News for the Week of May 23-27, 2016

News for the Week of 05-23 – 05-27-2016

 

by David Abuaf, CFA

Investment Manager, RJFS

 

Government / Political / Economic

1.     The Afghan government is backing a breakaway Taliban faction in a bid to sow rifts in the insurgency

2.     Greece’s parliament approved fresh taxes and austerity measures required for further rescue loans

3.     President Obama said the US will lift its ban on arms sales to Vietnam; a move that comes amid concern about China’s territorial claims

4.     While Hillary Clinton’s lead over Donald Trump has narrowed, Trump is still trailing far behind Clinton in organizing in the swing state of Ohio

5.     The Taliban named a religious leader to head the divided Afghan insurgency after his predecessor was killed in a US drone strike…not just a religious zealot, but a religious leader.  Well that changes everything!

6.     A crying shame! Our military (and all nations’ military) potentially give their lives fighting for their country. In the US, the VA declared thousands of them dead and canceled their benefits, even though they are alive!

7.     Trump secured the delegates needed to become the GOP nominee, though Paul Ryan declined to say whether he was leaning any further toward endorsing him

 

General Markets / Economic

1.     The UK Treasury warned that the British economy could fall into recession if the country leaves the EU

2.     US new home sales posted their strongest month since 2008, while prices set a new record

3.     Fannie and Freddie are likely to need a bailout in the future, due in part to derivative accounting rules

4.     Pending home sales also rose to the highest level in over 10 years, amid steady job creation and low rates

  

Company News

1.     Anthem and Cigna are bickering over aspects of their proposed $48B deal as the health insurers seek regulatory approval.  I personally still doubt whether this will go through!

2.     The deal for Monsanto is official. Bayer made a $62B all-cash offer...37% higher than Monsanto’s most recent closing price, though it is a bear hug (outlining the offer terms publicly to investors)

a.     I still doubt it gets Department of Justice approval

b.     Monsanto rejected the deal as too low, because when you win the lottery, of course you say “no thank you”

3.     Alibaba disclosed that the SEC is probing its accounting practices

4.     Exxon and Chevron shareholders narrowly rejected stress tests to measure climate-change risks

5.     Microsoft is laying off 1,850 workers and taking a $950m charge as it shrinks its phone unit

 

Interesting News

1.     A new study says young adults are more likely to live with their parents than with a spouse or partner. Wait! A married person is more likely to live with their parents than their spouse!?

2.     A study on rats found a link between radio frequencies emitted by cellphones and two types of tumors!

 

 

 

Commentary for Week of May 23 – May 27, 2016

by David Abuaf, CFA

Investment Manager, RJFS

Buoyed by strong economic data, stocks rose more than 2% last week, but investors had to wait until late Friday to be sure they’d have a relaxing long weekend!

 

An otherwise perfectly boring week was at risk of becoming exciting on Friday with Janet Yellen at down with a Harvard professor for a low-stress “conversation.” It’s important to note that nothing involving the Fed is low-stress these days. As traders listened intently on her words, Yellen only said that a rate hike will probably be appropriate “in the coming months.” I think everyone already knows that.  Once she said that, few investors and traders hung around, as trading volume was the lowest since March on that Friday.

 

In addition to stock prices, oil price rose on the week, with crude futures briefly jumping above $50 for the first time in seven months. Durable goods orders also jumped 3.4% in April and the second quarter GDP expectations were revised to 2.9% from 2.5%. Keep in mind, though, that better economic data raise the chances of a June Fed hike – still considered unlikely.

 

Good news, the American Association of Individual Investors survey indicated that only 17.8% of investors are bullish – the lowest level since 2005. This is actually good as Individual Investors are precisely a contrary indicator to whether or not to invest in the stock market! (2005 and 2006 saw a 20%+ return in the S&P 500).

 

 

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