Stone's Weekly Market Guide - Week of July 15, 2018
Chart of the Week: Is it time to consider Chinese stocks? The tariff and global growth worries haunting Chinese stocks should pass and China will continue to be a force in global economic growth given its size. Most investors are underweight China as it currently comprises almost 33% of the MSCI EM (MXEF), but fully represented should total more than 45%. One issue with China is the heavy government ownership of certain companies, which can lead to conflicts of interest. WisdomTree China Ex-SOE (CXSE) removes companies with more than 20% government ownership to ameliorate this conflict risk. Disclosure: the author currently owns CXSE and VWO.
While the tariffs are currently only a small economic headwind relative to the large stimulus from the tax cuts and increased government spending, markets will be monitoring whether the global trade conflicts continue to escalate. Fed chair Powell is scheduled to update the Senate on Tuesday and the House on Wednesday. Investors will be considering the monetary policy implications of his statements and the Fed’s Beige Book. The IMF updates their World Economic Outlook on Monday.
U.S. June retail sales should remain in growth mode, but expected to decelerate slightly to 0.5% month-over-month. This week also provides a look at housing with June housing starts and building permits. The Atlanta and NY Fed estimates of 2Q GDP are at 3.896% and 2.77%.
2Q earnings season continues with 60 S&P 500 companies reporting, including more financials. Last week, the large banks began reporting with three out of four beating earnings estimates. S&P 500 earnings and sales growth are expected to remain robust at 20% and 8% year-over-year respectively. With only 5% reporting so far: 89% and 85% of companies beat earnings and sales respectively.
Eurozone calendar is light with the final reading on June consumer inflation (CPI) about the only notable release. The U.K. reports labor market data: May weekly earnings and unemployment rate. In addition, U.K. June CPI and retail sales are on tap. The political battle around Brexit is likely to remain front and center.
Asia data: Japan has June trade data along with CPI readings. China reported 2Q GDP at 6.7% year-over-year (Y/Y) as expected along with June retail sales and industrial production at 9.0% and 6.0% Y/Y respectively. President Xi’s stated GDP goal is 6.5%. Please see the Chart of the Week for more on China.
Upcoming appearance with the CFA Society of Philadelphia on Thursday, July 26
at 6:00 PM: Do collectibles belong in your investment portfolio? I will present my thoughts and research on the valuation of art, stamps, violins and wine. The presentation will have you thinking about how these "emotional assets" hold value over time and what other costs are associated with them. Click here to register.
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