 The Market Sum | Insight after the bell
By Caleb Silver, Editor in Chief Friday's Headlines 1. Markets Split as Trade Sentiment Improves 2. Apple Downgraded on Subscription Pricing 3. Bond Yields Rally, Taking Banks With Them 4. Next Week is all About the Fed Markets Closed
Year-to-Date
 Markets Today
More good news on the trade front helped push industrial stocks higher for the eighth day in a row. The DJIA inched nearer to a record in Friday's session, but backed off towards the close.
The S&P 500 and the Nasdaq closed lower for the day, dragged down by shares of Apple, which fell 2% after Goldman Sachs downgraded the stock. Specifically, a Goldman Sachs analyst says Apple's earnings will be negatively impacted by offering subscribers a one year trial of Apple TV+ for just $60. Goldman predicted Apple shares could experience a 26% decline given the accounting method it plans to use for its trial subscription service. When Apple falls, the ground shakes.
On the industrial front, shares of Caterpillar and Boeing, both sensitive to trade tensions, have been buoyed by the recent developments between China and the U.S.
The recent developments include China agreeing to buy more U.S. soybeans and corn from the U.S., President Trump announcing he will delay the next round of tariffs set to begin Sept. 15th, and that he is open to an interim agreement on trade, and confirmation of the next round of face-to-face talks between China and U.S. trade representatives in October.
All of that, in addition to a decent round of economic reports from the U.S. and China, have taken the pressure off of Treasury bond yields, which have been on a steady climb for the past two weeks. As you remember, yields on the 10-year U.S. Treasury bond were driven lower as investors piled into the 10-year looking for safety when the equity markets wobbled.
As money has come out of treasuries, yields have climbed back to close to 2%—still low by recent historical standards, but not in the danger zone. Here's the last three months for the 10-year:  Rising Yields Boost Banks As yields rise, banks usually follow. Banks set their own lending rates based on what the market will bear, but many of their loans, like mortgages and credit cards, are based, in part, off the 10-year U.S. Treasury. Lower lending rates impact banks' net interest margins, which hurts their profitability. It's been a summer of discontent for most banks, but the recent rally in treasuries and the equity market has given them a boost.
In fact, in the past month, bank stocks, as tracked by the XLF ETF, have handily outperformed the S&P 500.
(banks are the blue line, the S&P 500 is orange)  Negative Interest Rates and Banks If you are wondering about the impact of super low or negative interest rates on banks, you have to look no further than what's been happening in Europe for the past ten years. It has essentially been a lost decade for European banks, and several of them, including Deutsche Bank, are laying off thousands of workers and rethinking their entire business models.
Here's the latest ten years for euro banks and JPMorgan, courtesy of market researcher, Charlie Bilello.  The 2019 Scorecard, so Far... It's been a wobbly nine months, to say the least. But the equity market has still delivered strong returns after rebounding from last December's carnage.
Here's how major asset classes have performed to date:
What to Expect Next Week The U.S. Federal Reserve meeting on interest rates is front and center. The Fed will deliver its decision on Wednesday at 2 p.m. ET. We've already covered why we expect the Fed to cut rates by 0.25%, but it's what the Fed says about future rate cuts that will get everyone's attention. Is this simply a one-off rate cut to "keep the economic expansion on pace," or does the Fed plan to continue this easing cycle for the rest of the year? Words matter, and the Fed should choose its words carefully.
The Fed looks at a wide range of economic data when determining its course on interest rates, but two key areas are showing signs of softening: consumer spending and the jobs market. Even though both are relatively healthy, they are both trending lower, which threatens the overall economy and investor sentiment.
(charts courtesy of Bank of America)   If the Fed cuts by 0.25%, keep an eye on the following:
Economic Reports Beyond the Fed meeting, there are two economic reports in the U.S. to pay attention to next week. The industrial and manufacturing production reports for August come out on Tuesday. Both will reveal how much the trade war is chipping into those sectors. Even though the rhetoric has calmed down in the last two weeks, August was a rough month for those sectors, and serious damage may have been done.
The Global Economy We'll also get Producer Prices and Retail Sales for the U.K. on Wednesday. Given the Brexit madness, we'll be curious to see if the economic impacts are starting to manifest themselves in Great Britain. Parliament has been sent home, or prorogued, so consider this the quiet before the storm.
We'll get a read on core inflation from the eurozone on Wednesday, as well. As we know, the ECB just cut rates yesterday, citing stubbornly low inflation as one of the reasons to lower rates even more. Expect that number to come in low.
And don't cry for me, Argentina... We'll cry for you. The country will report GDP numbers on Thursday, and given the recent developments down South, don't be surprised to see a really low number, like a negative 6% growth rate. Tough times in el Rio de la Plata.
chart courtesy www.koyfin.com  Shares of Cimarex Energy rose by over 8% today, following a report that oil and gas stocks may soon experience a breakout from their current downward trend. Freeport-McMoRan's stock price increased by almost 4% alongside a surge in copper prices; great news for a mining company.  Shares of Progressive fell by almost 6% following the release of their August progress report, which revealed that net income and EPS were lower than in the previous year. Altria's stock price also decreased by nearly 6% today, due to regulatory headwinds coming from the FDA and the Trump Administration regarding the sale of flavored e-cigarettes.  Word of the Day: Bond yield is the return an investor realizes on a bond. The bond yield can be defined in different ways. Setting the bond yield equal to its coupon rate is the simplest definition. The current yield is a function of the bond's price and its coupon or interest payment, which will be more accurate than the coupon yield if the price of the bond is different than its face value. More complex calculations of a bond's yield will account for the time value of money and compounding interest payments. These calculations include yield to maturity (YTM), bond equivalent yield (BEY), and effective annual yield (EAY).  (image courtesy NBC Universal)
Today in Television History Sept. 13, 1990: On Sept. 13, 1990, the drama series Law & Order premieres on NBC; it will go on to become one of the longest-running primetime dramas in TV history and spawn several popular spinoffs. According to the now-famous Law & Order formula, the first half of the hour-long program, which is set in New York City, focuses on the police as they investigate a crime–often inspired by real-life news stories–while the second part of the show centers on the prosecution of those accused of that crime. Each episode opens with a narrator stating: "In the criminal justice system, the people are represented by two separate yet equally important groups: the police, who investigate crime, and the district attorneys, who prosecute the offenders. These are their stories."
(source: History.com)
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Friday, September 13, 2019
Yield!
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