Saturday, July 15, 2017

TLH Market Review - 7/15/17

It's the summer doldrums in equity markets as volumes thin out while traders at big institutions take summer vacations.  That's normal every year across the globe.  Yet it hasn't stopped the indexes from continuing to new highs. This week we saw the Dow Jones, and S&P 500 hit new record highs, up 9.5% & 9.9% respectively. Meanwhile the Nasdaq trades just 9 points off it's record high. What's more impressive is the Nasdaq has been lapping the other indexes in terms of performance this year as it trades 17.3% in the plus column.



The markets were seemingly fine meandering near highs in their summer afternoon siesta, but then Janet Yellen's semi-annual testimony in front of Congress apparently sparked a lot of excitement. If we can focus on just one sentenced it'd be in regards to "the federal funds rate would not have to rise all that much further to get to a neutral policy stance."

Participants took that as a sign that another rate hike wasn't coming as they previously thought.  Now don't confuse this as "No Rate Hike Good, Rate Hike Bad", in regards to the markets. Participants have known for quite some time that rates would rise, and yet equity markets are still churning out new high after new high.  The Fed looks at a lot of data, and the recent CPI release in particular has shown inflation is well tamed. In fact inflation has actually inched down three of the last four months, but it has risen overall the last year. 


Earnings season is upon us and at this point in time companies have a real good handle on what the remainder of 2017 will look like. I'll be eagerly watching to see who raises guidance. That will be a really good sign.

Some notable names hitting new highs this week are Facebook(FB), and PayPal(PYPL). They are both big winners for us YTD with gains of 43% & 49% respectively.  That's really impressive.  Another impressive feat is their gross margins. That's revenue minus cost of goods sold.  This is a great number to see how much profit a company makes on the items it sells. In the case of Facebook their gross margin is astronomically high and routinely comes in above 85%. That makes PayPal's very respectable 46% look paltry in comparison.

19 of our current 28 companies are beating the S&P 500 for the year.  That's really good.  Four companies are showing losses for the year with Costco(COST) recently being added to the list.  That has a lot to do with Amazon's(AMZN) proposed purchase of Whole Foods(WFM). It's seen as a huge threat to Costco which is actually the nations largest seller of organic foods.  I'm a bit skeptical right now.  I use both Amazon and Costco. They are both great for different things.  I'm having a hard time envisioning  how this will really put a lid on Costco's sales.  But I take the threat seriously just as any disciplined investor.

Enjoy the best days of summer!

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