Week in review written by FormulaFolio Investments
Just before noon Eastern Time, Apple became the first US company to reach a $1 trillion market capitalization (PetroChina, a state-controlled Chinese oil and gas company, briefly reached $1 trillion in 2007 before quickly falling below the mark). The milestone came just two days after Apple beat earnings expectations and delivered stronger than expected guidance for the remainder of 2018. Some analysts have become wary of the company’s lofty valuation, but many agree there is no discernible difference between Apple being valued at $999.9 billion and $1 trillion – this is just a nice looking round number (and people tend to put extra weight on nice round numbers).
While much of the market’s focus was on the race to $1 trillion, Friday’s employment report flew somewhat under the radar. Though it was a disappointing report on the surface, as the economy added only 157,000 jobs compared to the 190,000 expected, the overall labor market remains strong. Buried within the report, jobs numbers from the previous two months were revised higher by a total of 59,000 and average hourly earnings increased 2.7% over the same period from a year ago – matching expectations. The unemployment rate dropped from 4.0% to 3.9% while the labor force participation rate remained steady, illustrating a larger percent of the working population is finding full-time jobs. Despite the headline number missing expectations, the jobs picture continues to be a bright spot in the US economy.
Strong earnings and economic data reports have continued to offset geopolitical risks (namely tariffs) in recent weeks. However, it is still important to remember to include a broad range of asset classes in your portfolio for more consistent and more stable longer-term results, rather than chasing short-term returns. While the day-to-day noise can make it tempting to make knee-jerk decisions, as investors we need to stay committed to our long-term financial goals. Staying focused on our long-term investment objectives and maintaining a disciplined investment strategy can help reduce market noise and increase the odds of a successful outcome over time.
Chart of the week
Apple launched the initial public offering (IPO) of its stock on December 12, 1980 at a price of $22 per share. The stock has split four times since the company went public, bringing the split-adjusted price of the IPO down to $0.39 per share. Had someone invested $1,000 in Apple when the company went public, their investment would be worth $533,308 today (not including dividends). However, while this is an astounding figure, the chart below illustrates a majority of this growth has come only since 2001 – when Apple introduced the iPod.
*Chart created with Google Finance
Broad equity markets finished the week mixed as large-cap US stocks experienced the largest gains and international stocks experienced losses. S&P 500 sectors were mixed with defensive sectors broadly outperforming cyclical sectors.
So far in 2018 technology, consumer discretionary, and healthcare are the strongest performers while telecommunications, consumer staples, and materials have been the worst performing sectors.
Commodities were negative as oil prices fell 0.29%. This was the fifth straight week of oil price declines as trade concerns weighed on the market, causing anxieties about future demand. While oil prices have been trending higher since the OPEC-led output cuts in January 2017, the fear of rising production and falling demand has caused some investors to worry about oversupply in the near-term.
Gold prices were negative with a 0.69% loss as an upbeat assessment of the US economy by the Federal Reserve and new trade tensions between the US and China boosted the dollar. A generally stronger dollar has resulted in downward pressure for gold in recent months as it has made the metal more expensive for holders of other currencies.
The 10-year Treasury yield fell slightly from 2.96% to 2.95%, resulting in positive performance for traditional US bond asset classes. Yields climbed above 3% during the week but slipped lower as trade tensions between the US and China escalated later in the week.
High-yield bonds were positive for the week as most riskier asset classes experienced gains. As long as the economy remains healthy, higher-yielding bonds are expected to continue outperforming traditional bonds in the long-run as the risk of default is moderately low.
Asset class indices are mixed so far in 2018, with small-cap US stocks leading the way and traditional bond categories lagging behind.
Lesson to be learned
The emotional burden of trading is substantial; on any given day, I could lose millions of dollars. If you personalize these losses, you can’t trade. “
– Bruce Kovner
Investing can trigger many emotions – even for the most seasoned professionals. However, if you want to be a successful investor, you have to disconnect your feelings from what’s happening in the market. By sticking to an emotion-free, disciplined investment strategy, you can increase the odds of success in the long-term.
FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).
In a nutshell, we want the RPI to be low on the scale of 1 to 100. For the US Equity Bull/Bear indicator, we want it to read least 66.67% bullish. When those two things occur, our research shows market performance is strongest and least volatile.
The Recession Probability Index (RPI) has a current reading of 24.00, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 66.67% bullish – 33.33% neutral – 0.00% bearish. This means the indicator believes there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).
The Week Ahead
The upcoming week will be somewhat light compared to recent weeks as earnings season begins to wind down and economic data releases are relatively minimal.
More to come soon. Stay tuned.
The post Apple reaches $1 trillion as US stocks climb higher appeared first on The Blog of Phil Calandra.
Source: Phil Calandara