Market Share Newsletter Vol 1 Issue 1

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Your 1st Source for market information
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Welcome!

Welcome to our inaugural edition of The Market Share, an e-newsletter, focused on the market insights you need.

Included in each edition, you will find economic considerations, highlights and key takeaways from recent stock market activity, as well as information on interest rates. This newsletter will be designed as a bridge between your investment statements, that will examine the factors that have already, and will continue to impact your bottom line.

You will also find helpful answers to our clients' most frequently asked questions, from our most experienced investment professionals.

Thank you for taking time to review The Market Share, and as always, we appreciate the opportunity to work with you!

Paul Gifford, CFA
Chief Investment Officer
1st Source Corporation Investment Advisors, Inc.
giffordp@1stsource.com

Straight talk about the news of a U.S. recession and trade war with China

Clients frequently ask us about the current factors influencing financial market activity and what they are seeing in the media. Hear thoughts from 1st Source Investment Advisors, Paul Gifford and Rob Romano, on a U.S. recession and the trade war with China.

Considerations for your portfolio
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The Economy

  • A slew of big economic data was released the past few weeks as the change in nonfarm payrolls came in close to expectations, but the previous month’s increase was revised down. The unemployment rate stayed at 3.7% but the underemployment rate (U6), a broader measurement, dropped to its lowest rate (7%) since December 2000.
  • Second quarter GDP in the U.S. increased by 2.1%—ahead of the general estimate of 1.8%. The consumer drove the stronger than expected result as personal consumption increased by 4.3% in the quarter and government spending contributed the most to GDP since the second quarter of 2009.
  • Despite retail sales being strong in the U.S., the manufacturing sector continues to grow but at a much slower pace. Activity within manufacturing declined to its lowest level in July since August 2016 on the back of weakening exports and a slowdown in production and orders.
  • Inflation remains mostly muted, though this past month it unexpectedly ticked up higher than expected due to a rise in housing and rent prices.
Economic Data: Recent
  Actual Survey Prior
Retail Sales Advance MoM 0.7% 0.3% 0.3%
Consumer Price Index MoM 0.3% 0.3% 0.1%
GDP Annualized QoQ 2.1% 1.8% 3.1%
Change in Nonfarm Payrolls 164k 165k 193k
Economic Data: Upcoming
    Survey Prior
Housing Starts   1256k 1253k
New Home Sales   640k 646k
Consumer Confidence (Conference Board) 133.6 135.7
PCE Core Deflator MoM   0.2% 0.2%
Federal Reserve's Inflation Target

Equities

  • The S&P 500 declined by almost 3% on Wednesday, August 14 as a yield curve inversion occurred (explained in fixed income) and global economic data pointed to a slowing global economy. Despite the recent volatility, the S&P 500 is only down a little over 6% from its high through the 14th. We expect volatility to stay as the U.S.-China trade issue remains and protests in Hong Kong linger.
  • Berkshire Hathaway increased their stake in Amazon by 11% but it still only represents 0.11% ownership of Amazon. Apple is Berkshire’s biggest holding and it represents 24% of their disclosed assets and a 5.7% ownership of Apple.
  • Financial news from many of the U.S.’s traditional brick-and-mortar retail companies continue to be worsening as Macy’s dropped their profit outlook and JCPenney same-store sales fell 9%–and they plan to now sell used apparel. The retail industry continues to be dominated by a few giants: Walmart, Costco, Target, Home Depot, and Amazon.
Equity Index Values and Total Returns
  Value YTD 1-Year
S&P 500 2,840.6 14.75% 2.77%
Dow Jones Industrial Average 25,479.4 10.87% 3.71%
NASDAQ Composite 7,773.9 17.99% 0.83%
Russell 2000 (small-cap index) 1,467.5 9.71% -10.93%
MSCI EAFE (developed intl.) 1,813.0 8.26% -1.61%
MSCI Emerging Markets 453.0 1.69% -3.34%
Federal Reserve's Inflation Target

Fixed Income

  • Interest rates continued their fall as the 10-year U.S. Treasury note reached 1.51% on August 15—its lowest yield since August 15, 2016. On August 14, the 10-year U.S. Treasury yielded slightly less than the 2-year U.S. Treasury for a short time frame—also known as a “yield curve inversion”. Historically when this has happened, the odds of a recession have increased.
  • The yield on the 30-year U.S. Treasury bond reached an all-time low on August 15 of 1.939%. This is the first time the 30-year has ever been below 2%. The U.S.-China trade dispute has put downward pressure on yields and negative global rates around the world continue to keep them suppressed.
  • Global monetary policy only gets stranger as the 30-year German bond reached a new unprecedented level of -0.25% and Switzerland’s 30-year bond reached -0.67%.Negative yielding debt breached $15 trillion in August.
  • The Federal Reserve (the “Fed”) lowered their target rate by 25 basis points to a range of 2.00 – 2.25% on July 31. This was the first time the Fed cut interest rates since December 2008 and the markets are currently expecting at least two more cuts by year-end.
Fixed Income Index Yields & Total Returns
  Yield YTD 1-Year
B’berg Barclays Inter Govt./Credit 1.90% 6.32% 7.75%
B’berg Barclays US Aggregate Bonds 2.23% 8.48% 9.67%
B’berg Barclays US Corp.High Yield 6.22% 9.49% 5.70%
B’berg Barclays Municipal Bond 1.61% 7.61% 8.79%
Key Interest Rates
  8/14/19 12/31/18 8/16/14
Federal Funds Target Rate 2-2.25% 2.25-2.5% 0-0.25%
3-Month LIBOR 2.16% 2.81% 0.23%
2-Year U.S. Treasury Note 1.58% 2.49% 0.41%
10-Year U.S. Treasury Note 1.58% 2.68% 2.34%
Prime Rate 5.25% 5.50% 3.25%
DISCLOSURES
The information in this email was prepared from sources believed to be reliable; it is for informational purposes only and does not provide recommendations based on the investment objectives, financial situation, or needs of any individual or entity. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets. The information in this email is not a comprehensive statement of the matters discussed. Unless specifically indicated otherwise, this email is not an offer to sell or a solicitation of any investment products or other financial product or service or a confirmation of any transaction. If you have questions about the information in this email, please contact your trust administrator at 1st Source Bank Wealth Advisory Services or call 800 882-6935. Investment and Insurance products are:
  • Not insured by the FDIC or any Federal Government Agency
  • Not a deposit or other obligation of, or guaranteed by, the Bank or any bank affiliate
  • Subject to investment risks, including possible loss of the principal amount invested
1st Source Corporation Investment Advisors, Inc. is a wholly owned subsidiary of 1st Source Bank.