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Market Commentary - Week Ending 4/13/2019
- Most markets around the world closed marginally higher as volatility continues to subside
- Uber provides extensive details about its plans to go public soon
- Earnings season kicked off with major banks reporting strong numbers
- Economic data continues to suggest inflation is tame
Market Performance Summary
Notable Market Headlines
More markets were higher than lower around the world with gains being relatively small. Large U.S. stocks topped the winners list with a gain of +0.6% as measured by the S&P 500. The tech-heavy NASDAQ Composite posted a similar gain while the Dow Jones Industrials lost a fraction of a percent. Small U.S. stocks were also higher but gained just +0.2%. Year-to-date small stocks continue to lead with a gain of +17.8% while large stocks are higher by +16.1%.
The best performing sector was financials as some of the biggest banks kicked off the quarterly earnings season posting generally strong numbers. JPMorgan Chase, one of the country’s largest banks with more than $2.5 trillion in assets, reported record revenue of $29.9 billion for the quarter and far exceed analysts’ earnings expectations. This strong report along with others helped the financial sector stocks gain +2.0% for the week. On the losing end were healthcare stocks down and average of -2.5%.
As the accompany graph shows, the volatility in the markets continued lower closing this week at the lowest level of the year. This decline comes after a sharp rise in the fourth quarter last year when stock prices fell sharply. It is important for investors to remember that this volatility measure tells us nothing about what volatility may look like tomorrow!
International markets were mixed this week with developed country stocks gaining +0.3% consisting of a loss for Japan’s markets by -0.6% while Australia’s gained +1.5%. Emerging markets lost a little ground this week declining -0.1%. There were a couple of sizable losses though including Turkey’s stock market falling -6.0% and Brazil’s off -4.7%.
Commodity prices continued to move higher for the week and were the best performing asset class up +0.9%. The price of oil continued to rise hitting another 2019 high with Brent Crude closing the week at $71.55 per barrel up from $54.57 at the start of the year. The other non-traditional asset classes saw little change in price with real estate up +0.2% and gold down -0.1%.
Bond yields moved higher with bond prices moving lower by -0.2% as investors appear to be feeling more confident about the strength and robustness of the economy. The yield on the U.S. 10-year Treasury climbed to its highest level in about a month to 2.568%.
Uber, the largest ride-sharing business and NOT yet a public company, released extensive details in anticipation of its stock going public within weeks. It’s expected price with a total market valuation of approximately $100 billion. The filing shows the company having more than $11 billion in revenue last year, up 42% from the prior year, with losses of $1.85 billion. It’s smaller rival Lyft (LYFT) has struggled since its IPO a couple of weeks ago falling to $59.90 per share from its initial price of $72.
Anadarko Petroleum (APC), a Texas-based oil exploration and production company, is being acquired by oil giant Chevron (CVX) in a mega-deal valued at $33 billion in cash and stock. The deal came as a surprise to Wall Street valuing Anadarko at $65 per share triggering a price surge of +31.4% for the week. Other like-type company stocks rallied on this news including Pioneer Natural Resources (PXD) up +11.7% and EOG Resources (EOG) gaining +6.8%. This is clearly a bet by Chevron that oil prices will remain high with the company saying the deal with strengthen its upstream portfolio and more. Chevron’s stock fell on the news down -5.3% for the week.
The Walt Disney Company (DIS), the entertainment juggernaut, unveiled Disney+, its direct-to-consumer video streaming service as was widely anticipated. The company provided extensive details about its plan including the monthly subscription price of $6.99 and anticipated launch date of November 12th. Investors cheered this announcement in spite of the fact that it will reduce earnings for the next few years. The stock, as illustrated in the accompanying graph, jumped to a new record high closing up +13.1% for the week.
Anthem (ANTM) and Unitedhealth Group (UNH), two of the largest private insurance companies in the nation, saw their stock prices sink this week by -13.8% and -8.4% respectively. These multi-billion dollars losses in value are the result of both political and regulatory concerns. The political risk is Bernie Sanders’ Medicare-for-All bill and the regulatory issue pertains to prescription drug rebates for the Medicare Part D program. Both stocks are down year-to-date while the rest of the market has rallied sharply.
Economic Indicator - Reported
The general consensus is that inflationary pressures remain tame in spite of the Consumer Price Index (CPI) rising +0.4% in the most recent month as expected. Driving the headline number were increases in prices for energy and rent while prices in other areas of the economy were more contained. The Producer Price Index (PPI) came in much higher than expected at +0.6% but this headline number was nearly all the result of higher gas prices. During the last 12 months the CPI is up +1.9% while the PPI has risen +2.2%.
Consumer Sentiment, a survey by the University of Michigan of at least 500 households to assess near-term consumer attitudes about the economy, slipped in its preliminary reading for April to 85.8 from 88.8 in March. Although this is down slightly, sentiment during the past 30 months has been the highest since the late ‘90s at the tale of a 10-year economic expansion.
Economic Indicators – Upcoming
The following economic data is expected in the coming week:
- Industrial Production is forecast to have increased by +0.3% following last month’s +0.1% gain
- Retail Sales are expected to have jumped +0.8% in March following a couple of months of disappointments
- Housing Starts are expected to come in at 1.230 million units annually which would be an improvement over the prior month