Investment Commentary – July 20th, 2016
Market Indices as of Market Close July 20, 2016
Dow 18,595 (6.71% YTD)
S&P 2,173 (6.32% YTD)
NASDAQ 5,089 (1.65% YTD)
10-year Treasury 1.58 (1.32 52 week low /2.38 high)
Gold 1,320 ($1,049 52 week low /high $1,378)
Oil $44.85 ($32.85 52 week low /high $54.91)
JP Morgan Thought of the week
As major central banks enter into negative rate territory, the hunt for yield has entered a
new chapter this year. This week’s chart looks at the year-to-date (YTD) performance of
higher-yielding assets versus the global equity market.
So far in 2016, those asset classes offering a high yield or high dividend for investors have significantly outperformed lower yielding global equities. ‘Yield tourism’, where investors migrate into higher risk assets based purely on yield, is understandable considering the negative-yielding world we have entered into, but it is ill advised.
Higher-yielding assets come with higher risks, particularly illiquidity. This has been seen in UK property in recent weeks as liquidity constraints have resulted in limits being placed on investor redemptions. In short, investors should do their homework and understand all the risks before searching for yield.
U.S. jobless claims fall to three-month low
The number of Americans filing for unemployment benefits unexpectedly fell last week, hitting a three-month low as the labor market continues to gather momentum.
Initial claims for state unemployment benefits slipped 1,000 to a seasonally adjusted 253,000 for the week ended July 16, the lowest reading since April, the Labor Department said on Thursday. Claims for the prior week were unrevised.
Claims are near the 43-year low of 248,000 touched in mid-April. Economists polled by Reuters had forecast initial claims rising to 265,000 in the latest week.
Claims have now been below 300,000, a threshold associated with a healthy labor market, for 72 straight weeks, the longest stretch since 1973.
Claims tend to be volatile around this time of the year when automobile manufacturers normally idle assembly lines for retooling. Some, however, often keep production running, which can throw off the model the government uses to strip out seasonal fluctuations from the data.
GM’s profit more than doubles on strong U.S. sales
General Motors Co., bolstered by strong truck and SUV demand in its core market, posted a 157% increase in net profit in the second quarter compared with the same period a year ago, leading the Detroit auto maker to raise its annual guidance even amid concerns about financial impact of the U.K.’s decision to exit the European Union.
GM Thursday said it posted net income attributable to common shareholders of $2.9 billion, up from $1.1 billion in the same period a year ago. The company said operating profit equaled $1.86 per share, soundly beating Wall Street expectations of $1.49 a share.
Revenue rose 11% to $42.4 billion versus $38.2 billion one year ago.
GM benefited from the ongoing shift in the U.S. from passenger cars to trucks and SUVs, rising sales in China and improved conditions in Western Europe. It’s operating margins of 9.3% globally and 12.1% in North America represent postbankruptcy records, the company said, and come despite relatively flat sales and a decline in market share in the U.S.
THIS DAY IN FINANCIAL HISTORY:
July 20th, 1894 the Pullman War
On this day in 1894, the Pullman Palace Car Company was embroiled in what proved to be one of the most bitter strikes in American history. The strike was a direct response to company chief George Pullman and his hardball tactics, most notably his decision in the midst of the Depression of 1893 to preserve profits by slashing wages and hiking up workers’ rents. A band of frustrated employees begged Pullman to ease rents and restore wages, but he did nothing of that sort. Later the workers fired back at their avaricious boss by calling a strike.
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.