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Jul 25 2018

7/25/18 Market Notes

It was a strong start and a strong finish for stocks on Tuesday, as the Dow Jones Industrial Average
ended the day up nearly 200 points near its intraday high. The S&P 500 gained about ½%, while the
tech heavy NASDAQ was flat in spite of Alphabet’s (Google’s parent Co.) 3.5% gain. 9 of the 11
sectors of the S&P were higher, as Telecom shares rose the most with a 1 ¾% gain, while Consumer
Discretionary shares fell about ¼% and the Real Estate sector declined by 1/3% after a report revealed
a sharp drop in Southern California home sales.

 
Oil prices rose about ¾%, ending the day at $68.42 per barrel (WTI), while the U.S. dollar climbed
and Treasury yields remained relatively steady. European and Asian bourses were all higher, as the
Shanghai index rose 1.62% and the FTSE led European equities with a 1.25% gain. Stocks are
generally being buoyed by strong earnings reports. So far, of the S&P 500 constituents that have
reported, 87% have had positive earnings surprises, and 77% have reported positive sales (revenue)
surprises (according to FactSet).

 
On the eve of the visit by European President Jean-Claude Juncker, President Trump continued his
verbal assault against trade counterparties stating that “tariffs are great”. In spite of his proclamations,
several industries are feeling the negative impact of countermeasures deployed by our trade partners,
none more than the agricultural industry. In response to the ‘pain’, the Trump administration is
implementing $12 billion in subsidies to farmers, a move that Canada and other nations are sure to
protest against with the World Trade Organization.

 
While broad indexes such as the DOW and S&P were higher on Tuesday, the Russell 2000 small cap
index fell by more than 1%. Small cap stocks have been outperforming their mid and large-cap
brethren, as many traders feel they are more insulated from the impact of a potential trade war than
their counterparts. Analysts are speculating that investors are now seeking the safety of mega-cap
stocks in response to escalating trade tensions (in other words, say anything as the wind blows).

 

Sincerely,
The GGFS Investment Committee