News for the Week of July 17-21, 2017

News for the Week of July 17 – July 21, 2017

 

by David Abuaf, CFA

Investment Manager, RJFS

 

 

General Markets / Economic

                                                                                                           

1.     Elon Musk warned of the potential dangers of artificial intelligence and called for a regulatory agency to guide its development

·       I’m including this otherwise non-economic news here, if only because I think it’s a play by Musk against Google’s and Ford’s autonomous driving cars!

2.     US pork belly prices have surged 80% this year to record highs, driven by a national craving for bacon

3.     The VIX index, a key gauge of market volatility (measuring volatility in 1-month Option prices), hit its lowest level in almost 24 years

·       While I am a disbeliever in technical analysis, I am a believer in market cycles. As such, while a low volatility market might be good, that also means that we are bound to have a higher volatility market soon too. This does NOT mean LOWER returns, it just means more volatility in the market from one week to the next.

4.     US and China economic talks ended without any concrete agreement or future agenda

5.     Japan’s central bank pushed back its forecast for reaching 2% inflation, while keeping policy on hold

6.     Foreigners are buying homes at a record rate, helping push up prices in coastal cities already squeezed by supply shortages

 

 

Company News

 

1.     Nelson Peltz is planning to launch a fight for a P&G board seat, which would make the consumer products giant the largest company to face a proxy battle!

2.     Boeing and Airbus are facing competition from three new makers of single-aisle commercial jets in China, Russia and Canada

3.     McCormick agreed to buy Reckitt’s food unit for $4.2B, the latest in a wave of packaged-foods deals

4.     Discovery is in talks to combine with Scripps Networks, a deal that would unite two firms trying to chart a course in a cable-TV industry that is facing massive pressure (I cut my cord almost 8 months ago!)

5.     Daimler said it would tweak the engine software on diesel vehicles amid emissions-cheating probes

 

 

Interesting News

 

·       A man in Texas was trapped inside an ATM for hours. Because of the small enclosure, his voice wasn’t able to transmit well, however he wrote/pleaded for help on people’s receipts. Many thought it was a joke, turns out it was not. He was actually a technician who forgot his phone in his car and the door accidentally closed on him

 

 

 

Commentary for the Week of July 17 – July 21, 2017

 

by David Abuaf, CFA

Investment Manager, RJFS

 

 

It’s earnings season once more, and the market is focused on just that – something tangible on which to finally focus.

 

Some 97 S&P 500 companies have reported earnings so far and 74% have topped analyst expectations, according to Thomson Reuters, above the four-quarter average of 71%. Sales have been nearly as strong as 72% have topped expectations versus four quarter average of 56%. All in all, second quarter earnings are expected to grow by nearly 10%!

 

As you may have noticed, the US dollar has been weak this year, having shed more than 7% against its trading partners in 2017. Dubravko Lakos-Bujas at JP Morgan notes that S&P 500 earnings per share typically rise by about 1% for every 2% decline in the greenback, so second quarter earnings could be even higher than 10%.

 

The biggest strength on the year has been technology, and there’s no way to play down its recent strength. After getting beaten up in June, the sector has gained 5.5% in July. As it stands, tech’s 10-day advance decline line hit its fifth highest reading EVER last Thursday. While common sense might say such strength should result in a pullback, Paul Hickey of Bespoke Investment Group has noted that during the 17 instances of elevated advance decline line readings during the year, those sectors experienced a nearly doubling of return over the period versus the benchmark!

 

All opinions presented are those of David Abuaf, and not of Raymond James or Forman Investment Services

 

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