By the end of last week, the Nasdaq Composite Index had reached another new high, and the S&P 500 was close to one. Also, new tariffs promised by the president went into effect on Thursday. These two stories seem at odds with each other, since tariffs are likely to cut into corporate profits and/or cause companies to raise prices for consumers. But there is a wild card: companies that are buying back their own shares. $983.6 BILLION in buybacks have been announced so far this year by American corporations. That’s a lot of extra buying, and it surely has plenty to do with the rising markets. Last week was the best week in stock markets since June. Not that long ago, but it does provide perspective.
The S&P 500 bases the weighting of the stocks in its index on their market capitalization. As of the October 2022 market low, the top 20 stocks in the index accounted for 37% of the S&P. Now that figure is up to 50% The more these few companies are worth, the higher the index goes. But that also leaves it vulnerable to any one of these stocks having a bad day or week.
And speaking of individual stocks, the Financial Times has reported that Nvidia and Advanced Micro Devices (both chip makers, and not the tasty kind) have agreed to pay 15% of their Chinese revenues to the United States. In exchange, they will both receive export licenses allowing them to make sales to China.
You know by now that our Treasury auctions off debt (bonds and notes, etc.) to buyers, and that the yield on those debt instruments is set by the auction. A recent auction of 30-year bonds saw weak demand last Thursday, resulting in a yield of 4.813%, which was higher than expected. Treasury bond yields rise at auction because nobody is bidding at lower interest rates. That means that buyers now think that the risk of owning our T-bonds has risen a little, and they expect to be compensated for it. Foreign buyers, especially, are concerned that our sovereign debt is becoming unmanageable.
Elon Musk received a Tesla pay package of $56 billion, which was struck down by a Delaware court as being excessive. (Musk has appealed.) So now the Tesla board of directors has awarded him a $29 billion pay package, which will vest over two years. According to CNN, the board said the pay package is a “critical first step” toward “keeping Elon’s energies focused on Tesla.”
President Trump issued an executive order on Thursday, hoping to “make it easier for Americans to invest their retirement savings in assets such as private equity, cryptocurrency and private real estate.” (Wall Street Journal) The executive order applies to 401(k) accounts and would require analysis and guidance from the SEC and Treasury before taking effect. The reason these investments are NOT currently allowed in retirement accounts is because they’re considered too risky for investors’ long-term savings. In regular accounts, these kinds of investments may provide a tax loss if they go down in value, but that does not apply in retirement plans.
The Washington Post is warning us that “big downward revisions to job data typically occur during recessions (or on the precipice of one). In a downturn, the models basically can’t keep up with how quickly the situation is deteriorating.” We saw such a revision on August 1st, when the numbers of net new jobs created in May and June were revised markedly downward. If a recession is coming, we won’t know we’re in it until we’re well into it.
Pumpkin-spice coffee creamer is back in stores. Adjust your shopping list accordingly.
For the week ending on August 8th, the S&P 500 finished at 6,289, the Nasdaq Composite at 21,450, and the Dow Jones Industrial Average at 44,175. The yield on the ten-year Treasury Note closed at 4.264%. U.S. crude oil cost $64.26 per barrel, while N.Y. gold cost $3,397.60 per ounce. One Euro was worth $1.16.
Elizabeth E. Cook
Partner, Diastole Wealth Management.
News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) Barron’s, The Wall Street Journal, CNBC, Morning Brew, Yahoo Finance, Bloomberg, Axios, CNN, The Associated Press, The Financial Times, Pitchbook News, and The Washington Post. If you have questions, please call us at 203.458.5220, or reply to this email to reach me, Liz Cook.
Absolutely nothing funny happened in the world last week, so I am telling you my middle-school go-to joke:
Did you hear about the new restaurant on Mars?
Great food but no atmosphere.
Have a good week!