News for the Week of May 31 – June 3, 2016
by David Abuaf, CFA
Investment Manager, RJFS
Government / Political / Economic
1. US births fell last year, with a sharp drop among teens, while the death rate rose
2. FDA issued proposed guidelines aimed at reducing salt in packaged foods and restaurant meals
3. Germany arrested three suspected Islamic State members from Syria for allegedly plotting to attack the city of Dusseldorf
General Markets / Economic
1. US home prices are back to near-record highs across the US, a sign the lopsided housing recovery is gaining some strength
2. Tariffs on steel imports are boosting prices and aiding US steelmakers but raising manufacturer’s costs
3. India said its economy grew 7.5% in the fiscal year ending March 31
4. The US government is cracking down on the payday-loan industry with new CFPB requirements
5. A drop in new car sales to consumers in May is fueling worries that demand in the US market has peaked
6. Factory activity grew in May, a sign the US economy may be poised for stronger growth
7. The ECB voiced cautious optimism on Eurozone economic recovery after leaving stimulus unchanged
8. At least Greece is moving quicker this time. Greek lawmakers passed fiscal measures required for the next bailout tranche
· Dell’s buyout of his computer company shortchanged shareholders by more than $6B according to a federal judge
o T. Rowe Price is expected to announce a plan to reimburse clients who lost out when they backed the Dell buyout
1. A Texas high school is nixing the honor society recognition to avoid hurt feelings. So…the people who did poorly in school but are probably the jocks and social butterflies don’t want their feelings hurt by the nerds? I feel so lucky where I went to HS - you needed to have both good grades AND play sports to be cool – how dare you ask; OF COURSE I was cool :p
2. I almost don’t believe this. Meat wielding extremists start a massive brawl at a Georgia vegan café. Georgia the country, in Tiblisi. More than one dozen men, some wearing sausage links around their necks, entered the café on Sunday night; it is believed they are actually neo-Nazi extremists
3. With a slowdown in postal service in Finland, mail workers are now offering to mow your lawn on Tuesdays!
4. News reports that an unfortunate consequence of salmon farming is that some fish remain underdeveloped before dying. New research suggests the cause is depression (overcrowding, aggressive fish, battle for food – sounds like middle school!)
5. Roughly 30 Navy Admirals are under investigation by the DoJ given their association with a crooked defense contractor, known as Fat Leonard. Fat Leonard would frequently provide sex, vacations, and cash and in return swindled the US Navy through forgeries, kickbacks, and price gouging. Thirty Admirals! Unacceptable.
Commentary for Week of May 31 – June 3, 2016
by David Abuaf, CFA
Investment Manager, RJFS
The last month of the first half of the year started off on a sour note due to the news that US job creation in May fell to the lowest level in six years. Fear not, most any sane person would expect that to happen after 6+ years of job growth! The unemployment rate fell to 4.7% (most economists consider stable unemployment at 5%). There was good news, wage growth grew at a 2.5% clip in May, which is a positive for both workers and the general economy as inflation is a required and integral part of any successful economy.
While the major indexes handled the jobs report gamely, dropping slightly on the day, stocks did turn in a mixed and muted performance for the whole week. Both the S&P 500 and the Nasdaq were up while the Dow ended down. As a clarifier, the Dow is computed differently than most other indices – its return is primarily effected by the actual price of the stock, whereas the S&P, Nasdaq, Russell, and other indices are primarily computed based on the change in market.
Through May, the S&P 500 logged three straight months of gains since its 12-month low in February. This is an encouraging sign for the rest of the year. According to Jason Goepfert, founder of SentimenTrader, 12 out of 14 years in which the S&P500 posted three consecutive months of gains following a 12-month low, the market rallied for the next three months. Goepfert sees parallels between now and 1953, when stocks underwent a minor correction after a multiyear bull market.
According to James Bianco at Bianco research, if the Fed does move to tighten rates in June – which the market now sees as a 4% chance versus 22% just one week ago – it will be unprecedented that it’s not already being discounted. Moreover, this is the longest period in 40 years between a first rate hike and a second. He believes that if the Fed stay timid and doesn’t raise rates, it could result in a market that continues to meander sideways despite earnings comparisons that continue to get tougher.
All opinions presented are those of David Abuaf, and not of Raymond James or Forman Investment Services
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