The Fed gave a push to stocks early in the week, but news about Washington DC investigating the so-called High Frequency Traders drove down the momentum stocks which were still suffering from the previous week’s hangover.
Friday’s lackluster jobs report did little to sway the economic outlook, and in fact, 1st quarter GDP growth rates have now fallen to just about 1% annualized.
As the charts above illustrate, in the aggregate, stocks were down but not dramatically so. Both the Dow Jones Industrial Average & the NASDAQ Composite fell just over one-half of a percent.
The Markets & Economy
The sector rotation continued last week. Concerns over HFT (high frequency trading) has sapped the market of liquidity temporarily, which has hurt the momentum names in such industries as biotechnology and social media.
For many of our names though, because of their dividend paying status, the results have been fine. One look at the graphs below show just how well they have outperformed their high flying brethren this year. I don’t know if this will persist but I am comforted knowing how many strong balance sheet companies we own with rising dividends. Certainly they have an entirely different risk profile than such high flyers as Google, for instance.
As far as the fundamentals are concerned, Friday’s employment report with all of its quirky adjustments showed a mildly disappointing result. The unemployment rate remains at 6.7%, but this statistic ignores the effect of the growth in population versus employment growth trends over the past several years.
Look at the graph below to get a visual image of just how many Americans are being left out of this so-called recovery. Many millions of people are simply out there and not being counted, which is our government’s latest way of combating unemployment. Just define it away.
The next chart on the next page shows the monthly gains in non-farm payroll growth. If you see a trend to higher levels, then you have better eyes than I do. The simple fact is this - Over the past twelve months, wages have increased 2.1%. After taking into account all kinds of higher taxes and the higher costs of fuel etc., is it any wonder why the consumer sector is lackluster and nominal growth remains stuck in neutral?
Finally on the economic front, last week saw the nation’s trade deficit spike higher as weakness abroad caused problems for our increasingly important export markets. This spike caused most major Wall Street firms to lower their estimate of GDP growth for the 1st quarter to around just 1%.
Yes, you read that correctly. The year 2014 is off to a very poor start and most talking heads are simply excusing it due to a cold winter. Of course, most of these people blame the cold winter upon global warming so they should be ignored completely.
What to Expect This Week
The economic data is pretty light this week with FOMC minutes coming on Wednesday, but that is stale information, and consumer sentiment on Friday. Hardly market movers in either case.
Earnings should start to dribble out towards the end of the week, but don’t expect anything on our holdings.
Finally, the weekly look at the Economic Cycle Research Institute of leading economic indicators (see charts below) continue to show no momentum to the upside or downside to this economy. This, of course, has not stopped the parade of pundits from predicting the rest of the year will be just peachy. I am surprised that anyone listens to them, as they as so politically slanted that they have seen growth around the corner for four plus years now and have achieved broken record status.
SYMBOL: TEVA
The US Supreme Court has agreed to hear an appeal by TEVA Pharmaceuticals in a move that may delay generic competition for the Company’s top selling Multiple Sclerosis drug COPAXONE. TEVA is hoping to revive a patent that would protect COPAXONE from generic rivals until September of 2015. COPAXONE is key to TEVA’s drug portfolio, bringing in $3.2-billion in U.S. sales for the Company annually.
A merger in Pharma-space this morning between Ireland’s MALLINCKRODT and California-based QUESTCOR, is helping boost TEVA as well. Shares have risen +45% the past six months, hitting a three-year high last week. Analysts have consistently raised expectations for TEVA as a premier player in the generic space. A brokerage just initiated coverage of TEVA with a “buy” with 12 month price target of $64. Additionally, the Company has raised its dividend twice in the past two years. We believe TEVA will exceed earnings estimates over the next several quarters which could push the price of the stock above $60 within the next 12 months.
