Monthly Recap

June produced solid returns in the stock and bond markets as US interest rate cut rhetoric was front and center. We had some close calls with an air strike on Iran being called off at the last minute. To recap, here are just some of the noteworthy events and stories from June:

  • President Trump ordered a military strike on Iran and then called it off at the last minute. According to Trump, he called off retaliatory strikes on three Iranian sites following the downing of a U.S. Navy drone because the action wouldn’t have been “proportionate.” That was a close call!
  • There was a break in the US-China trade war (not to be confused with the US-Europe, US-NAFTA trade wars or the potentially new US-Vietnam trade war) as President Donald Trump agreed to ease a ban on American companies supplying Chinese tech giant Huawei.
  • The Fed and Trump disagree on whether or not Powell can be replaced by the President. The Fed is not supposed to be politically influenced by a president or politics, but Trump has his own views of legality as we’ve seen.
  • The Federal Reserve signaled it was ready to lower interest rates for the first time since 2008, citing “uncertainties” that have increased the case for a cut as officials seek to prolong the near-record U.S. economic expansion. The bond market has been signaling this well before this announcement.
  • Facebook Inc. unveiled plans for a new, global financial system with a broad group of partners from Visa Inc. to Uber Technologies Inc. on board to create a cryptocurrency it expects will one day trade much like the U.S. dollar and inject a new source of revenue. Called Libra, the new currency will launch as soon as next year and be what’s known as a stablecoin–a digital currency that’s supported by established government-backed currencies and securities. The goal is to avoid massive fluctuations in value so Libra can be used for everyday transactions across Facebook in a way that more volatile cryptocurrencies, like Bitcoin, haven’t been. 
  • A proposed extradition law in Hong Kong has resulted in some of the largest protests seen in Hong Kong. In a city of only 7 or 8 million people, approximately 1 million of them have hit the streets protesting.
  • Google parent Alphabet Inc., Facebook Inc. and Apple Inc.tumbled as the companies appear set to undergo U.S. antitrust probes after the Justice Department and the Federal Trade Commission agreed to split up oversight of technology giants. The DOJ’s preparations to investigate Google mark the Trump administration’s first concrete step to scrutinize the potentially anti-competitive conduct of a large technology firm. A person familiar with the matter said the FTC will oversee antitrust scrutiny into whether Facebook’s practices harm competition in the digital market. Lots of impact potential here.

Charts & Commentary

(In no particular order)

Global manufacturing PMI has been dropping and now below 50 which signals contraction across the globe. It’s no wonder why bond yields have been falling globally this year.
The Eurozone manufacturing PMI specifically continues to decline as growth and outlook continues to disappoint.
The activity augmented yield curve (still haven’t found how this is defined though) is showing a likely recession in the coming months/years. Since 1968 (as far as the chart goes back) this level has always come with a recession.
The Fed is a rare breed when it comes to interest rates compared to other developed nations. While we’ve been raising rates, they’ve been holding them (low) steady.
But our interest rate increase party will likely be ending soon as there’s a greater than 50% chance of a rate cut in the July Fed meeting.
As previously reported, this is now the longest recovery on record! Get out your noise makers and celebrate! ? Wait, that was too soon. For as long as this recovery has been, it’s also been one of the weakest. ?
Yes, another recession chart. This one shows the expectation of recession over the next year by CFO’s.
You know what happens at the end of market cycles? Valuations across the board or in certain segments of the market get stretched. And this chart shows another look at the Russell 3000 software components as compared to the broader index.
Rise of the living dead. ? Zombie companies are defined by having EBITDA-to-interest ratios below one measured over a three year period. All stocks in the US with a market capitalization above $500 million are considered.

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.