Investment Commentary –August 31st, 2016

Market Indices as of Market Close August 31st, 2016
Dow 18,400 (5.60% YTD)
S&P 2,170 (6.21% YTD)
NASDAQ 5,213 (4.11% YTD)
Global DOW 2,445 (2,033 week low/high 2,469)
10-year Treasury 1.57 (1.32 52 week low /2.38 high)
Gold 1,312 ($1,053 52 week low /high $1,384)
Oil $44.82 ($33.28 52 week low /high $54.34)

U.S. stocks close lower as energy drags

U.S. stocks finished lower Wednesday, and the Dow industrials and S&P 500 closed lower for the month of August, as oil prices fell and promising economic data supported the case for a Federal Reserve rate hike this year. The Dow Jones Industrial Average DJIA, -0.29% fell 53.42 points, or 0.3%, to close at 18,400.88, with Chevron Corp. CVX, -1.10% shares leading the decline. The blue-chip average finished with a monthly loss of 0.2%. The S&P 500 index SPX, -0.24% finished down 5.18 points, or 0.2%, at 2,170.94, with the energy and materials sectors leading the index lower, for a monthly loss of 0.1%. The Nasdaq Composite index COMP, -0.19% shed 9.77 points, or 0.2%, to close at 5,213.22, and was the only major index to finish August at a gain with a 1% rise.

U.S. sues to stop Deere from buying Precision Planting

The U.S. Justice Department filed a lawsuit on Wednesday aimed at stopping Deere & Co (DE.N) from buying Monsanto Co’s (MON.N) Precision Planting farm equipment business, saying that the deal could make it more expensive for farmers to use fast, precise planting technology.

Deere said in a statement that it would fight the lawsuit and that the Justice Department’s antitrust concerns were “misguided.”

Monsanto said in November that it would sell to Deere its Precision Planting unit, which makes the components of precision planters. Precision Planting also sells its technology to retrofit older planters and to other planter manufacturers. Deere has its own precision planting technology.

The Justice Department said the proposed deal would mean higher prices for equipment for high-speed precision planting, which allows farmers to plant row crops like corn up to twice as fast as with conventional machinery. In February, Deere completed its acquisition of Monosem, which also makes precision planters.

A massive Deere ExactEmerge planter sells for about $150,000, which includes components for precision farming, while a Precision Planting retrofit kit costs about $30,000, J.P. Morgan analyst Ann Duignan estimated in a research note.

In particular, the Justice Department was concerned about Deere selling both the big machine planters themselves as well as the technology to make the big machines.

“By offering farmers high-speed precision planting retrofit kits at a fraction of the cost of a new planter, Precision Planting posed a formidable challenge to Deere and its profitable sales of new planters,” the Justice Department said in its complaint, asking a court to stop the proposed transaction.

U.S. private payrolls rise solidly; pending home sales jump

U.S. private employers maintained a steady pace of hiring in August and contracts to buy previously owned homes surged in July, suggesting the economy was regaining sufficient momentum for the Federal Reserve to raise interest rates this year.

Other data on Wednesday showed a sharp moderation in factory activity in the Midwest this month amid shrinking order books, indicating the manufacturing sector continued to be hobbled by the residual effects of a strong dollar and oil price slump.

“This should give the Fed confidence that the economy is strong enough to generate new employment and importantly, that the economy has enough forward momentum to withstand an interest rate hike,” said Chris Rupkey, chief economist at MUFG Union Bank in New York.

The ADP National Employment Report showed private payrolls increased 177,000 jobs this month after rising 194,000 in July. August’s gain was in line with economists’ expectations.

The services sector accounted for all the increase, with construction shedding another 2,000 jobs on top of the 5,000 positions lost in July. Manufacturing payrolls were flat after rising by 5,000 jobs in July.

The ADP report, which is jointly developed with Moody’s Analytics, was published ahead of the government’s more comprehensive employment report for August due on Friday.

According to a Reuters survey of economists, nonfarm payrolls likely increased by 180,000 jobs in August after rising 255,000 in July. August’s anticipated step-down in job gains follows two straight months of payroll increases above 250,000.

Economists say with the labor market near full employment and the economy’s recovery from the 2007-09 recession showing signs of aging, a moderation in job growth is normal.

The dollar rose to a three-week high against a basket of currencies, while prices for U.S. government debt fell marginally. U.S. stocks were trading lower as the stronger dollar weighed on oil prices and materials companies.

ON THIS DAY IN FINANCIAL HISTORY: Wall Street Gets New Rules To Follow

Wall Street traders had seen better days than this one in 1939 when the Public Examining Board proposed a list of solutions to help safe guard consumers. The Board’s fourteen recommendations ranged from full disclosure of brokerage firms’ finances to beefing up the minimum capital requirements for commodity accounts. These rules were made to keep consumers safe but many in the business community were outraged and accused President Roosevelt’s administration of being “anti-business.”

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.