foxex: The Rally is Global

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Tuesday's Headlines

1. Stocks Rally as Trade Deadline Delayed

Markets Close

Dow
25,891.32 +0.03%

S&P
2,779.76 +0.15%

Nasdaq
7,486.77 +0.19%

VIX
14.88 -0.20%

INV Anxiety Index
103.99 High

US 10-Yr Yield
2.647 -0.71%

Stocks Climb on Trade Deadline Delay

U.S. markets came out of the President's Day weekend with a little spring in their step as all major indexes ended the day slightly higher. That magical and terrifying March 1st tariff deadline may not end up being a real thing, anyway. President Trump acknowledged today that March 1st is not necessarily a hard deadline for new tariffs to go into effect and can extend it, if necessary. Count on it.

Walmart Crushes Estimates

$514 Billion...That was Walmart's total revenue in fiscal year 2019.

Today, the company reported a very strong final quarter of 2018, exceeding sales and profit estimates. Comparable sales (same store sales measured year over year) grew 4.2% while e-commerce sales rose 40%. Walmart owns a majority stake in India's Flipkart, the biggest e-commerce company in that country and has broader expansion plans there, and around the world. Walmart is leaning into grocery sales, especially grocery delivery, and plans to have 3,000 pick-up locations by the end of the year. Sound familiar? Amazon has already claimed that ground with Amazon Fresh and through its Whole Foods acquisition, but Walmart has a broader global footprint.

In terms of pure numbers, here's how these enormous retailers stack up:

Walmart fiscal 2019 Revenue: $514 billion
Amazon 2018 total Revenue: $233 billion
Walmart fiscal 2019 operating cash flow: $27.8 billion
Amazon 2018 net income: $10 billion

The two stocks have been mirror images of one another over the past year, and both ended up around 9% higher.

But if you take that timeline back 5 years, you get an entirely different picture. Amazon has been a high-flying growth stock with volatile ups and downs. Walmart has been a sturdy locomotive, returning about 10% a year to investors plus dividends. Rocket-ship or locomotive? Up to you.

Global Rally

Don't look now, but 2019 is off to a smashing start for global equity markets. It sure didn't look that way as 2018 came to a close, but apart from Poland and India, nearly every major equity market is in the green. It's the best start to a year since 1987. I've probably jinxed it by writing about, but you can't ignore the trend, and right now, the trend is your friend.

Here's a chart from PensionPartners.com with the performance of major countries MSCI Index. Zoom on in to find your favorite country.

Why it Matters

The global rally is happening in the face of many obstacles: A worldwide economic slowdown, recession warnings on multiple fronts, Brexit and other geopolitical uncertainty and a trade war. The Federal Reserve may have pierced these concerns - for the time being - by promising patience on raising interest rates and making stocks more attractive again. (It has also boosted gold prices, as James explains in our chart of the day, below).

Still, investors have been selling out of stocks at historical levels.

So who is actually buying stocks and stoking the rally? It must be institutional investors. They have the capital to move the markets and the algorithms to time their transactions. They are typically the first ones into a rally and the first ones to leave, letting the herd follow. Since we (retail and individual investors) don't know when they will pounce, we can't parrot their strategy effectively. That's why we need our own investing plans and the courage to stick with them.

We don't know how the various challenges facing investors will play out. But if you sold your stocks at the end of the year out of fear of the unknown, you've missed a historic rally. Hang in there.

Chart of the Day: Gold-Based ETFs Shine

If you haven't noticed, stocks haven't been the only market to rally in the past couple of months. Gold has been on a strong resurgence since the mid-August lows of last year. Back then, the price of gold bottomed around $1160 before embarking on a sustained rally for the past six months. As of Tuesday (2/19/2019), gold hit a high around $1341, which represents more than a 15% rise from the lows. On Tuesday alone, price surged a substantial 1.15%. This has boosted both the GLD ETF, which holds physical gold, as well as the fortunes of gold miners as represented in the GDX ETF.

There are a few factors helping to boost the price of gold. One of these factors is falling interest rates and bond yields, as shown in the U.S. Treasury 10-year yield since November. When interest rates fall, non-interest-bearing gold has less competition from interest-bearing instruments. As a result, gold prices and demand for gold tend to rise.

Also, since gold is most often denominated in U.S. dollars, gold and the dollar are generally inversely correlated. As a result, when the dollar drops in value, gold prices tend to rise, and vice versa. The price of the U.S. dollar index as of Tuesday is right around where it was in mid-August of last year. Though there was a lot of fluctuation in the interim, the dollar has remained relatively strong throughout. So gold strength can hardly be attributed to any weakness in the dollar.

Finally, gold is considered a safe-haven asset, which means that investors tend to buy gold when they are concerned or fearful about global political and economic conditions. Judging by the positive trajectory of the stock market, though, it doesn't seem that investors are too worried. However, there are still risk conditions on the horizon, including the ongoing uncertainty of U.S.-China trade talks. Related to this, fears of a slowing global economy continue to weigh. Finally, there's that thorny issue of Brexit. Within the next several weeks, the world is bracing for Brexit-related developments that could make massive waves in the U.K, all of Europe, and beyond.

So where does this leave the gold-based ETFs? As we can see on the chart, the GDX gold miners ETF has risen over 27% in the past six months. At the same time, GLD, which tracks gold prices much more closely than GDX, has risen around 14% in the same time frame. These are certainly strong numbers, especially for slower-moving ETFs (as opposed to individual stocks). GDX has been driven higher by the combination of a strong stock market as well as surging gold prices. With gold momentum still on the rise, we could be seeing significantly more upside for both of these ETFs.