Joel’s Weekly Talking Points – 1/21/20

  1. Trade: Last week, the US and China signed the “Phase 1” part of their trade deal.  Aside from just making general progress to a larger and in my opinion more important deal (technology and intellectual property protections are not part of Phase 1), there are a couple important implications of this deal.  First, China agreed to buy an addition $200 billion worth of American goods and services over the next two years. Secondly, this deal somewhat lifts the cloud of uncertainly for Emerging Markets – a sector we like and generally recommend an overweight to in 2020.
  2. CPI/PPI: The Consumer Price Index (CPI) and Producer Price Index (PPI) both rose in December 0.2% and 0.1% respectively.  CPI ended the year up 2.3% and PPI is up 1.3% for 2020.  Both numbers are in-line with published FED expectations but bear watching – if we see sudden spikes in wage growth (we didn’t in December) this may feed into CPI numbers which may make the FED reconsider its position on no rate hikes in 2020.
  3. Retail Sales: Retail sales in December rose 0.3% for the month and were up 5.8% from a year ago.  The US consumer appears to be healthy, which is critical for domestic growth.
  4. Housing Starts: This number hit its highest level since 2006 according to First Trust, with starts increasing 16.9% in December. JP Morgan has shown a chart for years showing a lot of excess building leading up to the 2008 crisis, and then a significant lag in building following.  We are finally getting back to a “normal” growth rate in my opinion and this also bodes well for 2020.
  5. Fun fact of the week: CHANGE IN THE LAW – The newly passed SECURE Act allows Americans to withdraw money from a pre-tax 401(k) or IRA without paying a 10% penalty for an “early withdrawal” if the funds are used to cover costs related to childbirth or adoption. The withdrawal would be subject to ordinary income tax. Please consult a tax expert for details (source: SECURE Act).

Weekly index performance: The S&P was up 1.99% last week, the Russell 1000 Growth index was up 2.30% and the Russell 1000 Value was up 1.67%. Small caps also up with the Russell 2000 gaining 2.54%. International markets were mixed up EAFE gaining 0.86%, and Emerging markets up 1.17%. Turning to fixed income, the broad market US Aggregate was up 0.06%, and the High Yield index was up 0.27% last week.  The US 10 year is at 1.77% this morning.

Bottom line:  I wrote about this over the Summer and right now I am feeling a little like Joel-a-domus here, but markets are rallying to start the year: the S&P 500 is up 3.14%, the NASDAQ is up 4.67%, and Emerging Markets are up 2.91% – to start the year!  This is looking an awful like 1999 in my opinion – global Central Banks are “easy” and earnings growth is tepid, but still growing.  Earnings season will take on far more importance now, as P/E’s begin to grow – we need the “E” part to grow here, otherwise an asset bubble may form.  While that will feel great for a year, we all know how that story will eventually end.



Any opinions are those of Joel Faircloth and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.
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Individual investor’s results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.
The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system.
The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index.
The Russell 1000 Value Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and lower forecasted growth values.
The Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations.
The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. The index’s three largest industries are materials, energy, and banks.
The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.
The Bloomberg Barclays U.S. Corporate High Yield Bond Index is composed of fixed-rate, publicly issued, non-investment grade debt, is unmanaged, with dividends reinvested, and is not available for purchase.  The index includes both corporate and non-corporate sectors.  The corporate sectors are Industrial, Utility and Finance, which include both U.S. and non-U.S. corporations.
The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS). The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple.
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