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Intel and 3M are among the losers in this record market

Two thousand and nineteen are not even one-third more, and it's already a great year for the financial markets. Both the S & P 500 Index and the Nasdaq Composite ended the week at record highs. This is an important reason why global stock markets have gained $ 10 trillion since the turn of the year and global credit markets have taken another $ 2 trillion into investors' assets. by Torsten Slok, chief economist at Deutsche Bank Securities.

At the risk that the US Exception Exception will be offended, the US markets have barely surpassed the rest of the world. With Exchange Traded Funds to illustrate the
SPDR S & P 500 ETF

(Ticker: SPY) posted total return (including dividends) of 16.73% for the year ending Thursday, according to Morningstar, the fund's tracker. The Invesco QQQ Trust (QQQ Trust), which is the largest stock of tech-heavy Nasdaq, returned 23.7%. Foreign travel has paid off less. The

(EFA), which tracks the major markets outside the US, returned 1

2.59% during the period
iShares MSCI Emerging Markets ETF

(EEM) achieved 11.9%.

The robust recoveries after the fourth quarter downturn came after the US Federal Reserve declared that it would raise interest rates, a statement that would mean a degree of calm on the stock, bond and currency markets. The subdued volatility has helped reduce the cost of hedging high-yield corporate loans against defaults, says Peter Cecchini, global market leader for Cantor Fitzgerald. And these more favorable corporate conditions have in turn benefited the stock market.


(NFLX) as a prominent example. The video streamer last week sold $ 2.2 billion of its junk-rated debt (Ba3 from Moody's Investors Service, BB minus by S & P) at 5.375% for US dollar-denominated debt Debt securities and 3.875% of debt in euro, which a pro called a yield-hungry market. These billions were used to fund the streaming service's ambitious production schedules, as Alexandra Scaggs wrote by Barron . Even Saturday Night Live made fun of the money Netflix is ​​throwing at dodgy projects. Anyway, the stock has risen 40% since the start of the year, as Netflix 'numbers are growing fast enough to convince the cops that the costs are worth it.

Notable among the averages that set no records was the Dow Jones Industrial Average, which was actually the case, losing 0.06% a week. Some of the 30 component stocks, such as

(INTC), which slumped 9% Friday on disappointing forecasts. A yield error has been sent

(MMM) fell 13% on Thursday, its biggest loss since the Black Monday collapse on October 26, 1987, down 26%.

Louise Yamada, the Doyenne technical market analyst who runs a consulting service by her name, admits that this year's rally still has to trigger her monthly momentum indicators. So she stands at a crossroads. Other technical indicators, such as the prevalence of rising stocks against slowdowns and the number of names reaching new highs, are not convincing at the time. The main averages like the S & P 500 and the Nasdaq reach new highs, other FAANG leaders like

(AMZN) and

(FB) still shy away from their old peaks.

Yamada points instead to the leadership of tech stars of the past boom, such as:

(MSFT), which has reached a market value of $ 1 trillion in the last week, and
Cisco Systems

(CSCO). Industrial names, including
Expeditors International of Washington


Illinois Tool Works


(IR) and

(AME), are also among other executives who are not mentioned much.

But within the averages, there are wide variations. S & P's Howard Silverblatt reports that since the last peak of the S & P 500 last September (where the market has changed little since the fourth quarter Sogon and the recovery in 2019), half of the shares are up and down half down. That's what makes it a stock picker market, he says. Indexers believe that this is all right if you choose the winners omniscient and avoid the losers.

The calendar also offers fewer clues as hoary's sell-and-go-sell rule in May has lost its reliability. Our colleagues at Dow Jones Market Data note that over the past 50 years, the Dow has risen by an average of 7.55% over the period from 1 November to 30 April, while for the period from 1 May to 31 October, the Dow only rose increased by 0.31%. However, the difference has lessened significantly lately. The Dow gain from May 1 to October 31 has averaged 4.31% over the past five years, averaging 5.48% for the period from November 1 to April 30, but less convincing. Past performance has rarely been less secure for future returns.

lies, damn lies and GDP statistics. This pretty much describes the first quarterly report card, which showed that the US economy grew much faster than predicted after inflation at an annual rate of 3.2%.

But even taking a look at the gross domestic product's hit rate showed far less robust growth. However, predicting that the economy will slide into recession proved premature.

And while inflation is well below the Fed's 2% target, real growth of 3% and the stock market have documented this. Last week, interest rate cuts by the central bank are unlikely.

GDP figures for the first quarter rose significantly in the fourth quarter of 2018 from the rate of 2.2% and, as they say in the profit reports, against the consensus forecast of 2.3%. After the elimination of transitional factors, the economy actually slowed noticeably in the first three months of the year.

Net exports increased first-quarter growth by one percentage point, writes Paul Ashworth, US chief economist at Capital Economics, in a research report. Exports increased by 3.7% per year, while imports also shrank by 3.7%, both a plus for the GDP figure. Normally, exports and imports move in the same direction along with the overall economy. In any case, this improvement in trade "will not continue in the context of very weak world trade," he adds.

GDP was also flattered by a sharp increase in inventories, which increased by 0.7 percentage points to 3.2%. Number. Government spending also rose 2.4% a year, reflecting a rise in rural and urban spending, and declined 0.4% in the fourth quarter.

With the disappearance of government, trade and stock movements, real private domestic sales – the core of the economy – grew at an annual rate of just 1.3%. This is half of the fourth quarter. That was the weakest rate since the second quarter of 2013.
Morgan Stanley

Economists write in a research report.

The inventory build-up in the March quarter suggests downside risks to the current quarter, the bank's economists point out. This was indeed the third quarter in a row in which equity construction increased GDP. Now comes payback time. Morgan Stanley expects a significant GDP turnaround in the second quarter. Economists forecast a downturn to just 1.1%.

Private consumption spending – accounting for more than two-thirds of the US economy – slowed sharply in the second quarter to an annual rate of just 1.2% from 2.5% in the fourth quarter of 2018 and 3.5 % in the third quarter. "Consumer spending was likely held back by a series of headwinds in the first quarter, including a government deadlock, bad weather and market volatility late last year, so we expect a healthier pace for the next quarter," the bank economists write.

Residential investment continued to decline 2.8% per year in the first quarter, less than the 4.7% annualized fourth quarter decline. (Although this is not due to the 24% increase in the
iShares US Home Construction ETF


Business investment grew 2.7% in the last quarter, mainly due to an increase in intellectual property of 8.6%, according to a RDQ Economics customer announcement. How this number is calculated is a mystery, writes David Rosenberg, chief economist and strategist for Gluskin Sheff, although the strength of the software was evident in Microsoft's blockbuster results.

However, the GDP report poses a dilemma for the Fed. The personal consumption expenditures deflator (which excludes food and energy prices and is the central bank's preferred inflation indicator) rose by just 1.27 in the first quarter % and YoY by 1.68%, Morgan Stanley calculates. Some economists argue that below-target inflation requires lowering interest rates to keep real interest rates from rising.

But after a good overall GDP figure, what if the unemployment rate continued to fall, to 3.6% in the April report, which falls due this Friday, from 3.8% in March, wonders Greg Valliere, chief strategist of the USA at AGF Investments. "An interest rate cut is obviously obviously completely out of the question, despite the demands of President Trump and his business advisor Larry Kudlow," he writes in a customer announcement. In fact, rate hikes could come back on the table as inflation rises.

Despite the strong economic data, the futures market of the federal funds still relied on a quarterly decline of 2.25% to 2.5%. Target area. According to the CME website in FedWatch, futures traders had a 63.8% chance of a price cut for the Political Meeting in December and a 68.6% chance of meeting in January 2020. Even if the GDP headline was far less When it fell at first glance, it is difficult to see the Fed lowering interest rates without any signs of worsening.

Write to Randall W. Forsyth at [email protected]

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