News for the Week of October 23 – October 27, 2017
by David Abuaf, CFA
Investment Manager, RJFS
General Markets / Economic
1. Banks are starting to pay more to keep depositors from moving their money as the strong economy pushes rates higher
2. The Justice Department is limiting the use of gag orders when seeking information from tech companies
3. Prime Minister Shinzō Abe said he would tackle the Japanese economy’s structural problems following his election victory
4. The SEC signaled that the agency is pivoting away from a prosecutorial approach to enforcement
1. Vistra and Dynegy are in advanced talks to combine, with a deal between the two Texas power firms possible as soon as next week
2. Amazon unveiled a system that lets customers open their homes remotely for package deliveries
3. Boeing said it may boost output to meet demand for single aisle jets
4. Sears - you remember them, the company that used to be a popular department store – will stop selling Whirlpool appliances, following a pricing dispute
5. CVS is in talks to buy Aetna for over $66B, as the drugstore chain scrambles to fortify itself against a health-care-industry reordering and competition from Amazon
1. A Mississippi school district is backpedaling after it pulled “To Kill a Mockingbird” from its curriculum earlier this month. Now the students can read it, but need parents’ permission. Because the book’s language “makes people uncomfortable.” I was in 8th grade once, and boy, did I use some bad words then. This just doesn’t make any sense, and the excuse is even worse.
2. In Massachusetts, two teenagers entered a store with knives and robbed it. But, they didn’t ask to open the register, they LITERALLY just wanted a single dollar.
Commentary for the Week of October 23 – October 27, 2017
by David Abuaf, CFA
Investment Manager, RJFS
What good is earnings season? Well for the last three months, Amazon, Alphabet (Google parent) and Facebook have quietly lagged the market as old economy stocks had double digit gains during that same time period. But then, just last Friday, those three stocks moved up on the day 13%, 4.3%, and 6.4% for Amazon, Alphabet, and Microsoft, respectively. Now it appears tech is hot again! The question is whether investors will wake up this week with a big tech hangover. But this situation isn’t all that different from tech’s June underperformance.
There is a theory being floated by INTL FCStone Financial strategist Vincent Deluard. According to Deluard, the Dow Jones has returned 32% over the past 12 months, with only a volatility of 7%, putting its Sharpe ratio – return to risk – at around 4.6x. In order to maintain that Sharpe ratio with a standard market volatility of 16%, Deluard says the Dow needs to be up more than 70%! Through last Thursday, this has been the least volatile October on record, going back to 1928. Ben Bowler of Bank of America says the market assumes that the world’s central banks will backstop a low risk through two factors that might change such an outlook. One would be higher inflation, which could force the Fed to take a more hawkish stance. The second would be a new Fed chief. “We need to break this psychology that shocks are good because it means an opportunity to buy the dip again and keep volatility artificially low.”
If tech stocks keep running, that might be easier said than done!
All opinions presented are those of David Abuaf, and not of Raymond James or Forman Investment Services. All opinions are as of this date and are subject to change without notice.
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