Slow Down…

May 9, 2016

Slow Down…

The Friday Jobs data capped a weak week of less-than-expected global growth. This caused a pause in the global trend of the falling U.S. Dollar which quickly ran through to pressure commodity prices, emerging market currencies and any equities touching EM, energy or materials exposures. The data was weak in Asia, Europe and the U.S. which was a quick reminder to all that the global risk on trade will have its fits and starts. After a 25% move over the last 10 weeks in high beta stocks, the market was ripe for a correction on any global weakness or U.S. Dollar strength. Enjoying the yellow light were U.S. Treasury Bonds, REITs, and Utilities who enjoyed the quick return to safety and low volatility. With the release of the April U.S. jobs data, the market shifted its rate hike bets away from the summer and out to year end. While savers and financial stock investors will be disappointed with the new rate hike expectations, corporate treasurers and CFOs are again ramping up to flood the market with low-yield corporate debt. Now, where will they spend the proceeds?

After the dust settled about Friday’s jobs data, the market pushed out its first FOMC rate hike expectation to February 2017…


JP Morgan highlighted the weakness in the U.S. Economic Surprise Index. Last week’s ISM Manufacturing and the Jobs data will only add to the decline. Will it add further downward pressure to the S&P 500 index?

While economic growth was slower last week, keep an eye on the price components which are continuing to test recent downtrends…

@bespokeinvest: ISM Services rebounds and Prices Paid in the services sector is testing downtrend.


Rising commodity prices have helped Emerging Market debt in 2016. Emerging Market stocks however have not kept pace. Keep an eye on this gap to close, as the debt markets are usually larger and better informed.


If interested in Emerging Markets, Barron’s cover story would also have you take a look down under…

“The strength in the Aussie is something that you can’t totally ignore. Its failure to break down dramatically earlier this year was possibly a sign that things weren’t as bad as people feared at the time,” says Shane Oliver, chief economist and head of investment strategy at AMP Capital, one of Australia’s largest money managers. “It’s certainly a sign the world is not going to fall apart and the commodities story is trying to bottom, even if it’s not going into a new bull market.”



Besides the retreat in the U.S. Dollar YTD, another reason that investors are looking overseas for equity exposures is the fuller valuations in U.S. equities…

(JP Morgan)

Ninety percent of S&P 500 earnings are in the solid oak door for the Q1 reporting season. Revisions to forward earnings have gone positive which could be a tailwind to stock prices…

(Goldman Sachs)

But remember just how depressed earnings expectations were going into the reporting period…

@LizAnnSonders: Yet again the #earnings bar got set too low

Time for a test of the largest stock in the market. Can the low valuation offset the lack of new product momentum?

@cperruna: $AAPL – important support level.

Apple has been a big weight to the Nasdaq 100 (QQQ). But some other big Tech and most of the Biotech space has also been to blame for its YTD underperformance versus the S&P 500 and Russell 2000…

But while Tech and Healthcare has had recent difficulties, Staples and Utilities have recovered their 2016 outperformances…

And REITs have taken on a life of their own setting 12-month highs as the Industrial, Office and Apartment strength offsets Amazon’s destruction of Retail occupancies…

Several news reports on the difficulties at the highest end of the economy hit last week. First, at the highest end of the real estate market…

Home sales in the Hamptons, a second-home hub for financiers, New York’s famed families, and actual famous people alike, has fallen to its lowest level in three years, as concerns over global markets in the first quarter of 2016 kept buyers at bay.

The market was hit by a swift one-two punch at the start of the year: a slowdown in China and anemic oil prices caused the S&P 500 to suffer its weakest start to a year since 2009, and Wall Street bonuses—a major source of funding for high-end home purchases—took a blow, too. Hedge funds were coming off adismal year and continued to bleed well into the first quarter, while lay-offs in the banking sector have continued apace.

All of this led the number of Hamptons home sales to tumble 19.2 percent in the three months through March year-over-year, according to a report published Thursday by real-estate company Douglas Elliman and appraiser Miller Samuel. At the same time, the median sales price fell 2.8 percent to $895,000 from a year earlier.

(Vanity Fair)


Then onto the art that fills those walls…

After five years of growth, auction houses are preparing for a rocky patch. Global art sales fell 7 percent last year to $63.8 billion, led by a slowdown in Asia and weaker demand for postwar and contemporary art, according to the European Fine Art Foundation. Sotheby’s Chief Executive Officer Tad Smith warned of “difficult” quarters ahead during a February call with investors.

The auction houses are competing for consignments amid falling oil prices, underperforming hedge funds and greater scrutiny of the art market. Governments in China, Europe and the U.S. are looking into the ways major art collections are used to hide ill-gotten wealth and avoid taxes.

“The art market follows the 1 percent,” said James Chanos, an art collector and founder of Kynikos Associates LP. “Whether it’s the 1 percent in Brazil, Russia, China or America. Let’s face it: It hasn’t been a good year for the 1 percent.”



Also with the one percent’s most important mode of transportation…

Sales of new private aircraft fell 16 percent in the first quarter from a year ago as demand weakened for the largest planes.

Jet airplane billings were about $3.53 billion in the first quarter, down from $4.2 billion a year earlier, according to the General Aviation Manufacturers Association. That was the biggest decline in almost five years.

Demand for large-cabin business jets has deteriorated amid a dearth of spending from the oil industry, a strengthening dollar and low commodity prices that are sapping purchases in some emerging-market countries.


Google wants to take its self-driving taxis to the street in 2017…

Google is sufficiently confident about its technology that its staff have discussed launching a fully autonomous taxi service in Mountain View as soon as next year, according to people familiar with the company’s thinking. The service may initially be restricted to Google employees, which might get around any legal and regulatory issues. Google has already run some tests with employees who are trained drivers.

(Financial Times)


While your child may not become the next Mark Zuckerberg, there are many things that you could help them with to give them a major leg up in the world. As the summer nears, look for local and/or online tech programs in which to get them involved. Any basic computer languages that they learn now will only compound as they build more into the future. And when they get to high school, they will have little difficulty with tacking the AP Comp Sci class and test in their early years freeing up the junior and senior years to tackle their other AP and Honors courses.

Everybody wants to give their children the tools to be a success in life. But let’s think really big for a minute: How could you prepare a child to start the next billion-dollar tech company?

Think the odds are stacked too high against them? Consider the advantage today’s children have over the first generations of tech entrepreneurs: They’re growing up immersed in technology. It’s second nature to them. They grow up expecting that there will be a next big thing, and wondering what it will look like.

So how to take the next step and get them to create the next big thing?

The answer is to stop treading warily around tech, and dive right in. Have them embrace computers and social media as early as possible. Ramp it up constantly so by the time they hit their teens, they aren’t just navigating tech like Silicon Valley pros—they’re bumping up against its limits and thinking about how to improve it. And start instilling the entrepreneurial mind set, learning to see everyday problems not as obstacles but as possible business opportunities—and encouraging them to set up ventures to solve them.



And Lastly…

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