Markets “In a Nutshell” for August 27, 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 1.4%. The New York Stock Exchange Composite (2,000 stocks) lost 1.3%. The “average investor’s index” (Value Line index) fell 1.6%. Foreign stocks (EAFE index) were down 0.2%. Bond yields dropped (bond prices up) as the 10 year Treasury ended at 1.52%. (Data sources: Barron’s Financial, Wall Street Journal)

Europe to Give a Shot of Adrenaline to its Economy

As Europe’s economy slows, the European Central Bank (ECB) is talking of a “significant and impactful” economic stimulus package. With Germany’s economy (Europe’s biggest economy) shrinking at an annualized rate of 0.4%, fear has arisen that a recession in Europe is forthcoming and could even drag the U.S. into recession. To attempt to combat a recession, the ECB will likely push interest rates further into negative territory, buy $billions in bonds and perhaps hint at future buying of stocks. Perhaps it is time to add some European stock positions.

Another Billionaire Jumps on Gold

Last week we wrote of the recent gold and gold stock rally. Billionaire money manager Jeff Gundlach has been bullish on gold. Now Ray Dalio, billionaire head of Bridgewater Capital, says gold may be headed for a decade of big performance. Dalio says the massive and growing government debt loads (the U.S. alone is running $trillion annual deficits) will prompt more and more money printing by governments. The large money printing will lead to a desire to hedge against monetary inflation which will lead governments and investors to buy gold.

Trade War Impacting Manufacturing in the U.S.?

The U.S. manufacturing PMI (purchasing managers’ index) dropped below 50 for the first time since 2009. The PMI measures manufacturing activity across the country. A measure of 50 or shove signals expansion in the manufacturing part of the economy. A measure below 50 signals manufacturing shrinkage. The latest August measure of PMI was 49.9. While some believe the drop in manufacturing is due to the trade war, others see a normal cyclical downturn.

Quiz:

We wrote above of the European Central Bank’s upcoming reduction of interest rates further into negative territory. At minus 0.97%, which of the following countries has the lowest 10 year government bond yield?

a.    Japan

b.    Germany

c.    Sweden

d.    Switzerland.

 

 

 

Answer is below…

 

Have a good week!

 

 

 

Answer: d.    Switzerland.