This week Disney launched its much-anticipated streaming service called Disney+. This new revenue source for Disney is designed to compete with the other streaming services such as Netflix and Apple TV+. However, Disney has a stronger competitive advantage than their close rivals in this space.
We have been making the case that the U.S. economy is doing just fine and the equity market is not overvalued by conventional metrics. This week it was announced that the U.S. economy grew at an annualized pace of 1.9%, above what most economist thought. On the market side, the S&P 500 is trading at 16.7x next year’s earnings; the 25-year average is 16.22x[i]. We have positive growth in the economy and the markets are healthy, therefore we don’t think a recession is likely in the near term.
In last week’s Market Update, we discussed the importance of this earnings season. For most of the year, there have been two school of thoughts; either things are not going well in the economy and a recession is near or the growth in the U.S. economy is not great, but it is still moving forward and a recession is not imminent.
We are three weeks into the new quarter and all eyes are on earnings season. Our start of the year target price for the S&P 500 was 3100 by year end, which is about 3.4% from today’s level. The S&P has tested our price target a couple of times and has been met by resistance.
The U.S. markets closed out the 3rd quarter and posted strong year-to-date (YTD) returns. The S&P 500 closed out the quarter up 20.5% YTD (including dividends), while the Dow Jones Industrial Average posted gains of 17.5% YTD (including dividends).
In last week’s Market Update, we discussed the Fed cut and low yields. We wrote about the low and flat bond yield curve and low yields on the S&P 500, which have driven investors to stocks that have paid an attractive, reliable and increasing dividend. We also introduced the alternatives asset class; another area that we think will benefit from the current yield environment. The three main asset classes are: stocks, bonds and cash; alternative assets are everything else, such as private equity, private credit and private real estate.
Fed chair Jerome Powell and the rest of the Federal Open Market Committee members concluded their scheduled two-day meeting on Wednesday. As expected, the Fed cut their short-term interest rate target by 25 basis points to 1.75%-2.0%.
It is with a heavy heart that we announce of the passing of Surevest client, Andrew Lee. He passed away Easter Sunday April 21st 2019 at age 23. Four years earlier he was diagnosed with a rare kidney cancer, hereditary leiomyomatosis and renal cell cancer (HLRCC), which currently has no known cure. Doctors told Andrew he may only have a year to live. With this news, Andrew and his family immediately looked for any new clinical trial which might help him. Andrew was referred to The National Institute of Health where research through clinical trials is having some success for HLRCC.
Andrew volunteered for 7 different experimental trials, sometimes being the first one to receive the new treatment. Andrew approached each clinical trial with a positive attitude. More incredible is what Andrew created during his short time; Driven To Cure.
The second quarter earnings results are wrapping up and the numbers are better than expected. At the end of the second quarter, the consensus believed earnings would decline in the S&P 500 by -2.7% (Year-over-Year)[i]. As of market close on Thursday, 96% of companies had reported their numbers and it appears the final number will not be as bad as analyst thought.