August 4, 2017
Weekly Market Comment
The TSX Composite gained 0.85% while the S&P 500 was up 0.19%.
The Fed has another reason to keep hiking interest rates with a July jobs print of 209,000. The official unemployment rate remains at 4.3% but hourly earnings continued to move at a 2.5% clip and the average work week remained at 34.5 hours. Bloomberg argues that without wage pressure, GDP growth will have a tough time breaking out of its respectable 2% growth range.
How strong has the new jobs growth been these past seven months? The following chart tallies the January to July performance and compares it to that of the past few years:
Today’s strong jobs figure gave the Canadian dollar a much needed breather. You can see how stupendously strong the CAD has been since May’s trough.
Apple normally sees a lull in phone sales leading up to big launches, and the September launch (most likely) is expected to be the biggest since the release of the 6 and 6 Plus models. That was when Apple finally got on board with the trend of larger format phones. Apple’s second quarter earnings release held its own but perhaps the biggest positive was their projections implied no delay to the release of the 10 year anniversary phone, along with what is believed to be an iPhone 8 and 8 Plus update. With no delay and three new phones on the way, fourth quarter sales guidance was stronger than generally expected while 2018 sales guidance was increased by 6.8% to $260 billion. That happens to be almost as much cash as they have in the bank.
Apple’s iPhone sales are about 63% of total sales but their services, which grew 21.6% in the quarter (year-over-year), is fighting to catch up as the firm moves to emphasize more of the predictability offered by selling services to existing hardware users.
If you’ve ever been to Madison Square Park in Manhattan, you’ve undoubtedly seen the unbelievably long line-up to order a Shake Shack burger. This location’s ineffable popularity has proven difficult to mimic on a large scale across their 134 locations. Revenue growth is slowing as same-store sales have been forecast to fall 2%-3% this year. But the fast-casual restaurant segment was super-hot in 2015 relative to its fast-food and fast-casual competitors. Chipotle was in its heyday. But the number of new stores in the segment almost doubled from 41 locations to 74 per 1 million people. Unfortunately, there has been a line-up of investors walking out the door, as this once red-hot IPO has faltered from a peak of almost $97 to $32 today.
Speaking of faltering performance, Venezuela is moving away from democracy and toward autocracy after taking major steps last weekend to re-write its constitution. Many countries decried the moves. The U.S. Department of the Treasury froze the personal assets of President Maduro (the late Hugo Chavez’s personally appointed successor) and is preventing Americans from doing business with him. Venezuela’s mismanaged oil production has fallen to about two million barrels per day, of which America is a major buyer. This is also on the table, though it would make an already chaotic and deteriorating scene of food shortages and rising crime worse. Venezuela is already suffering at the hands of political ineptitude and a crash of oil prices from its peak of $150 barrels.
Targeting Maduro personally sends a message without hurting the many destitute Venezuelans who are suffering. Freezing the assets of a country’s leader is rare. Maduro has the personal distinction of joining the leaders of North Korea (Kim Jong-un), Zimbabwe (Mugabe), and Syria (Assad).
Musings Beyond The Markets
B.C. is experiencing the second worst wildfire season in provincial history. Yesterday, the smoke from Southwest B.C. forest fires was visible to commuters roaming downtown Vancouver. Air quality in the city was worse than Beijing, according to the World Air Quality Index. For a satellite image of the fires’ proximity to Vancouver, click here.
Word of the Week
ineffable (adj.) – too great to be expressed in words.