On June 15th, Costco stock was trading at $180. The next day Amazon announced its deal to acquire Whole Foods which sent supermarket stocks and Costco shares tumbling. Investors feared that Amazon would destroy the supermarkets much like it did with bookstores and electronics retailers. If retailers don't adapt or have some kind of advantage, then they very well may fall by the wayside. However others will adapt and thrive. One such case is Costco who carries a huge value proposition that Amazon will struggle to combat.
This week Warren Buffett made headlines by predicting the Dow Jones Industrial Average will surpass one million in 100 years. Given that the Dow is at 22359 at the close of Thursday, one million sounds like a big number however as Buffett said, "The Dow will be over a million and that is not a ridiculous forecast at all if you do the math." I agree 100% and in fact, Buffett is likely conservative in his one million prediction.
Yesterday the rhetoric between the US and North Korea escalated further with President Trump saying the US would "totally destroy North Korea" if forced to defend itself or its allies. He said that while the US "has strength and patience," its options would soon run out. This follows the president's comments from August 9th when he said "North Korea best not make any more threats to the United States. They will be met with fire and fury like the world has never seen ... he has been very threatening beyond a normal state. They will be met with fire, fury and frankly power the likes of which this world has never seen before." So far the markets have shrugged it all off, but can Kim Jong-un sink this long running bull market?
Yesterday the S&P 500 closed at a record high so it is unsurprising that you see headlines asking if the market is overvalued or is this a bubble? Many pundits are calling this stock market a bubble and predicting doom. In Bank of America Merrill Lynch's August fund manager survey of global investors, a record 46 percent of fund managers said that U.S. stocks are overvalued. In July, Goldman Sachs research highlighted "elevated valuation on almost every metric" in its weekly report on markets.
Today almost all of the headlines are about Apple's iPhone launch and that is well deserved. I've been a iPhone user myself for 10 years and am excited for the new phone (but not the rumored $1000 price tag). Since the iPhone news will be covered by a million different sites, let's look at the other side of the globe where China is a very different market and one changing at breakneck pace. Did you know that last year, Chinese consumers spent $5.5 trillion (yes Trillion) through mobile payment platforms? To put that in perspective that's about 50 times more than their American counterparts where Apple pay just hasn't caught on. So why is China succeeding where Apple is not? Let's take a look at China's mobile payment market.
US consumer confidence rose for the 4th straight month and posted its second highest reading in the last 16 years. The Conference Board said its consumer confidence index increased to a reading of 122.9 in August which was above expectations. US consumers remain upbeat thanks to the strong stock market, rising real estate prices and a tight labor market. Consumers have thus far shaken off the news of violence in Charlottesville and the increasing tensions between North Korea and the US. While war is always a risk to markets, we believe that cooler heads will prevail. Tougher sanctions will likely be the next step against North Korea unless they do something really crazy. Keep in mind that North Korea is so puny that it is almost laughable. It is like boxer Floyd Merriweather showing up to your house for a fight. For comparison, in one day, the US makes up over 2x the size of North Korea's annual GDP.
As a dedicated reader to our blog, you may have noticed that our blogging pace has slowed this summer much like the stock market. I guess you can say we are both stuck in neutral. Well we are still grinding away but have been busy with conferences and now I am on a much needed holiday to recharge and enjoy some shave ice. Don't worry I will back blogging with more regularity next week. As for the stock market, the sell in May philosophy has worked well again this year. While seasonality doesn't occur exactly the same every year, there definitely are seasonal trends that prevail in the stock market. This year, the S&P 500 has been stuck in a sideways move since June and volatility has picked up a bit as well.
Since last summer, I have written several blog posts on positive earnings from the S&P 500 constituents. We view accelerating earnings growth as a key driver of stock prices moving forward. Schwab's Chief Global Investment Strategist Jeffrey Kleintop just wrote a very compelling post called "Earnings may be about to do something they've never done before." Thanks to global growth picking up across virtually all regions, global earnings (measured by the MSCI All Country World Index) are expected to reach new heights in the near future. This is also bullish for the S&P 500 which generates roughly 44% of its revenues from outside the US.
Despite the weekly doomsday headlines (this week is from filmmaker Michael Moore - we do not recommend taking investment advice from fimmakers, ever), Billionaire hedge fund manager David Tepper called comparisons of today's market with the tech bubble of 1999 'ridiculous' and we wholeheartedly agree. Tepper who runs Appaloosa Management says that the market run doesn't translate into over the top valuations in equities.
Thanks to Uncle David for forwarding a CNBC article on how famed hedge fund manager Stan Druckenmiller raised his stakes in Chinese companies in the last quarter. According to recent 13-F filings, his firm Duquesne Capital bought Chinese consumer and tech stocks in the second quarter.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Runnymede Capital Management, Inc.-"Runnymede"), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Runnymede. Please remember that if you are a Runnymede client, it remains your responsibility to advise Runnymede, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Runnymede is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Runnymede's current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Please Note: Runnymede does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Runnymede's web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.