The Madison Weekly Market Wrap

November 3, 2019
Volume 6, Issue 44


Market Monitor
Above the Market - Information is cheap; meaning is expensive

All-Time Highs

A lot happened last week, with the market action being largely peripheral, despite all-time highs being reached by some stock indexes and healthy rallies in both stocks and bonds. On Wednesday, the Federal Reserve decided to cut interest rates for the third time in three months. In its previous statement, the Fed said it “will act as appropriate” to keep the economy going. This time, those words were missing. Instead, the Fed said it will “monitor the implications of incoming information for the economic outlook as it assesses the appropriate path.” In his post-meeting press conference, Fed Chair Jerome Powell said, “We believe that monetary policy is in a good place.”

You may remember Barbara Billingsley (most famous for playing Beaver’s mom in Leave It to Beaver) translating “jive” in Airplane!

Today, you have me to translate Fedspeak. 

The Fed’s language change coupled with Mr. Powell’s comments suggest that the Fed is now on hold and will require additional evidence before easing further. Overall, that is probably good news for the market. Low real (after inflation) rates are usually very good for stocks. And despite repeated predictions from many analysts, there’s still no sign of broad-based inflation. 

In economic news, ADP said the economy created 125,000 private-sector jobs last month, 5,000 above expectations. Friday’s government jobs report for October showed a better-than-expected 128,000 jobs added. Manufacturing data was again weak. The government said that the economy grew at a 1.9 percent real annualized rate in the third quarter. That’s decent, but not great, basically in line with the current expansion. Overall, there’s no imminent threat of a recession. 

Many continue to anticipate the announcement of a “phase one” trade deal between the U.S. and China despite news that the two countries’ leaders would not be able to meet at a canceled upcoming economic summit in Chile. Obviously, an end to the trade war with China would be a very good thing for the economy.

Last week was the season’s busiest for third-quarter earnings reports (nearly a third – 158 – of S&P 500 companies delivered results last week). In a typical pattern, the majority of S&P 500 companies that have reported to date have beat analyst estimates, but both Thomson Reuters and FactSet expect overall earnings for the group to have declined modestly on a year-over-year basis. A plunge in profits in the volatile energy sector is expected to be largely responsible for the drop.   

A Friday rally spurred by the strong monthly jobs report helped stocks move solidly higher for a fourth consecutive week. The large-cap S&P 500 and the tech-heavy Nasdaq reached new intraday and closing highs, while the smaller-cap benchmarks remained well off their late-2018 peaks. Within the S&P 500, health care stocks outperformed while energy shares lagged. Reflecting improved sentiment, the VIX — the so-called “fear index” — touched a four-month low.

As usual, Friday’s jobs data and Wednesday’s GDP data received plenty of trader attention, and it was positive for stocks. However, last week also brought further evidence of a persistent slowdown in manufacturing and business investment. The jobs report sparked a smaller reaction in the bond market, where longer-term U.S. Treasury yields rose somewhat on Friday but ended the week substantially lower as traders anticipate a pause in the Fed’s easing cycle. The benchmark 10-year U.S. Treasury note fell 12bp last week to yield 1.73 percent

Many stock markets in Europe rose throughout last week, buoyed by the European Union’s decision to grant the UK a three-month Brexit extension, encouraging Chinese manufacturing data, and strong asset inflows into the region. In Asia, Japanese stocks traded slightly higher last week and Chinese stocks also recorded a weekly gain as strong earnings from mainland companies and data showing an upswing in private manufacturing activity offset U.S. trade-related concerns. 

From the headlines…

The U.S. economy added 128,000 jobs in October — more than the 75,000 economists expected — while the unemployment rate ticked higher to 3.6 percent, the Bureau of Labor Statistics announced Friday. The strong numbers came despite job growth held down by the 40-day United Auto Workers strike against General Motors, which has since ended.

The Chicago PMI, a reading that tracks manufacturing companies based in the Midwest, produced its weakest reading in four years and the second lowest in a decade. The Institute for Supply Management’s manufacturing gauge showed the sector contracted in October for a third straight month.

So far, corporate earnings for the third quarter have been a bit better than expected.

Federal Reserve officials cut interest rates for the third time this year on Wednesday and began to downplay expectations of further cuts for now. What it means to you.

The U.S. economy grew 1.9 percent in the third quarter. While slightly higher than what economists expected, the number marks a slowdown from the beginning of this year as the boost from President Trump’s tax cuts fades and the U.S.-China trade war weighs on growth.

The U.S. Treasury Department expressed continued interest in issuing a 50-year bond, for the first time, as part of efforts to expand its investor base as the budget deficit widens to $1 trillion.

“With leading Democratic presidential candidates proposing tens of trillions of dollars of new federal spending, Republicans’ abdication of fiscal conservatism leaves Americans with no responsible party.”

Chinese officials are casting doubts about reaching a comprehensive long-term trade deal with the U.S.

Tensions between the NBA and China have touched off an international firestorm. The parties remain at an impasse. They have also shined a light on the fight for human rights in Hong Kong — and the frontlinersat the center of the movement.

It’s wildfire season in California, and clients there need help.

There has not been this much invested in money market funds since 2009.

Make these 12 tax moves for 2019 before it’s too late. 

The ten scariest retirement statistics in 2019.


Chart of the Week

You might also have a look at the charts that scare Wall Street.


Fact of the Week

Americans paid banks $113 billion in credit card interest in 2018, up 12 percent from the $101 billion in interest paid in 2017, and up 49 percent over the last five years. That number is expected to go even higher for 2019.


Quote of the Week

“ALL BUSINESSES ARE LOOSELY FUNCTIONING DISASTERS, AND SOME ARE PROFITABLE DESPITE IT.

At 30,000 feet, the world is beautiful and orderly. On the ground, it’s chaotic and confusing. Nothing ever goes to plan. Surprises lurk around every corner. Things are constantly breaking. Someone is always upset. Mistakes are made daily. Expecting anything less is being out of touch with reality. And remember, just because you’re now aware of it doesn’t change reality. It was that way before, you just didn’t realize it.”

Brent Beshore


Securities and advisory services are offered through Madison Avenue Securities, LLC, a member of FINRA and SIPC, a registered investment advisor.

This report provides general information only and is based upon current public information we consider reliable. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment or any options, futures or derivatives related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that price or value of such securities and investments may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Diversification does not guaranty against loss in declining markets.

The Madison Weekly Market Wrap

September 27, 2019
Volume 6, Issue 38


Market Monitor

Above the Market - Information is cheap; meaning is expensive


What’s the Trade?

The attack on a Saudi Arabian oil field last weekend is still sending reverberations through markets, far and wide, and it could have long-term implications for much more than the price of crude. Most immediately, Saudi Aramco could take some time fully to restore output at its giant Abqaiq plant, with oil analysts saying that damage at the facility is more severe than originally thought.

This event and its aftermath remind me of I game we used to play when I worked on one of Wall Street’s big trading floors (and recounted in Michael Lewis’s first book, Liar’s Poker): “What’s the trade?” The idea of the game was to propose a hypothetical world event and decide what the best trade is in response (e.g., nuclear plant problem in Russia — buy potato futures).

Here is how “What’s the trade?” played out immediately after the oil field attack: I filled my car’s gas tank right away, even though I didn’t need to. Not surprisingly, oil prices saw the biggest move, with U.S. WTI crude futures rising by 15 percent, the largest uptick since 2008. Stock prices fell, with the Dow, S&P and Nasdaq all ending moving lower. Airlines were hit hard as JetBlue and United Airlines both fell nearly 3 percent while American Airlines dropped 7.3 percent. Energy stocks, on the other hand, had their best day of the year, with the S&P Oil & Gas Production ETF jumping almost 11 percent, and the S&P energy sector rising out of a bear market with its best session of 2019. Yields on the benchmark 10-year U.S. Treasury note fell by the most in 3 weeks, as traders sought safe haven U.S. government debt. Gold prices also jumped 1 percent.

Since Monday, not nearly so much has happened, as markets moved on to look for “new news,” most notably last week’s Fed meeting. On Wednesday, the Federal Reserve voted to cut short-term interest rates by a quarter-percentage point for the second time in as many months to cushion the economy against a global slowdown amplified by the U.S.-China trade war. While they left the door open to additional cuts, officials were split over the decision and the outlook for further reductions. The differing opinions among FOMC members helped drive the spread between two and 10-year U.S. Treasury yields close to inversion, with shorter-term yields rising as the long-end dropped. “Jay Powell and the Federal Reserve Fail Again,” President Trump tweeted. “No ‘guts,’ no sense, no vision! A terrible communicator!”

That doesn’t sound like positive news, does it? Moreover, at his post-meeting press conference, Fed Chairman Jerome Powell said:

“Since the middle of last year, the global growth outlook has weakened, notably in Europe and China. Additionally, a number of geopolitical risks, including Brexit, remain unresolved. Trade-policy tensions have waxed and waned, and elevated uncertainty is weighing on U.S. investment and exports. Our business contacts around the country have been telling us that uncertainty about trade policy has discouraged them from investing in their businesses.”

Domestic equities closed last week modestly lower. The broad stock market showed little reaction to the attacks and the ensuing jump in oil prices. Large-cap stocks outperformed small-caps. Higher-valuation growth companies held up slightly better than value stocks, with companies in the value-oriented transportation industry, which experienced steep losses as a result of the jump in oil prices, weighed on returns for the value category.

Oil prices remained volatile all week as Saudi Arabia adjusted its estimates for when it expects the production and processing facilities to come back online. Although oil prices moderated midweek, they still finished the week up approximately 6 percent.

Domestic stocks also displayed little reaction to Wednesday’s Fed’s decision to lower rates. Market participants had widely anticipated the move, and the Fed’s statement following the meeting had no substantive language changes from the previous meeting. Fed Chair Powell also seemed to stick closely with his script in his post-meeting press conference, giving investors little information about the central bank’s potential next move.

U.S. Treasury yields decreased as the jump in geopolitical risk in the Middle East seemed to convince some investors to move into safe-haven assets. Overnight lending rates were unusually volatile relating to the amount of bank reserves available for lending in the money markets. This caused the fed funds rate to break through the upper end of its target range before the Fed stepped in to inject more reserves into the system via overnight repurchase operations.

Stock markets in Europe were largely range-bound last week, even as trade negotiations between the U.S. and China resumed after two months and hopes for a Brexit deal rose. In Asia, Japanese stocks were up for the fifth straight week, while Chinese stocks retreated as a batch of closely watched indicators underscored the continued toll of the U.S. trade war on the country’s economy.

From the headlines…

As noted above, Wall Street is buzzing about the repo market. On Friday, the New York Fed injected an additional $75 billion into the repo market, its fourth liquidity injection of the week, after swap spreads fell to their lowest level on record.

Funds that track broad U.S. equity indexes hit $4.27 trillion in assets as of August 31, according to Morningstar, giving them more money than stock-picking rivals for the first-ever monthly reporting period.

The OECD cut its global growth outlook to 2.9 percent this year — down from its 3.2 percent projection four months ago, and the slowest since the financial crisis.

U.S. business optimism dropped this quarter to its lowest level in three years. U.S. home sales in August rose to the highest level in nearly a year and a half, sparking fresh hope that a protracted slump may finally be starting to reverse. Existing-home sales in August were up from a year earlier for the second straight month — following 16 straight months of declines.

Last year’s U.S. college graduates averaged about $29,200 in student loan debt — a record.

Economic activity in China cooled further in August, with industrial output and retail sales data suggesting sluggish demand and low confidence among businesses and consumers.

In 2010, coal supplied nearly half of America’s power, but this April, for the first time ever, renewables supplied more power to the U.S. electric grid than coal. Solar and wind are expected to power half the globe by 2050.

The U.S. continues to lag other developed nations when it comes to ensuring retirement security, according to the 2019 Natixis Global Retirement Index. In fact, the U.S dropped two spots to no.18 for retiree well-being, according to the annual index, which gives a snapshot of the well-being and financial security of retirees in 44 countries. And for all four indices measured, the U.S. ranked the same or lower this year.

What “retirement” means now.

The Nest Egg Game: Your life in 10 financial milestones.


Chart of the Week

Securities and advisory services are offered through Madison Avenue Securities, LLC, a member of FINRA and SIPC, a registered investment advisor.

This report provides general information only and is based upon current public information we consider reliable. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment or any options, futures or derivatives related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that price or value of such securities and investments may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Diversification does not guaranty against loss in declining markets.

The Madison Weekly Market Wrap

September 1, 2019
Volume 6, Issue 35


Market Monitor

Above the Market - Information is cheap; meaning is expensive


Course Reversal

Worldwide, politicians left and right are demanding that their central banks aggressively cut rates to juice their economies, irrespective of whether doing so is prudent. And central bankers obviously seethe with a desire, most recently expressed (last week) by former New York Fed President William Dudley, to force politicians to do their jobs, make difficult decisions, and make necessary corrections so that central banks might keep some ammunition for a real crisis, retain their independence, and simply do their jobs. As Mr. Dudley said, “Officials could state explicitly that the central bank won’t bail out an administration that keeps making bad choices….”

Thus far, largely because the central banks – perceiving themselves as the only grown-ups in the room – are unwilling to force the politicians (and, most importantly, their constituents) to pay for their mistakes, the politicians are clearly winning (as they should – central bank officials aren’t elected and shouldn’t go about trying to decide elections). That the politicians are winning suggests that the economy will be the worse for it and that the Fed (or other central banks) won’t be able to stimulate the economy when doing so really becomes necessary. But the economy will probably remain fine, at least for a while. As ever, politicians – for whom lunch is a long-range plan – favor right now over what is in the longer-term best interest of their countries. Moral hazard is right in their wheelhouse.

In the capital markets last week, domestic stocks enjoyed their best week in nearly three months, as traders appeared to grow more confident in the prospects for a U.S.-China trade deal. Within the S&P 500, industrials outperformed while health care, consumer staples, real estate, and utilities shares lagged.

Futures markets were sharply lower before markets opened Monday, as traders reacted to President Trump’s announcement the previous Friday evening of additional tariffs on Chinese imports. However, Mr. Trump appeared to reverse course on Monday, stating that prospects for a trade deal were the best they had been in some time and asserting that the Chinese “want to make a deal very badly.” Markets pulled back as hopes for a deal faded again Tuesday, however. The editor of a state-owned Chinese newspaper tweeted that he had no knowledge of any recent talks and that China “didn’t change its position” and “won’t cave to U.S. pressure.”

On Thursday, trade prospects took another turn for the better. A spokesman for China’s Ministry of Commerce told reporters that China had no plans to respond to the White House’s latest tariff escalation, although he also remarked that “China has ample means for retaliation.”

Reflecting the week’s mixed economic signals, the yield on the benchmark 10-year U.S. Treasury note ended the week little changed at 1.50 percent.

Most major European stock markets rose last week, buoyed by the seeming improvements in U.S.-China trade talks and the agreement of Italian political parties to form a new government. The pan-European STOXX Europe 600 rose more than 2 percent, while the exporter-heavy German DAX advanced 2.5 percent, and Italy’s FTSE MIB gained almost 4 percent.

In Asia, traders of Chinese stocks appeared less encouraged by the latest trade developments and braced for the next wave of U.S. tariffs and both major Chinese indexes traded off slightly. All the Japanese indexes advanced.

I trust you will all enjoy your Labor Day holiday tomorrow.
From the headlines…

Across the country, more than 1 million more jobs are available than there are people to fill them.

President Trump claims he has the “absolute right” to order U.S. companies out of China. The trade battle is shaping up to be a definitive issue in the 2020 presidential campaign. The world’s central bankers are increasingly worried Mr. Trump’s tactics to reorder global trade are destabilizing economies in ways they can’t easily fix. A growing number of U.S. companies say they’re hurting as the U.S.-China trade war intensifies.

U.S. consumer confidence declined in August by less than forecast as Americans’ assessment of current conditions climbed to the highest level in almost 19 years, helped by a job market that remains robust.

Second-quarter GDP was up a seasonally adjusted, annualized 2 percent, the Commerce Department said — a decent pace but down from the first quarter’s 3.1 percent and 2018’s overall 2.9 percent, as well as from the previous second-quarter estimate of 2.1 percent. Weakness in inventory investment and trade were bigger drags than previously thought. And a broad measure of corporate earnings that had dropped for two consecutive quarters rebounded.

Last week, the dividend yield of the S&P 500 went higher than the yield one can obtain from a 30-year U.S. Treasury bond. That has only happened once before in the post-WWII era – at the tail end of the 2008-09 Great Financial Crisis.

One of the broadest gauges of the American bond market, the Barclays Aggregate, is sitting on gains of 9.10 percent YTD. If it were to finish the year at that level, it would be the index’s biggest increase since 2002. Longer-term bonds have done even better. If you had simply bought the 10-year U.S. Treasury note at the end of 2018, you’d be up almost 13 percent YTD. TLT, an ETF of U.S. Treasury paper 20 years and greater in term, is up 23 percent YTD.

The U.S. Treasury yield curve completely inverted Tuesday, with 1, 2, and 3-month U.S. Treasury bills all paying higher interest rates than 30-year U.S. Treasury bonds. The yield on the 3-month bill moved as much as 52 basis points above the 10-year note (the highest since 2007) with the 10-year yield ending the trading day well below the 2-year — fully inverting another closely watched yield curve. The 3-month/10-year and 2-year/10-year yield curve inversions are closely watched precedents of recession. Economists at the Federal Reserve recently called the 3-month/10-year inversion “the best summary measure” for an economic downturn.

Greek government 10-year bonds yield 1.83 percent, yields on Italian 10-year government bonds have dropped below 1 percent, an unprecedented level, and 10-year U.S. Treasury notes yield 1.49 percent. Those levels seem out of whack in that Greece is rated B1/B+ (a junk rating) and Italy is rated Baa3/BBB (a very low investment grade rating), while the United States (Aaa/AA+) is generally considered to be the best credit on the planet. What yield might 100-year U.S. debt trade at?

Insider selling is increasing.

FAANG shares, once darlings of the tech sector, have been losing their luster.

Johnson & Johnson was ordered to pay over $572 million for its role in Oklahoma opioid crisis.

For those within 10 years of retirement, this eight-step review can help.

What are your investment beliefs and why are they important?


Chart of the Week

Chart of the Week 2

Chart of the Week 3