News for the Week of 10/24/2016 – 10/28/2016
by David Abuaf, CFA
Investment Manager, RJFS
Government / Political / non-Economic
1. French police and aid workers began clearing the migrant camp in Calais and transferring people to 80 shelters across France
2. Militants stormed a police academy in southwestern Pakistan, killing at least 59 and injuring over 100
3. Belgium said it wouldn’t support a trade deal between the EU and Canada
· They finally caved and agreed to back the EU deal
4. Russia is conducting civil defense drills and upgrading bomb shelters amid tensions with the US
5. US election spending is falling, reflecting Trump’s unconventional campaign and the use of social media. Call me a cynic, but I see this reversing for the next presidential cycle. That said, I do think it is a longer-term trend that will stay over the course of the next 30 years, but I doubt Twitter is the place it will reside.
6. Russia canceled a request to have Syria-bound warships refuel on Spanish territory as tensions rose between Moscow and NATO.
· Two points: A) Russia canceled the request because they know how bad Spain saying “no” would be, B) refueling!? US aircraft carriers are re-fueled ONCE in their entire life
7. The US abstained for the first time from a UN vote calling for an end to the US embargo on Cuba. Sometime politics doesn’t make any sense at all. Why abstain when we can vote against the embargo?
8. The Bundy brothers and five others were acquitted in the occupation of an Oregon wildlife refuge that put a focus on federal land issues
General Markets / Economic
1. The Fed is likely to leave rates unchanged at its November policy meeting and remain focused on raising them in December
2. Consumers whose insurance plans are being discontinued will get some flexibility when signing up during the ACA’s open enrollment
3. Retailers are scrambling to hire holiday workers despite an unusually early start on recruiting this year
4. More investors and policy makers are championing fiscal spending as central-bank moves fail to revive the global economy
5. Online Credit card fraud is rising sharply, prompting new steps by the industry to try to curb the threat
6. Auto lenders warn that used-vehicle values are likely to weaken, possibly leading to higher losses on loans
1. TD Ameritrade is buying rival discount brokerage Scotttrade for $4B amid a decline in stock trading and relentless price war in commissions
2. AT&T’s deal for Time Warner faces the prospect of opposition amid resurgent antitrust enforcement and fraught political climate
· AT&T argued that the Time Warner deal won’t raise prices – yeah, I don’t buy that!
3. Rockwell Collins agreed to buy B/E in a $6.4B deal that would unite two of the biggest suppliers in the aerospace industry
4. While I don’t like discussing earnings announcements here, it is worth noting that Apple posted its first annual revenue decline in 15 years!
5. GM is teaming up with IBM to offer mobile commerce services on their OnStar network
6. GE is in talks to merge its oil and gas business with Baker Hughes, a deal that would dramatically reshape the industrial giant
7. CenturyLink is in talks to merge with Level 3, a deal that would give the business-telecom firms greater heft
1. A new study shows that 25% of cancer deaths are linked to smoking!
2. The principal at a lower Manhattan high school was beaten to a pulp by a student on Monday when he told the teen to remove his headphones
3. Now this is depressing for sure. Concession vendors at Scotiabank entre in Halifax have decided to STOP selling cheese with…Nachos!
4. A 4th grade elementary school teacher, who was passed out drunk (0.27 BA level) for a field trip, has sued the school district and won $75k, in addition to an $18k payoff!
Commentary for the Week of 10/24/2016 – 10/28/2016
by David Abuaf, CFA
Investment Manager, RJFS
Chart from Barrons
Stocks were all set to finish a flat and uneventful week when news broke midday Friday that the FBI is reviewing new evidence in connection with its investigation of Hillary Clinton’s email server.
With investors expecting a Clinton victory, the FBI’s October surprise induced a new round of market volatility. It also dampened the improved tone that stemmed from news of a 2.9% rise in third quarter GDP – the best quarterly growth in two years! Overwhelmed, as well, were third quarter earnings reports, mostly better than expected, with a few exceptions – another driver of improved sentiment last week was the announcement of several mergers and rumors of more!
The FBI news aside, there was plenty of divergent stock sector performance caused by the threat of rising rates, earnings reports, and merger news, says Eric Ervin of Reality Shares. The yield on the 10-year US treasury is back up to 1.85% from 1.75% a week earlier. According to Ervin, with bond yield rising, the interest in bond-proxy sectors (Such as utilities, telecoms, staples, and REITs) is overplayed.
Edward Crotty at Davidson Investment Advisors says to expect sector rotation induced by higher rates to continue – that means massive moves from one sector to another causing a big shift in sector performance. Crotty also notes that the increase in deal momentum is a classic late market cycle phenomenon, as corporate management senses that the era of cheap debt-fueled mergers is ending.
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