Markets “In a Nutshell” for August 13, 2019

Investment Week at a Glance

Stocks dropped last week. The Dow Jones Industrial average was down 1.0% while the S&P 500 fell 0.5%. The New York Stock Exchange Composite (2,000 stocks) lost 0.7%. The “average investor’s index” (Value Line index) fell 1.4%. Foreign stocks (EAFE index) were down 1.2%. Bond yields dropped (bond prices up) as the 10 year Treasury ended at 1.73%. (Data sources: Barron’s Financial, Wall Street Journal)

“Back Up the Truck and Buy Stocks?”

Fundstrat’s Tom Lee says investors should “back up the truck and buy” stocks as the Fed has cut interest rates and the new China tariffs come into effect. Lee says the Fed “added gasoline” to a future stock rally as bond yields fall and the Fed cuts rates further in September. Lower bond interest rates can boost stocks as investors seek higher returns than bonds.

Or … Are More Bonds Better?

Not everybody wants more stocks. Newsletter writer Jared Dillon believes all investors should have a 35% stock allocation and 65% bonds. Dillon says that the 35/65 allocation gives investors a lower risk profile that can prevent people from selling during market drops and loading up on stocks during the peak of bull markets, just the opposite of what they should do.

Bond Yields Plunge

As we have written in the past few weeks government bond yields around the globe have plunged. Besides U.S Treasury bond yields dropping to the +1.7% range, bonds in Germany, Japan, France, Netherlands and Switzerland are all negative. Some fear that dropping rates portend slowing economies worldwide. A worldwide economic slowdown may mean bad news for stocks as corporate profits also slow. Although some see an economic slowdown as good news for stocks as the Federal Reserve cuts rates.

Stocks for Slowing Economic Growth

An article in Barron’s (8/12/19) lists stocks that could thrive in a slowing economic environment. Growth that can continue during slow economies and higher than average dividends lead to the following stocks: Amazon, Merck, Broadcom, Target, and Verizon Communication, all of which pay dividends or have higher growth rates.

Quiz:

We mentioned that 4 countries around the globe have negative yielding government bonds. All total, there are $13 trillion of negative yielding bonds. Of that total, how much negative yielding debt has been issued in Japan?

 

a. None

b. $1 trillion

c. $ 5 trillion

d. $6 trillion

e. $10 trillion.

 

Answer is below.

 

 

Have a good week!

 

 

 

 

 

Answer to quiz: d. $ 6 trillion.