SFM Observer – January 2019
Sweeney Financial Management
A concise review of the month in investment markets.
The Dow closed the month of January at 24,999 with a large gain of 1,672 points or 7.2%. The recovery in stock prices went a long way in repairing the damage done by the -2,200 point loss sustained in December. The market drove higher in a consistently measured rally without the big dips that were present in the fourth quarter of 2018. The trade war continues to drag on and remains an overhang on the market. The government shutdown was also in play during the month. Although the deferred wages do not present a big problem for the economy, the psychological impact of a dysfunctional government weighs on consumer and business confidence. Hopefully, they will avoid another round and reach some sort of compromise.
Some interesting events from the month just passed:
- The Fed chairman, Jerome Powell, has softened his stance on raising interest rates this year and the stock market is applauding his change of heart. Mortgage rates have responded by drifting lower and the equity markets are rebounding on the news. They have also backed off on shrinking the Fed’s balance sheet which helps the U.S. economy in a variety of ways (in the short run).
- Apple Computer has had a rocky month as they announced weak iPhone sales and warned of slowing revenues in the year to come. The company is still tremendously profitable but the rate of growth is slowing. After initially selling off, Apple rallied into the end of the month.
- The economy added over 300,000 jobs in the month of December and average hourly wages grew 3.8% in 2018. When you combine this with low gasoline prices, the American worker is experiencing an increase in purchasing power that they have not had in many years. With globalization lowering wages for many Americans over the past few decades, this is a welcome change.
- Netflix is raising prices for most customers by 13 – 18% depending on which plan you have. The total cost is still low relative to other media service providers but the increase will be significant to the cash flow of the company. Netflix continues to invest heavily in original content in an effort to fend off new rivals.
- Amazon is broadening its own label offerings. In addition to selling batteries and other items, Amazon is developing new brands. “Nod” will be a new mattress line offered by Amazon and “Mama Bear” is their baby products line. These products have the advantage of appearing first in search results. Many online shoppers do not want to scroll through pages of items so being first will give you market share quickly.
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Until next month,