Last week, the S&P 500 declined 1.01% and the Russell 2000 sank 2.52% as trade, IPO, impeachment, and economic concerns dictated the mood on Wall Street. The yield on the Ten-Year Treasury slipped 9 basis points to 1.68% and the Dollar gained 0.5% to test its recent highs.
- The U.S.-China trade “dialogue” (I think it’s a mistake to call it a “war”) seemingly took a turn for the worse as a report suggested that the Trump administration is considering limiting pension funds’ holdings of Chinese stocks and delisting those shares from U.S. exchanges. The tweets and leaks seem to generally get more combative as negotiating sessions approach, so I think it is safe to say that this news flow is part of the administration’s negotiating strategy. High-level trade negotiations are scheduled to take place in Washington on October 10-11.
- Peloton Interactive was the latest high-profile IPO that traded down from its offer price. At North Star we focus on profitable companies with long operating histories that are valued at reasonable multiples of earnings, so we welcome a shift an investor sentiment away from money-losing start-ups trading at high multiples of revenues.
- A number of clients have asked if we should be getting more defensive now that the impeachment process is underway. History doesn’t offer much of a guide with a sample size of two. In one case (Nixon) the market performed poorly, but in the other (Clinton) the market traded higher. I think the jury is out on the impact of the current impeachment on the market, but so far it does not seem to be creating any significant selling pressure.
- The U.S. economy continues to display signs of slowing growth. Consumer spending rose 0.1% in August, the smallest gain in six months, while the University of Michigan’s sentiment index rebounded to 93.2 in September from August’s plunge to 89.8. The Consumer comprises over 2/3 of the economy, and the Index was as low as 55.3 during the 2008 financial crisis and recently has been as high as 101.4 (March 2018).