Market Share Newsletter Vol 1 Issue 8

Issue #8: December 3, 2019 

December 3, 2019

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Your 1st Source for market information
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Cyber Monday set new records as consumers continue to embrace e-commerce. In-store traffic over the Thanksgiving weekend was down two percent, but total retail sales were up 5.4 percent. The U.S. consumer continues to be in a strong position, showing willingness to spend.
 
After all that shopping, Giving Tuesday has arrived, offering us a reminder to give back to our communities and favorite causes. Likewise, as a thank you to our readers of The Market Share, 1st Source Bank will donate the value of a meal to the Food Bank of Northern Indiana for each direct recipient that opens this message!*
 
U.S. stock markets remain near all-time highs after a bit of sell-off this past Friday and Monday. Reasonable earnings, an accommodative Federal Reserve, and prospects for a trade deal with China continue to support the market.
 
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
Erik Clapsaddle, CFA, CFP®
Senior Fixed Income Portfolio Manager
1st Source Corporation Investment Advisors, Inc.
ClapsaddleE@1stsource.com
 
Considerations for your portfolio

The Economy

  • Trade talks, negotiations, and/or implementations have increased. Today, President Donald Trump stated, “I have no deadline” on a China trade deal, but Wilbur Ross, U.S. Secretary of Commerce, said December 15 is a “logical deadline.”
  • On December 2, the Trump administration proposed tariffs of up to 100% on $2.4 billion of French imports in retaliation to their digital tax on large U.S. technology companies. On the same day, the administration placed new tariffs on aluminum and steel imports from Argentina and Brazil due to “a massive devaluation of their currencies.”
  • According to the ISM Manufacturing Index, manufacturing in the United States surprisingly fell in November. Some of the major components that reported declines were due to backlogged orders, employment, and new orders. The end of the General Motors strike helped boost manufacturing production in November.
  • Based on data from S&P CoreLogic Case-Shiller, home prices for the 20 largest metropolitan areas increased more than expected in September, the largest monthly increase since October 2018.
Economic Data: Recent
  Actual Survey Prior
Retail Sales Advance MoM
0.3% 0.2% -0.3%
GDP Annualized QoQ 2.1% 1.9% 1.9%
Markit US Manufacturing PMI 52.6 52.2 52.2
Existing Home Sales 5.49m 5.46m 5.38m
Economic Data: Upcoming
    Survey Prior
Change in Nonfarm Payrolls   190k 128k
FOMC Rate Decision   1.5-1.75% 1.5-1.75%
Consumer Price Index (CPI) MoM 0.2% 0.4%
University of Michigan Sentiment   97.0 96.8

Equities

  • Target Corporation reported excellent third quarter earnings on November 20, where same-store sales grew by 4.5 percent against an expected 3.6 percent. Both earnings per share and revenue beat expectations and digital orders increased by 31 percent.
  • On Friday, November 29, the value of Apple exceeded the value of all the United States’ large-cap energy stocks combined. As of the market close on November 29, Apple’s market capitalization was $1.19 trillion.
  • Adobe Analytics forecasts that Cyber Monday’s sales will increase by 19 percent, to a total of $9.4 billion compared to last year. The Redbook index (an index that covers brick-and-mortar merchandise retailers) indicates that U.S. retail sales jumped by 7.9 percent the week ending November 30 versus one year ago.
  • The European Banking Authority released its annual report stating that European banks have started to take on too much risk. They have increased lending in commercial real estate, consumer credit, and to small-sized businesses. As you follow our correspondences, this is just another ramification of negative rates.
Equity Index Values and Total Returns
  Value YTD 1-Year
S&P 500 3,113.9 26.54% 13.86%
Dow Jones Industrial Average 27,783.0 21.87% 10.16%
NASDAQ Composite 8,568.0 30.45% 16.45%
Russell 2000 (small-cap index) 1,607.6 20.70% 5.28%
MSCI EAFE (developed intl.) 1,967.8 18.49% 11.17%
MSCI Emerging Markets 491.0 10.22% 4.96%
Federal Reserve's Inflation Target
Source: Bloomberg

Fixed Income

  • Moody’s has downgraded more companies’ credit rating than were upgraded year-to-date. The present ratio of upgrades to downgrades is 0.71 percent. This is the first time since 2016 that it is below one percent. On the positive side, this year more corporations have moved into an investment grade rating as opposed to non-investment grade.
  • Negative yielding debt around the globe continues to hover near its lowest level, ($11.4 trillion) over the past five months. It presently makes up 20 percent of the Bloomberg Barclays Global Aggregate index, which according to Bloomberg data, is the smallest share in six months.
  • This year, taxable municipal bonds have been issued at their highest levels on record (excluding 2009 and 2010 when the government created the Build America Bonds program). Also this year, taxable municipal bonds accounted for approximately 14 percent of total issuance through October. A recent Bond Buyer article pointed out the growing concern (which appears to be needless) that taxable municipal issuance may undermine the need for tax-exempt municipal bonds.
Fixed Income Index Yields & Total Returns
  Yield YTD 1-Year
B’berg Barclays Inter Govt./Credit 1.97% 6.52% 7.87%
B’berg Barclays US Aggregate Bond 2.34% 8.44% 10.24%
B’berg Barclays US Corp. High Yield 5.64% 11.98% 9.12%
B’berg Barclays Municipal Bond 1.84% 7.08% 8.34%
Key Interest Rates
  11/30/19 12/31/18 12/4/14
Federal Funds Target Rate 1.5-1.75% 2.25-2.5% 0-0.25%
3-Month LIBOR 1.91% 2.81% 0.23%
2-Year U.S. Treasury Note 1.60% 2.49% 0.56%
10-Year U.S. Treasury Note 1.82% 2.68% 2.28%
Prime Rate 4.75% 5.50% 3.25%
Federal Reserve's Inflation Target
Source: Bloomberg
 
 
DISCLOSURES

*1st Source Bank will donate the value of a meal to the Food Bank of Northern Indiana for each direct recipient that opens this message from a unique, non-1stsource email address by December 6, 2019. Donation not to exceed $500.
 
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.