond-buying program of $22 billion per month in an effort to keep economic growth from further slowing. Emerging markets climbed higher as well for the week rallying +2.4% with the largest of the emerging markets, China, jumping +3.2%.
All of the non-traditional asset classes were lower with both gold and real estate down -1.3% while commodities slipped just -0.1%. The drop in gold and real estate are both another example of shifting investor sentiment away from what has been doing well in 2019 and buying instead what has lagged behind.
Bond prices took one of their biggest weekly hits in some time losing -1.8%. Those bonds considered the safest, such as 10-Year U.S. Treasuries, lost even more than average down -2.6%! This drop in prices drove yields higher, the biggest weekly rise in yields in 6 years, with the 10-Year Treasury settling at 1.899% compared to 1.556% the week before. This jump in yields is particularly interesting given the widely expected rate cut coming from the Federal Reserve next week which would be expected to result in lower yields.
Nektar Therapeutics (NKTR), an emerging biotechnology company in San Francisco, had the best performing stock in the S&P 500 surging +18.2%. The company has just $119 million in annual revenue and a market value of $3.7 billion which is not entirely uncommon for biotech companies but none-the-less a risky investment. There was no new news this week from the company. As the accompanying graph shows the stocks rallied from $20 two years ago to more than $100 and then back below $20 this August. The stock remains down -38.8% for the year even after the week’s big gain.
The Mosaic Co (MOS), a leading fertilizer company with $9.5 billion in annual revenues, had one of the best performing stocks in the S&P 500 this week jumping +15.9%. This company has experience stalling revenue growth and earnings slipping lower in 2019. There was no news this week triggering the jump in its stock price but instead simply a shift in investor sentiment and optimism that easing trade tensions will be good for agricultural business such as Mosaic. Year-to-date the stocks remains lower by -22.5%.
VeriSign (VRSN), an internet domain registry business, has seen revenue grow in 2019 and its stock rally higher for the year. That was not the case though this week as the stock was one of the poorer performers losing -9.1%. This stock is a good example of one that has been a leader in 2019, up +27.3%, but investor sentiment shifted sharply against the stock this week.
MarketAxess Holdings (MKTX), operating an electronic trading platform for bonds utilizing its patented technology, had the worst performing stock in the S&P 500 down -21.3% for the week. MarketAxess and others reported August monthly trading volume numbers with nothing seeming to be out of the ordinary. The stock remains higher year-to-date by +56.3%.
Several retailers that had fallen out of favor by investors in 2019 had a great week including the following:
Economic Indicator - Reported
After surging +0.8% in July helped by Amazon’s Prime Day, Retail Sales for August came in stronger than economists expected up +0.4% versus an estimate of +0.1%. Excluding strong auto sales, which is sign of consumer confidence, retail sales were flat for the month. Regardless this overall good report is a sign of continued economic growth in the third quarter.
Inflation remains tame with the Consumer Price Index (CPI), a measure of retail inflation, and the Producer Price Index (PPI), a measure of wholesale inflation both up +0.1% in the most recent month. Lower gasoline prices helped keep overall prices down but the core CPI, excluding food and energy, is running at +2.4% for the last 12 months which is near its decade high.
Consumer Sentiment rose to 92.0 compared to 89.8 in the previous month.
Economic Indicators – Upcoming
The following economic data are expected in the coming week:
- Industrial Production
- Housing Starts
- Existing Home Sales
- Leading Economic Indicators