Monthly Recap

July was a choppy month with a lot of headlines and somehow the stock market managed to be positive on the month. At the time of my writing however, the markets have had a rough start to August. But as we’ve seen in the past downturns, they tend to be short lived. To recap, here are some of the noteworthy events and stories from July:

  • The US economic expansion hit 121 months and is now officially the longest in history!
  • The Federal Reserve lowered interest rates by .25% to the 2-2.25% range. The market was pricing in 3 interest rate cuts this year and may have been disappointed in Powell’s perspective that this is just a mid-cycle mini-easing. Financial markets were whipsawed during his press conference as Powell struggled to define the rate path ahead.
  • As a result of the Fed’s decision to lower rates, interest rates fell further and the inversion of the 10 year and 3 month T Bond/T-Bill is increasing. This has been a harbinger of future recessions although we’re hearing a little bit of “this time is different”.
  • US growth in Q2 slowed to 2.1% as the trade war weighs on businesses. With trade tensions continue to rise, we could see growth expectations decrease even further.
  • The trade war has re-escalated as Trump announced new tariffs (10% on $300B of goods). The markets did not like the uncertainty that this brings. And as of the time of my writing this, China has retaliated by weakening the Yuan and halting US crop imports (more to come in next month’s update).
  • US jobs increased by 224,000 which dilutes the chances we could see additional rate hikes this year. The wild card in this is the market’s reactions to a heightening trade war with China. The market has already forced Powell’s hand and a stock market downturn could make cuts likelier.
  • Boris Johnson is now Prime Minister of Britain. All attention is now on Brexit for him and ensuring a smooth transition.
  • Financier Jeffrey Epstein became front and center as stories of his disgusting offenses and how he accumulated his wealth were published in detail.
  • U.S. officials approved a record $5 billion privacy settlement with Facebook to resolve the Cambridge Analytica data scandal prompting an immediate outcry from lawmakers and privacy advocates who said it didn’t go far enough.
  • Iran’s Revolutionary Guard seized a foreign tanker amid rising tensions in the region.
  • U.S. trade officials are launching a probe of France’s planned tax on digital services, kicking off a spat with Paris as well as a global fight over how to tax the growing internet economy. The French proposal will apply a 3% tax on revenue that big tech companies reap in France.
  • Nissan warned that first-quarter profit tumbled around 90% percent, a day before it is expected to announce more than 10,000 job cuts as the crisis deepens at Japan’s second-largest automaker.

My 2 Cents

The S&P 500 is up over 20% so far this year. But just four stocks—Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), and Facebook (FB)—are responsible for 19% of those gains. That’s an unusual large return concentrated in such a small # of stocks and unless you’re good at darts, you likely had more than these 4 companies in your portfolio. Diversification (imho) is the best path to stable returns.

Charts & Commentary

(In no particular order)

Falling bond yields worldwide as you’ll see in Italy and the accompanying charts. Seems like ppl are worrying about Italy’s fiscal situation right now.
Greece’s 10 yr bond yield just broke 2%. Remember when they were going to default?!?
Australian bond yields have been in a freefall since Q4 of last year.
You’re now guaranteed a negative return buying Spanish 7 year paper.
Spain’s 10 year bonds are rapidly approaching 0.
It’s hard to fathom how this makes any sense. German 10 year bunds are now approaching -.50%!!!
It should be no surprise after the previous charts that there’s a ton of negative yielding debt available for purchase in Europe. This chart doesn’t include Japan which is also a contributor to negative yielding bonds.
Another chart which should be of no surprise is that German banks have woefully underperformed the German stock index since 2009. Hard for banks to earn money when rates are negative. And we’ve seen how Deutsche Bank has had some serious problems recently.
Annual freight growth has been below zero for six straight months. According to Cass, the decline is consistent across regions and modes (truck, rail, air, ship). Moreover, it appears to be getting worse. The index was below zero for a long time in 2015–2016, but the magnitude of the change was much smaller. This isn’t a foolproof recession signal but it’s important. Businesses aren’t shipping goods because people aren’t buying them. At some point, this kind of slowdown has a broader impact. This is data worth watching
US ISM looks to be tracking the global manufacturing PMI which is signaling contraction.
While this is officially the longest expansion on record, the overall growth isn’t all that impressive compared to past expansion cycles.
It’s a good time to be a startup if you required VC funding. Recently reported by statista, US VC funding reached a post dot-com high.

I hope you enjoyed this months financial markets update.  If you have any questions please contact us directly.  If you’re interested in a topic that you’d like us to address, please email us so we can include them in future updates.

If you’re interested in starting a dialogue and learning how we can help, please contact us.

Best Regards,

Jared Toren
CEO & Founder

Sources: Edges & Odds, WSJ Daily Shot, 361 CapitalSteve Blumenthal’s On My Radar

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Author: Jared Toren

Jared Toren is CEO and Founder at Proper Wealth Management. Proper was born out of frustration with the inherent conflicts of interest at big brokerage firms influencing advisors to sell products that were not suitable for clients but profitable to the firm along with a consistently mixed message of who’s interest was supposed to be put first; the clients’, the firms’, shareholders or advisors. At Proper, our clients interests come first. We are compensated the same regardless of which investments we utilize so there’s no incentive for us to sell high commission products. Since we focus on a small number of clients, we are able to truly tailor our advice to each person’s unique circumstances.