News for the Week of July 5 – July 8, 2016
by David Abuaf, CFA
Investment Manager, RJFS
Government / Political / non-Economic
1. FBI recommended against charging Clinton for mishandling classified information
2. Hungary said it would hold a referendum on whether to comply with the EU’s plan to solve the migrant crisis
3. French lawmakers called for ashakeup of intelligence services, saying counterterrorism failures contributed to last year’s Paris attacks
4. Wait for it…Rio’s mayor said the city will be ready for the Olympics, but that visitors should “temper expectations.” That doesn’t sound promising
5. Western officials are saying that the Islamic State is reverting to spectacular guerrilla maneuvers, calling on supporters to launch assaults as its costly makeshift army faces retention problems and casualties
6. Trump’s GOP foes are pushing the party convention’s rules committee for a vote on freeing delegates to back whomever they wish
7. The US imposed sanctions on North Korea, part of a campaign to attack the regime’s finances. Look, I get it, but seriously, North Korea!? They don’t even produce enough electricity at night to light up from the ISS! I don’t think more sanctions will do anything
8. German weapons exports hit a record in 2015 despite pledges to curb shipments. I wouldn’t be surprised if the record shipments were to US consumers
General Markets / Economic
1. Britain’s central bank relaxed bank-capital requirements to mitigate a possible economic slowdown (due to Brexit, of course!)
· UK Treasury Chief George Osborne plans to cut the corporate tax in the UK to just 15%, or less to lure business investment. I’m sure Ireland is upset (13% corporate tax rate)
2. New investments by major energy companies are offering signs that the deep freeze in oil-industry spending is beginning to thaw
3. The US issued final regulations governing future oil and natural gas drilling in the Arctic
4. Eight US airlines were tentatively awarded rights to serve 20 daily flights to Cuba’s capital
1. Sanofi has formed a partnership with the US Army to expand research and development of a Zika vaccine
2. The FDA approved a heart stent developed by Abbott Laboratories that dissolves within two to three years
3. Wow, VW must really love the American consumer. VW’s boss said it will not offer equal compensation to European buyers of tainted diesel vehicles similar to that secured for US consumers
4. France’s Danone agreed to buy US organic food producer WhiteWave Foods for $10.4B
1. How messed up is this? Lionel Messi was convicted of tax fraud in Spain and sentenced to 21 months in jail (I did follow this story fairly well, and it seemed like Messi was on the up, once he realized he had a bad financial manager, he paid the back taxes plus interest). The messed up part…in Spain, a prison sentence of less than 24 months is often done through probation and never served!
2. NASA sent a probe to Jupiter; it should be orbiting at only a few thousand kilometers up. Awesome. The cool news? I just found out that Jupiter is very much in composition like a typical star. It is composed very predominantly of hydrogen and helium (a star typically has a 3:1 ratio of hydrogen to helium). The goal of the probe will be to better understand the inner composition of the planet to help determine where in the solar system Jupiter first developed (closer to the sun or further away)
3. About a year we ago we had something here about a weeks-long traffic jam in China. This time, it’s a traffic jam in Indonesia – 12 people died during it (mainly old people dying of heat stroke). Ridiculous, now this is why I honk my horn in the US during a traffic jam!
Commentary for Week of July 5 – July 8, 2016
by David Abuaf, CFA
Investment Manager, RJFS
After an uneven start to the week, US stocks finished on a high note, thanks to a strong June jobs report that reassured investors about the health of the US consumer. According to Mike Ryan at UBS wealth Management, “Today’s [report] helped alleviate those concerns that the economy was rolling over.” Powered by that good news, the S&P 500 finished the week up 1.28%, just shy of its all-time closing record set in May 2015.
Eight of the 10 sectors ended the holiday-shortened week in positive territory. The best performers were consumer-discretionary stocks and healthcare, up 2.27% and 1.99%, respectively (S&P 500 sector indices), with telecomm and energy each finishing the week down a little more than 1%. Energy stocks came under pressure as oil prices, which had rallied recently, fell back to the mid $40s on news that oil inventories were higher than expected.
It was a solid week overall for the US stock market, as both large cap (S&P 500) stocks advanced along with smaller cap stocks; the Russell 2000 (small cap) was up 1.78% on the week.
The big driver behind Friday’s gains was the much anticipated US Labor Department jobs report, which came in as good news after May’s report which was well below expectations. According to Jason DeSena Trennert of Strategas, “The job gains were broad-based outside of construction in June,” and he noted how “[the US is] a workhorse against a tepid global backdrop.”
On a more macro level, while interest rates edged up slightly, the market didn’t seem to mind that the US unemployment rate ticked up, as this is likely a sign of more people entering the job market. Finally, according to Dennis DeBusschere at Evercore ISI, his take on the jobs report was “It was a strong enough report to reduce any recession fears that might have increased due to extended labor-market weakness.”
All opinions presented are those of David Abuaf, and not of Raymond James or Forman Investment Services. Raymond James is not affiliated with Mike Ryan and UBS wealth Management,
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