News for the Week of April 25 – April 29, 2016
by David Abuaf, CFA
Investment Manager, RJFS
Government / Political / Economic
1. An anti-immigrant candidate won the first round of Austria’s presidential vote
2. Whoa! Cruz and Kasich agreed to divvy up remaining primaries in a bid to block Trump’s nomination – now for my snarky comment: if only politicians were this good when it actually came to serving in their constituency’s best interests!
3. Canada confirmed the first case of sexually transmitted Zika virus
4. More than 30 ministers from around Mississippi are objecting to the “religious objections law,” citing “the law goes against Christian teachings to love and respect all people”
5. The PM of Tibet’s government in exile was reelected!
6. A US commander says fewer foreign fighters are arriving in Iraq and Syria to join Islamic State
7. Alabama was sued over a law barring cities from setting minimum wages
General Markets / Economic
1. CEOs at US firms are concerned about the populist tone of the presidential campaign and fear antibusiness rhetoric may solidify
2. A new study says department stores need to close hundreds of locations if they want to regain the productivity of a decade ago
· If such a study is to be followed, the question is, where does it make more sense to close stores? In rural America where there is a smaller population, poorer internet connectivity and lower sales/profits to be garnered, OR, in big cities where there is a higher population, better internet connectivity and more potential profit to be made if people stop shopping online!
3. Talks between Greece and its creditors ran into trouble over demands for extra austerity measures
4. Fed officials kept rates unchanged and remained ambiguous about a move in June as they face mixed global economic signals and low inflation at home
5. Loan-delinquency rates are rising in oil-producing states, where the glut of crude has led to job cuts
6. GDP grew at 0.5% in the first quarter, hampered by a pullback in business investment and weak global demand
7. China will set its biggest tax overhaul in a generation on Sunday as it tries to boost economic growth
1. Gannett went public with a proposal to acquire Tribune in a deal valued at about $400m
2. The FBI is not planning to tell Apple how it cracked an iPhone
3. Comcast is in talks to acquire DreamWorks Animation for more than $3B
4. Abbott is acquiring medical products maker ST. Jude for $25B
5. US Steel is alleging that Chinese government hackers stole proprietary methods for making lightweight steel
1. A document featuring the 1857 “Laws of Baseball” was sold for more than $3m!
2. A Norwegian fighter jet accidentally fired at a control tower. I guess he wanted to land now!
3. A dog that rescued 7 people after earthquakes in Ecuador died from exhaustion
4. Denmark is considering a tax on beef and other red meat to combat climate change
5. A homeowner’s association in Tennessee reportedly demanded that one of its residents remove a zombie statue from his yard. He complied, reluctantly
6. To save electricity, Venezuelan government works will only work on Monday and Tuesdays for at least the next two weeks
Commentary for Week of April 25 – April 29, 2016, by David Abuaf
Chart from Wall Street Journal
Equities fell more than 1% as the major indexes sold off in the latter half the week. Tech stocks were the ones that took the brunt of the damage. Unfortunately, several factors combined to disappoint investors, including weak US economic data, a continuation of lousy-first quarter earnings from tech companies, and a bank of Japan decision not to introduce new stimulus.
Outside of technology, the S&P 500’s corporate first quarter reports were somewhat better than expected, though still lower than the year ago period. Tech stocks, which lost 3.6% last week, were particularly battered by fallout from Apple which saw the first quarterly sales drop in 13 years! Apple declined 11% as a result.
Globally, investors were treated to the relatively unusual phenomenon of Europe growing faster than the US. Euro-zone first quarter GDP came in at 0.6% vs. 0.5% for the US. For the past 18 months, investors have bemoaned the extraordinarily strong greenback, which depresses overseas sales at US multinationals. However, US dollar weakness became an issue last week; to the extent that it indicates that US expansion is slow compared to the rest of the world.
Outside of the tech sector, reactions to earnings were relatively muted, and Edward Perkin, of Eaton Vance even said, “good earnings numbers weren’t good enough”!
Since last summer, the market has attempted two major rallies that have failed to surpass all-time highs set in May 2015. This latest one has seen some strong breadth. Even so, Perkin says, “the momentum just isn’t there.” As such, the second longest bull market in history is currently stalled, waiting for a catalyst, and that will be earnings growth.
All opinions presented are those of David Abuaf, and not of Raymond James or Forman Investment Services