 The Market Sum | Insight after the bell
By Caleb Silver, Editor in Chief Friday's Headlines 1. Markets Fall on Second Worst Week of 2019 2. New Tariffs Targeted at Consumers 3. The Good News Bad News of the Jobs Report 4. How Companies are Spending their Cash Markets Closed
Year-to-Date
 Markets Today
U.S. markets capped off their second worst week of the year today on the heels of the Federal Reserve's first interest rate cut since the financial crisis and the announcement of a new round of tariffs on China set to begin on September 1st. The S&P500 had its worst week of 2019.
Sectors including industrials, technology, and consumer goods all fell hard on the announcement given the targeting of the products listed for 10% tariff increases.
This new round, announced via twitter by President Trump Thursday, has a heavy emphasis on consumer goods that are both made in China on behalf of U.S. companies, and made by Chinese companies for the U.S. market.
According to Bank of America, 60% of the goods listed on the U.S. Trade Representative's Federal Register of Products are consumer related.
Here is the breakdown, by category.  What's targeted? It's a bizarre list of goods that includes everything from octopus to textiles, and ski clothing to ceramics. Here were a few items that caught our eye
U.S. retailers lashed out at the announcement, insisting that tariffs are essentially a tax on American consumers, and they will be raising their prices.
The Footwear Distributors and Retailers of America, a lobbying organization that includes Nike, Walmart and Birkenstock, issued a statement condemning the new tariffs:
"...70 percent of every pair of shoes sold in the U.S. comes from China. Footwear from China is already hit with upwards of 67 percent duties. President Trump is, in effect, using American families as a hostage in his trade war negotiations. Tariffs are taxes and this move will noticeably raise the cost of shoes at retail and will have a chilling effect on hiring in the footwear industry."
Bank of America writes that the 10% tariff could easily jump to 25% if Trump does not hear what he wants from China's negotiators. So far, China has not backed down from the threat of new tariffs and appears resilient.
But, another consequence of new tariffs could be an extension of ongoing global monetary easing. About half of the major global central banks have cut rates this year, and many more cuts are likely in the pipeline as further escalation in the trade war likely leads to an even weaker outlook for global (particularly Chinese) demand. That's only going to strengthen the U.S. Dollar, which is not what the Trump administration wants.
Here' s the U.S. Dollar against the Chinese Yuan over the past month. It just keeps climbing - especially this week.  More Beef for Europe On a separate, but related note, Trump today announced a new trade deal with the European Union whereby the E.U. would lower trade barriers for U.S. exports of beef. The White House claims that the deal would increase the export of duty free beef to Europe by 46% in the first year alone.
U.S. Employment Report
U.S. employers added 164,000 jobs in July, in line with forecasts, and the unemployment rate held steady at 3.7%. The total labor force came in at a record-high 163.4 million. 163.4 million out of a total U.S. population of 329 million is pretty strong. Wages also increased by 3.4% year over year, which is a good sign for U.S. consumers, who are carrying the weight of the tiring economic expansion on their backs.
Job gains for June and May were revised lower, however, by 41,000. Remember, the month of June saw 224,000 jobs added. That number was revised lower to 193,000 - still robust, but not blockbuster. As we say every month around this time, the monthly jobs report is not something to obsess over in and of itself. It's a data point that helps provide a reading on the health of the U.S. economy. It may take on a little more importance in the context of the debate over interest rate cuts, and given that, the July report reminds us that the U.S. economy is still chugging along and adding jobs at an average clip of around 165,000 per month since the recovery began in 2010.
chart courtesy tradingeconomics.com  Buybacks vs. CapEx We've noted before how 2019 is shaping up to be another record year for corporate stock buybacks. U.S. companies are expected to spend some $823 billion in 2019 buying back their own shares. This, according to Bank of America, will be the second straight year of companies spending more on buybacks than they are on capital expenditures. For every $100 they spend on CapEx, they spend $114 on buybacks. In the prior 19 years, companies spent $60 on buybacks for every $100 they spent on CapEx.
While this has been a boon to the stock market and those invested in it, it has not necessarily helped companies set themselves up for expansion and growth. As we said before earnings season, we would be looking to see where companies are putting their cash. Apple told us this week it would spend an additional $75 billion of its $210 billion in cash on buybacks. That comes less than a year after it announced a $100 billion buyback. This helps boost its income or earnings per share, and investors have rewarded the company for that - but it is financial engineering by any other name.
Here is BofA's chart on buybacks vs CapEx going back to 2002.  Looking Ahead to Next Week Corporate earnings reports will keep rolling in for the next two weeks. Among the companies reporting are Disney, CVS, Marathon Oil and Duke Energy, to name a few.
We will be all ears (sorry!) to hear more about Disney's roll out plan for Disney+ , its new streaming serve set to launch in the Fall. Disney has been absolute monster at the box office this year, as well. It's studio has pulled in a staggering $7.67 billion in box office sales, and has 5 of the top 6 grossing movies of all time:
It's also got a few potential blockbusters slated for the rest as well, including Frozen 2, Maleficent, and Star Wars: The Rise of Skywalker. Strong lineup!
On the economic front, we'll be looking at manufacturing reports in the U.S. on Monday and Tuesday to see if the downtrend continued in July before this latest round of tariffs against China was announced. We'll also get key reports on the U.S. housing sector, including new mortgage applications. Are these lower interest rates spurring potential homebuyers to take the plunge?
Outside the U.S., we'll be waiting for specifics on how China will respond to this latest round of tariffs set to take effect September 1st. They've promised to do so, but we just haven't heard how or when.
We will also have an eye on the U.K., given that newly elected Prime Minister Boris Johnson may have already lost his conservative majority in Parliament given recent elections. As we've noted, the Pound has been dropping precipitously since May.
Stay cool this weekend.
chart courtesy www.koyfin.com  Shares of Newell Rubbermaid, the maker of big trash cans, Mr. Coffee and other products, had a breakout today after a miserable 2019. The company reported better than expected earnings and raised its forecast for the rest of 2019. Shares had been down 28% year to date before today.  Netapp, the cloud computing company, badly missed analysts forecasts in its earnings report today and slashed its outlook for the rest of 2019 and all of 2020. .  Word of the Day Nonfarm payroll is a term used in the U.S. to refer to any job with the exception of farm work, unincorporated self-employment and employment by private households, nonprofit organizations and the military and intelligence agencies. Proprietors are also excluded. The U.S. Bureau of Labor Statistics releases closely followed monthly data on nonfarm payrolls as part of its Employment Situation Report, which is commonly known as the 'Jobs Report'. The headline figure—the change in the total number of nonfarm payrolls compared to the previous month—is used as a gauge of economic health.  photo courtesy foreignpolicy.com
Today in Financial History August 2nd, 1990: Saddam Hussein invades Kuwait. Over the next two-and-a-half months, the U.S. stock market loses 19% and many experts begin to forecast a protracted bear market. Yet, just one year later, the U.S. stock market is up 26.9%.
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Friday, August 2, 2019
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