foxex: Retail Wreck

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Tuesday's Headlines

1. U.S. Markets Mixed as Retailers Sell Off on Downbeat Outlooks
2. Boeing Signs up 737 MAX Buyers
3. Goldman Sachs Says the Economy is Turning Up

4. The Long View on Global Returns

5. Talking to Chuck

Markets Closed

Dow
27,934.02 -0.36%

S&P
3,120.18 -0.06%

Nasdaq
8,570.66 +0.24%

VIX
12.86 +3.21%

Bitcoin
$8,206.92 -1.23%

US 10-Yr Yield
1.786 -1.22%

Markets Today

U.S. markets were mixed as industrial and retail stocks slumped on trade concerns as well as disappointing earnings and guidance from retailers Home Depot and Kohl's. Both companies have heavy exposure to U.S. consumers, who have held up well despite a slowing economy and the trade war. Shares of Boeing took off in the early part of the day on news of new 737 MAX sales to Air Astana, but could not hold those gains through the session. The S&P 500 broke a five day winning streak, closing fractionally lower by 0.06%.

Headlines

President Trump threatened to raise tariffs on China if they don't make a deal. Trump's comments came during a cabinet meeting at the White House today.

Goldman Sachs believes the U.S. economy will pick up pace since the worst of the trade war is over. It says tariffs have peaked, the full effect of lower interest rates will be felt soon, conditions point to the inventory cycle rebounding, and that oil prices will stabilize.
U.S. homebuilding rebounded in October, and permits for future home construction jumped to a more than 12-year high. You can thank low mortgage rates for that as the average 30-year mortgage rate stands around 3.7% right now.
Fast food chain Popeyes will open its first store in China next year. The company is planning 1,500 restaurants in the country over the next 10 years. Going head to head (or wing to wing) with Yum China's KFC will prove challenging considering the latter dominates the country's fast food market with around 6,300 stores. (Reuters)
Boeing (BA) has reportedly signed deals to sell 50 of its grounded 737 MAX airplanes for close to $6 billion. One of the buyers, Kazakhstan's flag carrier Air Astana, has ordered 30 airplanes with a list price value of $3.6 billion, according to a statement. The other customer has not been disclosed. (WSJ)
Uber's chief product officer Manik Gupta is resigning, and CEO Dara Khosrowshahi will manage his reports. Gupta was previously VP of maps and marketplace and was promoted to his current role in November last year. (The Information)
Apple has invited members of the press to an event on December 2 in New York City. Not much is known except that the company plans to honor the best games and apps of 2019. No new products are expected.
New York's Attorney General is reportedly investigating WeWork as the company prepares to lay off as many as 4,000 people and shed non core businesses. Reuters reports that NYAG Letitia James is examining whether WeWork's founder and former chief executive, Adam Neumann, indulged in self-dealing to enrich himself. (Reuters)

chart courtesy Bespoke Investments

Taking the Long View

We've written over and over again about 2019 being a historic year for asset returns. 2019 has been a banner year for global equities; bonds, both corporate and government; and metals, namely gold and silver. To be sure, equities and bonds both rebounded after last December's massive selloff which was instigated by an escalation of the trade war and the raising of interest rates by the Federal Reserve.

Still, when we zoom out to look at returns over 3 and 5 years, the rally across U.S. and global equity markets has been impressive. Energy, namely oil and natural gas, have been the notable exceptions, along with other select commodities. When we look around the world, most global markets have posted strong 3 and 5 year returns except for Mexico, Spain, and the U.K. The U.K has been wrestling with political turmoil surrounding Brexit, which also explains the poor performance in the British Pound.

The key takeaways here are the value of diversification and the reaction of global equity markets to fiscal and monetary stimulus. Many of the countries on Bespoke's chart above are living in a world of negative interest rates which has pushed investors into their equity markets in search of yield and in order to take advantage of ultra-low borrowing costs.

Perspective is everything when it comes to investing, and zooming out to look at performance over multiple years often paints a clearer picture.

photo courtesy Schwab.com

Talking to Chuck

I occasionally have the privilege of speaking to some of the living legends of the investing world. Recently, I had a chance to interview Charles 'Chuck' Schwab, the original Discount Broker and the founder of his eponymous firm.

You can watch my 10 minute interview with Chuck here.

Since the late 1970's, Schwab and its competitors have been slowly lowering trading fees to entice more retail investors into the market. In October of this year, Schwab eliminated trading fees for U.S. equities entirely. Several of its competitors soon followed. While the elimination of trading fees costs the company between $80 million and $100 million in revenue per year, the original discount broker has found other ways of making money since opening for business in 1973. In 2018, Schwab posted revenue of more than $10 billion, and net income of $3.5 billion. The firm boasts $3.7 trillion in assets and has some 18 million customers around the world. Chuck was definitely onto something, and the growth of his firm over the past 45 years is proof.

More News:

How Stocks Defying Bulls Could Plunge Into a Bear Market Territory

Advanced Micro Devices Shares Surge With Huge Demand

Has Netflix Stock Bottomed Out?

chart courtesy YCHARTS

Chipmaker Advanced Micro Devices rose 3.5% today after it launched its new 7 nanometer graphics card. The 7 nanometers refers to the size of the transistors on the computer chip, and the smaller they are the more powerful the chip can be. Alcoholic beverage maker Constellation brands rose 3.5%. Medical device market Abiomed recovered slightly after yesterday's fall, rising 3.5%

Retailer Kohl's plummeted 19.5% after an earnings miss. Fellow retailer Macy's dropped 11% after it revealed it had experienced a data breach. Customer names, addresses, and credit card information were potentially accessed.

Word of the Day

Diversification
Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. A diversified portfolio contains a mix of distinct asset types and investment vehicles in an attempt at limiting exposure to any single asset or risk. The rationale behind this technique is that a portfolio constructed of different kinds of assets will, on average, yield higher long-term returns and lower the risk of any individual holding or security.

Today in History

November 19, 1985

Today in 1985 a jury awarded oil company Pennzoil $10.53 billion in damages, plus interest, in its suit against fellow oil company Texaco. Pennzoil sued because Texaco bought Getty Oil when Pennzoil had already reached an agreement to buy it. The case would go through several courts, including the U.S. supreme court. The award, the largest in history at that point, was enough to drive Texaco to file for bankruptcy. Corporate raider Carl Icahn waded into the bankruptcy, buying a 12% stake in Texaco. In an unprecedented move, he negotiated, along with committees representing Texaco shareholders and creditors, directly with Pennzoil.