Weekly Market Commentary August 20, 2018

Fast Facts

Looking Back- Apple is trading at $1 trillion, but who were the first billion and million dollar companies? Let’s take a step back through time to look at previous market milestones.

  • Bank of North America hit $1 million in valuation in 1781
  • Bank of the United States hit $10 million in 1791
  • New York Central Railroad hit $100 million in 1878
  • AT&T hit $1 billion in 1924
  • General Motors hit $10 billion in 1955
  • GE hit $100 billion in 1995
  • Apple hit $1 trillion in 2018

Waste Free by 2020- The average American produces about 4.4 pounds of waste per day. Roughly 1.5 pounds of that is composted or recycled, meaning the U.S. avoids sending just 34 percent of its waste to landfills, according to the EPA. San Francisco provides a much different narrative. Thanks to bold public policy and educational initiatives, the city diverts about 80 percent of its waste from landfills, or more than 1.5 million tons every year. Ultimately, San Francisco aims to reach zero waste. That means recycling, composting, reusing, and reducing consumption so that nothing goes to either the landfill or incineration. The city hopes to achieve this goal by 2020. But even if it doesn’t, San Francisco is already way ahead of other cities. For example, New York only diverts about 21 percent of its waste and Chicago is at about 10 percent.

Can They Build It- The construction industry has endured a significant labor shortage as young U.S. workers shun the building trade. The share of workers in the sector under 24 fell nearly 30 percent from 2005 through 2016. Replacements for retiring workers have been scarce even though the work pays well and doesn’t require a college degree.


Weekly Focus – Think About It

“There is no truth. There is only perception.”

–Gustave Flaubert, French novelist


The Markets

As Maxwell Smart used to say…

Missed it by THAT much! After a rocky start, the Standard & Poor’s 500 Index came within 1 percent of an all-time high last week, reported Ben Levisohn for Barron’s. It’s significant because the Standard & Poor’s 500 Index has been trading below its January record all year. The article suggested the lack of progress begs the question: Are we still in a bull market?

It’s the old ‘Shrink Global Markets with Corporate Buybacks’ trick. Last week, Robin Wigglesworth of Financial Times reported, “The global equity market is shrinking at the fastest pace in at least two decades, as a wave of corporate share buybacks swamps the overall volume of companies going public, issuing new stock or selling convertible debt.”

The value of the global equity market is increasing despite the reduction in volume. In part, this is because stock buybacks help push share prices higher.

There is a potential downside to buybacks, though. Nasdaq.com explained, “…rewarding current shareholders so liberally can lead to a systemic extraction of value from companies on a macroeconomic scale. Throw in dividends and little is left for growth and expansion.”

Would you believe…the President asked for it? “President Trump on Friday asked regulators to review a decades-old requirement that public companies release earnings quarterly, a change some executives support to promote longer-term planning but that some investors worry could reduce market transparency,” reported Dave Michaels, Michael Rapoport, and Jennifer Maloney of The Wall Street Journal.

While transparency is essential to investors, critics suggest quarterly reporting “distracts companies from focusing on longer-term financial and strategic goals and may deter companies from going public,” wrote Andrew Edgecliffe-Johnson and Mamta Badkar for Financial Times.

Stay tuned.

REMEMBER THAT SAYING ABOUT THE FOREST AND THE TREES? Some pretty good numbers have been posted for 2018. They’re the type of numbers that inspire confidence. For example:

  • 4.1 percent. The United States experienced strong economic growth during the second quarter. The advance estimate for U.S. gross domestic product (the value of all goods and services produced by a nation) during the second quarter of 2018 was 4.1 percent. That was the highest rate of growth since the first quarter of 2014.
  • 24.6 percent. 2017’s tax reform, which lowered corporate tax rates from an average of 35 percent to an average 21 percent, boosted corporate earnings, reported Nasdaq.com. With 91 percent of companies reporting in, the blended earnings growth rate for the S&P 500 was 24.6 percent during the second quarter of 2018.
  • $1 trillion. What are companies doing with their tax windfall? U.S. companies are rewarding shareholders by buying back stock, reported Nasdaq.com, which suggested buybacks could total $1 trillion in 2018.

3,453 days. Depending on how precisely you define the last bull market, August 22 may be the day that marks this one as the longest bull market in history.

While positive economic and market numbers are nice to see, they are trees in a forest and don’t necessarily provide a full or an accurate picture. For instance, the length of a bull market is interesting, but it has no predictive value, reported Barron’s. The length of the current economic expansion is far more important.

Barron’s cited Dr. Ed Yardeni, chief investment strategist at Yardeni Research, who said, “All I’m interested in is how long the expansion lasts…Because the longer it lasts, the longer the bull market lasts.”

It’s important to understand which numbers are important and how they relate to one another. If you would like to learn more, give us a call.

Best regards,

John Klevens, CFP

Sources: The Week Magazine, CNBC.com and The Wall Street Journal
Portions of this newsletter has been prepared by Peak Advisor