Consilium Wealth Advisory – Cliff Notes Weekly Market Update

Cliff Notes – BullyShirt

• A solid US job report and the prospect of improved trade negotiations between the US and China bolstered investor sentiment and risk assets last week.

• Asian stocks rallied after Hong Kong’s leader promised to withdraw the extradition bill that had triggered anti-government protests, and sentiment improved on Chinese stimulus. The People’s Bank of China cut banks’ reserve ratio by 50 basis points, with some banks qualifying for more reductions.

• Elsewhere, Argentina’s new restrictions limiting capital outflow from pesos to U.S. dollars ahead of elections next month weighed on local assets.

• WeWork wants to go public, but faced significant skepticism of its financials and governance.

• And a young boy was bullied for his homemade University of Tennessee T-shirt, but the Volunteers turned humiliation into triumph.

Consilium Wealth Advisory – Cliff Notes Weekly Market Update

Weekly Index Returns & Commentary (ending 9.09.2019)

WEEK ENDING SEPTEMBER 6, 2019 (CUMULATIVE TOTAL RETURNS)

Equities1 Close Week YTD 1-Year

S&P 500 2,979 ▲ 1.83%

▲ 20.5%

▲ 5.6%

DJIA 26,797 ▲ 1.53%

▲ 16.9%

▲ 5.6%

NASDAQ 8,103 ▲ 1.78%

▲ 23.0%

▲ 3.4%

Foreign Stocks ▲ 2.23%

▲ 12.6%

▲ 1.8%

Emerging Markets ▲ 2.44%

▲ 6.7%

▲ 1.9%

Top Three S&P 500 Equity Sectors2 YTD

Information Technology ▲ 32.5%

Real Estate ▲ 30.4%

Consumer Discretionary ▲ 24.7%

Bottom Three S&P 500 Equity Sectors2 YTD

Energy ▲ 4.9%

Health Care ▲ 6.5%

Materials ▲ 14.6%

Bonds3 Week YTD 1-Year Yield

10-Yr. Treasury4 ▼ -0.38%

▲ 12.0%

▲ 14.8%

1.55%

US Bonds ▼ -0.15%

▲ 8.9%

▲ 10.1%

2.16%

Global Bonds ▼ -0.15%

▲ 7.3%

▲ 7.7%

1.23%

Munis5 ▼ -0.16%

▲ 7.4%

▲ 8.7%

1.69%

Market Indicators6 As of

Fed Funds Target 2.25% 09/06/19

Inflation 2.2% 07/31/19

Unemployment 3.7% 08/30/19

GDP 2.0% 06/28/19

Consilium Wealth Advisory – Cliff Notes Weekly Market Update

Weekly Major Asset Class Commentary

Global Equities Stock markets moved higher last week as trade developments improved investor sentiment. Officials from the US and China agreed to resume negotiations in October just days after a 15% tariff on $125 billion of Chinese goods went into effect on September 1. The MSCI China index rose 3.04%, driven by this optimism. The S&P 500 rose 1.83%, boosted by a jobs report suggestive of long-term economic health.

Commodities Oil prices rose last week as an improving global economic outlook undergirded a favorable technical environment. US crude stockpiles dropped nearly twice as much as expected and active rig counts declined, helping WTI prices gain 2.58%. Brent crude rose 1.84% as OPEC and Russia increased production in August, weighing on prices.

Bonds While the 2-Year Treasury yield slumped midweek to its lowest level in two years, 10-Year yields climbed on the back of renewed trade talks, ending at 1.53% and 1.55%, respectively. In Europe, weak German economic data and an unsuccessful attempt by PM Johnson to push for a ‘no-deal’ Brexit led to German Bund and UK Gilt yields rallying 6 bps and 3 bps, respectively.

FX The US dollar index hit a two-year high then retreated after a weak US manufacturing data release, closing the week down -0.53%. Meanwhile, the euro strengthened slightly against the USD after Italy’s favorable coalition outcome lifted investor sentiment and helped circumvent a general election. The GBP/USD rate fell below $1.20 for the first time in almost 3 years, rocked by Brexit confusion, to end up 1.16%.

(Source: GS Weekly).

Consilium Wealth Advisory – Cliff Notes Weekly Market Update

US Market Update

Strengths

• Energy was the best performing sector of the week, increasing by 2.64 % versus an overall

increase of 1.77 % for the S&P 500.

• Tapestry was the best performing stock for the week, increasing 14.72 %.

• Shares of PVH, the parent of brands such as Tommy Hilfiger and Calvin Klein, climbed 9.1 % after

an SEC filing indicated Chairman and CEO Chirico Emanuel spent nearly $10 million buying

133,155 shares at an average price of just under $75, writes the Motley Fool. The move

significantly increased Emanuel's stake in PVH to 417,351 shares, worth a total of over $33.8

million.

Consilium Wealth Advisory – Cliff Notes Weekly Market Update

Weaknesses

• Utilities was the worst performing sector for the week, increasing by 0.36 % versus an overall

increase of 1.77 % for the S&P 500.

• Tyson Foods was the worst performing stock for the week, falling 7.52 %.

• Slack Technologies Inc. fell 12 % after its first-ever earnings as a public company were announced,

in which it posted a big loss. The stock price plunged to $26 after the bell, which is exactly what

Slack had originally priced its shares at when it went public in June.

Opportunities

• It took less than a week for the U.S. equity market to put August’s tumult and frustration behind

it. The S&P 500 rallied this week, driven by strong readings on the U.S. economy and news that

top Chinese and American officials agreed to restart talks aimed at ending the trade war.

The index has retraced almost all of last month’s 1.8 % loss.

• Amgen Inc. shares could hit a record if an experimental new cancer medicine is able to show

improvements in a handful of patients later this week, writes Bloomberg. A medicine known as

AMG 510 has already shown early promise as data from June indicated the treatment can lead to

responses at low doses, the article explains. AMG 510 targets a lung and colon cancer mutation

known as KRAS G12C. Getting a drug to work on KRAS mutations has been the “the white whale of

drug discovery,” Amgen’s head of global development has said.

• Facebook has brought its in-app dating feature to the U.S. after launching in 19 other countries,

reports Business Insider. Facebook Dating is designed to compete with apps like Tinder and

Bumble.

Consilium Wealth Advisory – Cliff Notes Weekly Market Update

Threats

• Google is reportedly facing a big antitrust probe from “more than half” of the U.S. state attorneys

general, and it could be announced as soon as next week. According to The Washington Post, it

appears to be another probe looking into whether one of Silicon Valley's largest companies has

become too dominant.

• California legislators are voting on a bill that could force Uber and Lyft to reclassify their drivers as

employees rather than independent contractors, potentially devastating their business models.

Uber and Lyft have been open about the ramifications to their businesses should the bill become

law.

• Oil producers and their suppliers are cutting budgets, staff, and production goals amid a growing

consensus that oil and gas prices will stay low for several years. The U.S. has 904 working rigs,

down 14 % from a year ago.

Market Commentary

From Blaine Rollins collection of market commentary and charts: No wonder bookstores are dying. Tough for the fiction aisle to compete with last week’s Trilateral Commission of Boris Johnson, Donald Trump and Antonio Brown holding court. Just when you think that the news can’t get any more bizarre, Twitter unloads another live stream of Black Mirror onto the world. Hollywood will

Consilium Wealth Advisory – Cliff Notes Weekly Market Update

either need to shift to 100% documentaries or try to become more interesting. The news flow and Tweets definitely have the market’s attention. So much, in fact, that Merrill Lynch and J.P. Morgan are beginning to create volatility indexes and quantify market movements based on the number of POTUS tweets. Sheer madness.

The economic data remains less than spectacular, there has been no progress on the trade wars and the Central Banks remain in global easing mode. We will hear from the ECB this week and then next week the Fed will cut rates. The U.S. stock market remains stuck in a trading range as near-zero interest rates pull up stock multiples, while earnings outlooks diminish. September will be a big month for corporate updates as too many investment conferences are occurring now that summer is over. And, next month is October which means earnings reporting season and a slower month of corporate stock buybacks. So lots of cross-currents for stock investors to paddle through. For those in private equity land, all eyes are on WeWork which would like to get public while IPO investors put on their best Heisman stance against its previous valuation estimate. This deal will be an interesting one to watch as the market for growth and momentum stocks appears to be slowing.

Another week of less-than-inspiring U.S. economic data led by slower manufacturing data points…

“At current levels, the August PMIs are indicating annualized GDP growth of 1.0%, putting the economy on course for growth of just below 1.5% in the third quarter. Such weak readings hint at downside risks to current third quarter growth projections, which generally point to an expansion of just over 2%.

“A major factor behind the deterioration was the spreading of the manufacturing downturn to the service sector, via weakened household and business confidence. Jobs growth is also increasingly being affected by worries regarding the outlook. Overall jobs growth in August was the weakest since early-2012, commensurate with non-farm payrolls rising at a monthly rate of under 100,000.”

(MarkitEconomics)

Consilium Wealth Advisory – Cliff Notes Weekly Market Update

Typically a slowing ISM Manufacturing series leads to more defensive investment positioning. But not this time…

(WSJ/DailyShot)

Friday’s Jobs data was only saved by the hiring of 25,000 Census workers. Not what we want to see…

Nonfarm payrolls rose 130k in August (mom sa), 30k below expectations. The composition of the establishment survey was also weak, given downward revisions to prior months (-20k on net), the weaker private-sector rise (+96k), the larger-than-expected boost from temporary Census hiring, and soft industry breadth (the net share of industries adding jobs during the month fell 4.3pp to 53.5%). Job growth was relatively soft across leisure and hospitality (+12k), manufacturing (+3k), retail (-11k), and private education (-5k). The main areas of strength were financial services (+15k) and government (+34k), the latter of which received a 25k boost from temporary Census hiring.

(Goldman Sachs)

Consilium Wealth Advisory – Cliff Notes Weekly Market Update

(WSJ/DailyShot)

Some good news for workers is that wages are accelerating…

Of course this is bad news for the Fed and those who want low inflation.

One potential wrinkle for the Fed: Wage gains are accelerating. That’s a welcome development for workers but a possible concern for officials with an eye on inflation pressures. Average hourly earnings rose at an annualized rate of 4.24% in the three months through August, the fastest growth since mid-2007. Inflation has also perked up in recent months. The timing—just as concerns about an economic downturn are building—couldn’t be worse for the Fed, Pantheon Macroeconomics’ Ian Shepherdson says. “We think employees are finally shaking off the shock of the crash and are now seeking to exploit their scarcity in pursuit of faster wage gains,” Mr. Shepherdson says. “We expect the Fed to ease this month, but the markets’ hopes of endless rate cuts will be hard to meet if inflation is rising and future inflation pressure is building.”

(WSJ)

Consilium Wealth Advisory – Cliff Notes Weekly Market Update

Many want a 50bp cut by the Fed next week but they also acknowledge that it is unlikely to occur…

Consilium Wealth Advisory – Cliff Notes Weekly Market Update

J.P. Morgan is now thinking three consecutive meeting cuts of 25bps each…

We now expect the Fed to lower the funds rate by 25bp at each of the three remaining FOMC meetings this year, bringing the year-end target funds rate range to 1.25-1.50% (we had previously anticipated only one more cut this year). Among the reasons prompting our change in view are some familiar and inter-related: trade tensions continue to intensify, foreign growth forecasts continue to get marked down, and the dollar continues to strengthen.

(J.P. Morgan)

The Atlanta Fed trimmed their Q3 outlook sharply in the last week…

(@AtlantaFed)

Consilium Wealth Advisory – Cliff Notes Weekly Market Update

And the POTUS is fine to sacrifice the economy and stock market to win the trade war with China…

President Trump said that the Dow Jones Industrial Average would be 10,000 points higher if it weren’t for the trade war with China. “But somebody had to do this,” he told reporters at the White House. “To me, this is much more important than the economy.”

(Business Insider)

Consumers have been the main firing cylinder in the U.S. engine, but recent data shows they may be less excited…

(Economist)

Consilium Wealth Advisory – Cliff Notes Weekly Market Update

Meanwhile, business leaders have little confidence in how to plan for the future…

Imagine yourself as the head of a business that plans and expects to be around for a long time. Sure, you’d like to pay less in taxes and not have to comply with costly regulations. But you also want to invest in your company’s future. And to do that, you need some assurance that the rules of the game will be stable, so that whatever investments you make now aren’t suddenly made worthless by future shifts in policy.

The big complaint business has about Trump’s trade war isn’t just that tariffs raise costs and prices, while foreign retaliation is cutting off access to important markets. It is that businesses can’t make plans when policy zigzags in response to the president’s whims. They don’t want to invest in anything that relies on a global supply chain, because that supply chain might unravel with Trump’s next tweet. But they can’t invest on the assumption that Trump’s tariffs will be permanent, either; you never know when or whether he’ll declare victory and surrender.

(NYTimes)

(Illustration by Jim Datz; photographs by Doug Mills/The New York Times and nigelcarse, via Getty Images)

Consilium Wealth Advisory – Cliff Notes Weekly Market Update

One thing business leaders are doing is fortifying the balance sheet at these record-low interest rates…

September typically marks a return to busier issuance, but this year has been unprecedented as borrowing costs slide. Companies including Berkshire Hathaway Inc., Apple Inc., major Chinese conglomerate Dalian Wanda Group and Italian natural gas firm Snam SpA sold at least $150 billion-equivalent of bonds this week in dollars, euro and yen, the most ever in the first week of September.

Few are willing to forecast how long the binge may last, particularly given how President Donald Trump’s tweets have whipsawed financial markets in recent weeks. Protesters planned more gatherings in Hong Kong, and Fitch Ratings downgraded the city as an issuer of long-term, foreign currency debt for the first time since 1995, citing the political turmoil.

But for now borrowers around the world are loading up on cheap money while they can.

(Bloomberg)

The U.S. stock market is stuck in a trading range…

Consilium Wealth Advisory – Cliff Notes Weekly Market Update

One reason to buy stocks now would be the yield advantage over bonds… But of course, you also need to feel good about the earnings outlook for the underlying business.

Previous buys of stocks when there has been this yield advantage over bonds has been profitable…

Consilium Wealth Advisory – Cliff Notes Weekly Market Update

Did someone say Value vs Growth?

Just when you thought Value was dead and buried, it reaches up out of the ground and grabs your leg. Keep an eye on this because I know a few trillion dollars that would be interested in shifting back toward this long, written-off strategy. Go find someone with grey hair to explain it to you.

(@hmeisler)

Another stretched rubber band that could benefit from a rotation toward Value stocks…

Small caps have been punished versus large caps. A greater weighting of financial stocks is one reason. Their lack of attention versus mega cap index stocks could be another. But whatever the reason, Small caps are cheap.

Consilium Wealth Advisory – Cliff Notes Weekly Market Update

(@LeutholdGroup)

If this shift toward value continues, WeWork will not work…

A valuation below the $20 billion level that people familiar with the matter last week said the company was considering would be an even steeper drop from the $47 billion mark where We last raised private capital this year. The startup faces skepticism among potential public investors over its governance, business model and ability to turn a profit while continuing to grow. The latest potential cut comes at a time when IPO demand for companies with a path to profitability is surging and would be particularly painful for investors who have given or committed over $10 billion to the company since it was founded in 2010…

If the IPO doesn’t happen, the company will either need to find more cash or scale back its plans for further growth, according to people close to the company. One problem is that We has long been betting its main appeal to investors is its rapid growth, but that growth is fueled by ever-growing helpings of cash.

We primarily rents space through long-term leases, renovates it and then divides the offices and subleases them over the short term.

(WSJ)

Consilium Wealth Advisory – Cliff Notes Weekly Market Update

Consilium Wealth Advisory – Cliff Notes Weekly Market Update

Elsewhere in global valuation write downs, Hong Kong is next in line…

(Bloomberg)

Consilium Wealth Advisory – Cliff Notes Weekly Market Update

If you want a reason how inflation and interest rates could rise sharply in the future…

While it seems all but certain that U.S. interest rates are on a path toward zero, $150 per barrel of Crude Oil could throw a wrench in those plans. This will be worth keeping an eye on as the election season heats up.

(WSJ)

Finally, a great college football story to kick off the season. Well done University of Tennessee…

A Florida boy who was bullied and laughed at for his homemade T-shirt representing the University of Tennessee Volunteers at his elementary school’s college colors day, has not only had his design made official by the university, but the demand for the product is so high that it crashed the school’s website.

(ABCNews)

Consilium Wealth Advisory – Cliff Notes Weekly Market Update

This newsletter has information believed to be reliable, but is not guaranteed to be true and accurate. The information contained within is

for general information only and should not be considered a recommendation of any particular product or service. All investments have the

potential for profit or loss. No chart or graph or presentation should be the sole basis for consideration of an investment. Investment

advisory services offered through Consilium Wealth Advisory, LLC a Registered Investment Advisor in the state of Texas, Florida, Louisiana

and Oregon.

Source All – Blaine Rollins. 361 Capital. 9.9.2019