August 16, 2019
Markets continued to search for direction this week, glued to every twist and turn in the on-going U.S.-China trade war. Stocks appeared set to get a lift early in the week as the Trump administration announced it would push back China tariffs on cellphones and clothing slated to begin on Sept. 1 to Dec. 15. The move is designed to help shoppers during the upcoming holiday shopping season. Unfortunately, optimism seemed to fade by mid-week as investors remained concerned the lingering trade uncertainty would push the U.S. economy into recession. That lead investors to seek the safety of bonds, sending yields lower and causing the yield curve to temporarily invert. The phenomenon occurs when the yield on a 2-year U.S. treasury rises above the yield on a 10-year U.S. treasury, and has often, but not always, signaled a recession is on the horizon over the next 22 months. Although stock investors were spooked by the move, U.S. economic data continues to remain healthy with consumers posting another strong month of retail sales gains despite a rise in prices. By week’s end, investors seemed to have renewed confidence that consumers, which make up two-thirds of U.S. GDP, would help carry the economy. Strong gains during Friday’s trading session helped limit the weekly decline in the S&P 500 to -1.03%.
Shoppers Shrug Off Trade War
Consumers continued to buck the pessimism on Wall Street, sending retail sales up 0.70% in July. That’s up from the 0.30% gain in June. Excluding autos and gas stations, sales were up an even more robust 0.90% for the month. The increase in sales was led by internet retailers who registered a 2.80% rise in sales. Results were driven by Amazon’s Prime Day deals as well as rival retailers who held competing sales of their own. Restaurant and bar receipts also posted impressive results, notching a 1.10% increase for the month. Coming in a close third, were electronics and appliance store sales which registered gains of 0.90%. Overall, the results were encouraging, signaling consumers remain confident opening up their wallets despite U.S.-China trade tensions.
Consumer Prices Heat Up
U.S. inflation increased in July, up 0.30%. July’s rise matches June’s increase. Excluding the volatile food and energy sectors, core consumer prices rose 0.30%. The increase in prices was led by a 0.90% increase in used car and truck prices. Meanwhile, the cost of medical care services remained a thorn in consumers’ side, up 0.50% for the month. Apparel prices also ticked up in July, up 0.40%. The rise didn’t seem to deter shoppers as sales of clothing and clothing accessories stores posted gains of 0.80%. Despite the back-to-back monthly increases in top line inflation, consumer prices were up a modest 1.80% year-over-year while core consumer prices were up 2.20%. Those figures remain relatively in line with the Fed’s 2.00% target level of inflation and shouldn’t keep the Fed from cutting rates if need be in the coming months.
Stocks continued to march to the beat of on-going developments in the U.S.-China trade war, which this week on the whole appeared to be positive. The White House moved to delay some tariffs on Chinese goods, giving the two sides time to kickstart talks in the next two weeks. Meanwhile, China signaled it was open to making comprises to secure a trade deal. Despite trade dominating headlines on Wall Street, Main Street seemed undeterred as consumers posted another strong month of retail sales gains. On the back of this week’s strong retail sales report, the Atlanta Fed was prompted to revise its GDPNow forecast for Q3 2019 to 2.20%, up from a previous forecast of 1.80%. If the trend holds that would be in line with Q2 2019’s GDP of 2.10%, a sign of the U.S. economy maintaining its momentum.
The Week Ahead
It’s Woodstock for central bankers as the Federal Reserve of Kansas City hosts its annual economic policy symposium in Jackson Hole, Wyoming. Fed Chairman Jay Powell is expected to address the crowd on Friday. On the economic front, we check in on the housing market with releases on existing and new home sales. Overseas, the EU releases manufacturing numbers.
Probity Associate Passes Level II of Industry Exam
Probity is proud to share that one of our associates, Hunter Feagans, passed Level II of the Chartered Financial Analyst® (CFA®) Program and is another step closer to achieving what is widely considered to be the investment profession’s most esteemed credential, the CFA Charter.
Probity is also celebrating Hunter’s one year service anniversary. He joined Probity last summer after graduating from Southern Methodist University. Hunter immediately began putting in the hard work by day at the office and studying at night to accomplish his goal of becoming a CFA Charter Holder. To earn the designation, candidates must pass a total of three six-hour exams and meet additional requirements. Hunter passed Level I in December 2018 and took Level II in June 2019. He will sit for his final exam next year. The CFA Program covers economics, financial reporting and analysis, corporate finance, portfolio management, analysis and valuation, performance measurement, and ethical and professional standards.
Preparation for the three exams typically requires at least 900 combined hours of study, and completion of the CFA Program usually takes three to five years. Due to the rigorous course of study, only around one in five candidates who enroll in the CFA Program pass all three exams and meet the work experience and professional and ethical requirements required to earn the charter.
Hunter is on his way to becoming the third associate at Probity Advisors, Inc. to hold the CFA Charter. Portfolio Manager Adam Bronson and Vice President Christopher Sorrow earned their CFA Charters in 2006.
We applaud Hunter for his commitment to achieving this prestigious credential. His accomplishment reflects the integrity and dedication of our entire staff in providing best-in-class advice and guidance while adhering to the highest ethical principles. Hunter will celebrate his accomplishment with some much needed rest and relaxation and a trip to Greece later this month.
Please join us in congratulating Hunter on a job well done.