Here’s the news of the week – and how we see it here at McAlvany Wealth Management:
Apple of the Market’s Eye
Stocks were generally weaker across the board, and remained so up to Apple’s success at “beat the number” after the close on Wednesday. Why stocks couldn’t achieve liftoff before Apple’s announcement is a bit of a mystery since the eventual launch occurred on virtually no news. If one were to hazard a guess, Facebook was still weighing on the FANGs/tech, and more importantly the recent rise in long-term interest rates remained intact, even as the economic data turned a little sour in the month of July. None of that mattered when Apple reported adequate numbers and increased its earnings outlook for the second half of this year. That’s a bit ironic since the company really didn’t sell any more units (on average) of phones, pads, or computers than in quarters past. Customers simply bought a greater number of the more expensive phones – which is what made the difference in revenues. Apple’s doubling of its share due to buy-backs ($53 billion) and shoring up of a few debts (at the expense of assets) on its balance sheet were just icing on the cake as the market launched shares of the company past the $1 trillion market-cap milestone. That optimism was shared by the broader market as stocks advanced through the close on Friday in what amounted to a small gain (see the box scores).
I would split this week’s economic data between June and July – the former benign compared to the latter. July data showed auto sales declining to a four-year low of 16.68 million annualized run rate, ADP jobs of 219,000, US non-farm payrolls of 157,000, and a downtick in ISM manufacturing data from 60.2 to 58.1. Jobs need to produce more than 250,000 per month to be considered ‘expansionary.” I don’t know of any time in recent economic history when auto sales weren’t steadily climbing to new highs when the economy was “humming along,” as the headlines claim is the case today.
Away from all that, Treasury rates marched higher, driven by the prospect of record Treasury issuance in the second half of this year. Oil dropped on increased US inventories, and the dollar remained firm as confidence in a US trade war victory with China increased. The dollar has yet to break out above its 200-day moving average of 95.42, which kept the precious metals rangebound as well. Even so, there was a nice rally in the precious metals on Friday when they were not mentioned either directly or indirectly in China’s $60 billion list of retaliatory tariffs. Next week we’ll get a look at the CPI and PPI inflation data, as well as consumer credit usage. Stocks should also begin to discount a softer second half, though the tailwind of optimism and greed could override that sentiment in the short run.
VP Investment Management