David Ross

What I think I learned last week #27

So before the week began, I was sure that the Italian elections would be the top story. So even though Italian voters provided us with the biggest political disturbance in the EU since Brexit by giving the populist 5-Star Movement and the anti-immigration Northern League sweeping gains to determine the direction of the next Italian government, that was not the week’s top story.

During the week, I thought news about Federal Reserve Chairman Jerome Powell and his bad luck for the markets would be the top story. Last week, speaking before the House Financial Services Committee, Chairman Powell gave an upbeat assessment of the US economy, leading markets to price in more interest rate hikes. US stocks fell by more than 1%. Back on February 5, the day he was sworn into office, the S&P 500 fell over 4%. The Wall Street Journal pointed out that during “his young term as chairman, the benchmark stock index has had 10 sessions where it’s moved up or down by more than 1%. That’s more than during all of 2017.” But that was not the week’s top story.

At the end of the week, the top story finally emerged. And it was….wait for it…..1,2,3,4: Trump declares a Trade War. Not content with his Thursday Trump Tariff announcement that tanked markets, he followed up with this tweet “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.”  Note to President Trump: No, not good, and no, not easy to win.

Some of those affected by the Trump Trade War putting tariffs on steel and aluminum were automakers. General Motors shares lost 4%, while Ford and Toyota shares fell about 3%. Fiat Chrysler and Honda also lost over 2½%.

Last week’s market drop ensured that February was the worst month for the S&P 500 since January 2016 and its first losing month since March 2017. The S&P 500 also snapped a 10-month straight run of gains, which had been its longest monthly winning streak since an 11-month run from March 1958 to January 1959.

For the first time since 2011, no firms in the S&P 500 have cut their dividends. Meanwhile, more than 20% of companies have increased dividends. On average, those companies increasing dividends have boosted the payouts by 14%, the biggest increases since 2014.

US consumers are feeling good as consumer confidence rose to its highest level since November 2000. Why are they so confident? Because the number of Americans filing new applications for unemployment benefits hit a 48 year low by falling to their lowest level since 1969.

It is not just in America. Japan’s unemployment rate fell to 2.4% in January, the lowest in over 24 years, and job availability remained at a four-decade high.

China is maybe not so hot as its Purchasing Managers Index suffered its sharpest fall in six years. Not only that, but India surpassed China to reclaim the title of “Fastest Growing Major Economy.”

Thanks, tax reform: Share buybacks announced by large U.S. companies have exceeded $200 billion in the past three months, more than double the prior year, according to a Wall Street Journal analysis of data for S&P 500 companies.

Germany reported its fourth consecutive annual budget surplus as the economy grew 2.2%, its strongest result since 2011.

Self-bloviating hedge fund manager Bill Ackman, following his Valeant success, has called it quits on his $1 billion, five year bet against Herbalife.

In more hedge fund news, David Einhorn’s Greenlight Capital hedge fund was crushed, again, in February with losses exceeding 6% for the month, extending 2018’s loss to more than 12%.

Not to be outdone, LJM Partners is shutting its doors after suffering from bad bets after ‘vol-mageddon’ hit in February.

Not doing great: the world’s largest advertising agency, WPP, saw its stock price plummet 9% in its worst performance since the financial crisis.

Not doing great, part 2: SQM, Chile’s largest lithium supplier, suffered a 15% drop in its stock price amid fears that the world is moving towards an oversupply situation in the critical battery raw material.

Europeans behaving badly: After a spate of thefts and vandalism decimated its fleet of bicycles, Hong Kong-based bicycle-sharing company GoBee said last week it would pull out of French cities just days after quitting Italy.

And that’s what I think I learned last week…