Things to know
- China GDP comes in as expected at 6.2% – no surprise
- Earnings season kicks off
- Iran is looking for a way to engage – Mikey says “No Deal”
- Oil holding steady at support as it readies to rally.
Recession? What recession? The FED made it abundantly clear that they intend on working hard to combat any such occurrence…..last week’s testimony has all but assured investors/traders and algo’s that the next move on July 30/31st will be a rate CUT and that means not holding steady – And I say that because while holding rates steady MIGHT have been fine – let’s be clear – the mkts have rallied nearly 2.5% since July 1st – that is one top of the June’s 7% rally – bringing ytd performance S&P performance to 20% , while the Nasdaq has rocketed by 24%…..all on the belief that the Fed is slashing rates at month end. So – by chance they change their mind – then watch out…because a ‘neutral move’ would now be seen as a disappointment…..and the FED has no one to blame for this – because he was very clear – there was no mistaking the message…..but if the macro data firms up in the next two weeks (as we started to see last week during his testimony) then there is the possibility (as slight as it may be) that they choose to stay put….and that will be an issue for the algo’s.
In a repeat performance for both houses of Congress last week – Fed Chair Jay Powell made no bones about it. He focused on the ‘weaker’ part of the economy while ignoring the robust June jobs report and some of the other macro data that appears to be showing a steady economy – saying since early June that “they (the FED) could respond to any deterioration by cutting interest rates” and the algo’s loved it……the indexes all ended the week higher in celebration of lower rates…….even as earnings season is about to begin – a season that is expected to be weaker…..but the thinking goes – ‘Yeah, ok – the earnings may be weaker but we know that and the FED is cutting rates – Yahoo!’
By the end of the day – the Dow added 243 pts or 0.90%, the S&P rallied 13 pts or 0.46%, the Nasdaq was ahead by 48 pts or 0.59% and the Russell tacked on 12 PTS or 0.78%.
So it’s the 90 day dance, the beauty pageant (as we say) when public companies pull the curtain back and expose themselves to the world. It is earnings season and this week kicks it off….It’s all about the big banks… Look the sector – represented by the XLF – (Financials ETF) has rallied 20% this year – with key names all over the place – So what are we expecting…..will they beat the number and rally or will they beat the number and sell off? And what if they miss the number? (odds are low) – either way listen to the forward guidance…… Look – banks are expected to cut their outlook – but again that is known – so listen carefully to the words they use…..
Look, the conversation this year has been about a weakening US and global economy, the ongoing trade war, geo-political issues across the Mid-East, Oil production cuts and weaker earnings…but the mkts are making new highs in the face off all this ‘negative’ news….so can it just keep going or should we see a pullback and some churn? My guess – pullback and churn (that does not mean ‘sell off’) …..So pay attn to the specifics – listen to the conference calls, listen to the forward guidance – because while earnings this qtr are expected to be lower – they are expected to steady and grow again by year end 2019 and thru 2020…… Remember – the earnings themselves are history – they are what they are….but what does the future look like?
Now – overnight the headlines were all screaming…..China reported that 2nd qtr GDP came in +6.2%…The news sources jumping all over it with headlines that would have you believe that country was on fire…..never mind that the data on Industrial Production, retail sales and fixed asset investment were all ABOVE the expectations….
Bloomberg runs with: “China Economy Slips to Record Low Growth Amid Stabilizing Signs”
WSJ runs with: “China Growth at its Slowest Since 1992 as Beijing Struggles to Juice Economy”
The Guardian (UK) runs with: “China’s Growth Rate Hits 27 year low as Trade War Drags On”
Guess what? That is NO surprise at all – that has been the expectation all along….so why make is sound like it’s a disaster? Why couldn’t the headlines just say – ‘China reports (expected) weaker GDP’ and then move on? Because that sounds boring….better to create a frenzy…..Whatever….in the end – trading in China ended higher – with the Shanghai adding 15 pts or +0.46%. 6% GDP is the floor – so gov’t monetary policy is expected to remain stimulative (pro-growth) for the rest of 2019 and even into 2020. The Chinese economy is rebalancing – they are going thru a renaissance (of sorts) as they move towards domestic growth and away from manufacturing…..and this takes time and patience….China is not going away…so back off. Japan was closed, Hong Kong added 83 pts or 0.29% and the ASX lost 43 pts or 0.65%.
Trading in Europe – started higher – kicking off the week in the green – and then suddenly revered course leaving all mkt centers in the red at 6:30 am, and so the churn continues….…..word that ‘worries’ over China’s slowing economy is a direct result of the trade war with the US – is the story…..(it’s a convenient excuse to explain the mixed behavior) as earning season kicks off. Look, those mkts are also near the years highs – so as earnings season begins and asset managers focus on the fundamentals – the pullback and churn becomes real…..so keep the gunpowder dry – and let’s see how this begins to shape up……In other news – . Iran reaches out overnight – saying that they are ‘ready to hold talks with the US – IF Trump drops all sanctions on that country as well as rejoins the Obama era nuclear deal….Secretary of State Mikey Pompeo says ‘No deal’….FTSE +0.18%, CAC 40 -0.10%, DAX +0.19%, EUROSTOXX -0.10%, SPAIN +0.11% and ITALY -0.02%.
US futures are churning…..the Dow is up 23 pts, the S&P up 2, the Nasdaq is showing up 1 pts while the Russell is adding 2. – by no means does it feel like the party is going to keep going…..We will hear from Fed chair Jay Powell again tomorrow and there is plenty of eco data to go around….today includes the Empire State Manf report – exp of +2.0, later in the week – look for Retail Sales – exp of +0.2%, Ex Auto’s and Gas of +0.3%, Ind Prod – exp of +0.1%, Capacity Util of 78.1,. Housing Starts and Building permits on Wednesday, Fed’s Beige Book and Philly Fed’s Business report of +5.
The S&P closed at a new high on Friday at 3013 – since this is new territory – you need to draw a trendline from the November 2018 highs to get a sense of resistance…and that resistance appears to be in the 3025 range….so it appears to me that we are in the 2975/3025 range as we move into earnings season….what we hear will drive the next move…..and again my sense is that a small pullback is in order….so let’s see…..
OIL is up 22 cts a barrel at $60.44 and continues to find support at the trendline….headlines about China GDP is driving some of the conversation while the now downgraded hurricane in the Gulf had brought some of the refiners to shut down until the storm passes – Toss in the loss of refining capacity along the east coast (due to the massive fire/explosion last month of the Philadelphia Energy Solutions refinery) and you have the set up to move a bit higher…Look for $65 to be the level before Trump starts putting pressure on the Saudi’s.
Take good care.
Pan Roasted Sea Bass –
You will need: 1 lb of Sea Bass, olive oil, butter, onion, Marsala Wine, Fresh wild mushrooms, Chicken stock, s&p, and chopped parsley for color.
Prepare by chopping the onion, slicing the mushrooms and chopping the parsley. Have all other ingredients out on the counter to ease the process of creating this dish….
Preheat the oven to 450 degrees – this is important – you want the oven ready and waiting…
In a sauté pan – heat the olive oil and the chopped onion – cook until soft and translucent. Turn the heat to high to make the pan really hot – then remove the pan from heat and Deglaze with ¼ cup or so of Marsala Wine – you can use White wine if you prefer – but you will get a different flavor – just fyi. (I say remove the pan from the heat because – if you use Marsala – the flame can easily ignite the wine and singe your face. – reg white wine – no worries) When the wine has cooked off add the sliced mushrooms and about a tblsp of butter. Reduce heat to med and cook until tender…
Now add the chicken stock – maybe ½ cup or so….and s&p…let it cook down…..just so it thickens a bit…..
In another sauté pan heat up a bit more olive oil…season the filet with s&p and add to the pan skin side down for about 5 mins…you want the skin to be crispy……flip and cook for about 1 min – transfer to a baking dish and put in the pre-heated oven and roast for another 4 / 5 mins.
Warm the serving dishes and place a bed of the onion/mushroom mixture on the plate and then top with the pan roasted filet. Adorn with a bit of chopped parsley. You can serve this dish with herb/garlic wild rice and sautéed green beans. Complement with a cold bottle of Pinot Grigio – Santa Margherita.
Information and commentary provided by ButcherJoseph Asset Management, LLC (“BJAM”), are opinions and should not be construed as facts. The market commentary is for informational purposes only and should not be deemed as a solicitation to invest or increase investments in BJAM products or the products of BJAM affiliates. The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon.
There can be no guarantee that any of the described objectives can be achieved. BJAM does not undertake to advise you of any change in its opinions or the information contained in this report. Past performance is not a guarantee of future results. Information provided from third parties was obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness.
Different types of investments involve varying degrees of risk and there can be no assurance that any specific investment will be profitable. The price of any investment may rise or fall due to changes in the broad markets or changes in a company’s financial condition and may do so unpredictably. BJAM does not make any representation that any strategy will or is likely to achieve returns similar to those shown in any performance results that may be illustrated in this presentation. There is no assurance that a portfolio will achieve its investment objective.
Definitions and Indices
The S&P 500 Index is a stock market index based on the market capitalization of 500 leading companies publicly traded in the U.S. stock market, as determined by Standard & Poor’s.
UNLESS OTHERWISE NOTED, INDEX RETURNS REFLECT THE REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL GAINS, IF ANY, BUT DO NOT REFLECT FEES, BROKERAGE COMMISSIONS OR OTHER EXPENSES OF INVESTING. INVESTORS CAN NOT MAKE DIRECT INVESTMENTS INTO ANY INDEX.
BJAM is an investment advisor registered in North Carolina and Arizona. Such registration does not imply a certain level of skill or training. BJAM’s advisory fee and risks are fully detailed in Part 2 of its Form ADV, available upon request.