Market News – November 18, 2019

LONG BULL MARKET CONTINUES:  The Dow Jones Industrial Average crossed 28,000 for the first time ever on Friday and U.S. stocks in general enjoyed another solid week.  Optimism was fueled by:

• The White House indicating progress toward a deal with China,
• Comments by Federal Reserve Chairman noting strength in the economy,
• Positive third quarter corporate earnings reports, and
• Newly released data indicating that U.S. retail sales rebounded in October.
• The S&P enjoyed its sixth consecutive week of gains, the longest such streak in two years.

OPTIMISM LEADS TO STRONGER YIELDS:  The yield on the 10-year U.S. Treasury Note moved up to 1.815% this week, up from the 1.75% earlier in the week and up from sub-1.5% in early September.  This is occurring because investors are selling bonds to buy riskier assets (i.e., stocks).  Since people want to sell bonds, the prices go down, which causes the yield to go up.  This also eases recession fears as a decline in yields indicates a poor future outlook by investors.  The 10-year U.S. Treasury is a key benchmark that helps set borrowing costs on corporate debt and mortgages.  The 10-year yield is still historically low (the all-time low is 1.366% reached in 2016).

CORPORATE EARNINGS:  The profits of S&P 500 companies are now expected to decrease by about 0.4% from a year ago.  The predictions were lower.  Energy companies are expected to decline by 38%, the worst performing sector in the S&P 500, due to falling oil prices.  If energy companies are removed, then average S&P 500 profits for the third quarter will actually show approximately a 2% increase from a year ago.  Overall revenue for these companies is up about 3.8% for the quarter, and 5.2% for non-energy related companies.

U.S. MANUFACTURING IS GROWING, BUT THE RATE OF GROWTH IS SLOWING:  Below is a look at the state of manufacturing in the U.S. as measured by the ISM Manufacturing and ISM Services gauges.  You can see the slowdown in 2015-16, followed by a sharp acceleration in 2017-18, and our current moderation.  A reading of 50 or higher suggests expansion, while below 50 suggests contraction.

OLD ENTREPRENEURS:  It is not uncommon for older Americans to become entrepreneurs.  Are the odds stacked against them?  Don’t younger entrepreneurs have a better track record?  According to a recent study by professors from MIT and Northwestern, the answer is a resounding ‘no’.  In the paper, the authors made use of U.S. administrative data to investigate the link between the age of the entrepreneur and the likelihood of a successful venture.  Their primary finding was that successful entrepreneurs are middle-aged, not young.  The mean founder age for the highest growth new ventures in the U.S. is 45.  Moreover, a 50-year old founder is 1.8 times more likely to achieve upper-tail growth than a 30-year old founder.  Those with the lowest likelihood of a successful exit are the founders in their early 20s.  In fact, the study found that the relationship between age and a successful venture increased until the age of 60, after which it declines gradually.  So all you who are 60 or pushing 60, what businesses are you going to start?

REFERENCES:

OLD ENTREPRENEURS: https://census.gov/content/dam/Census/library/working-papers/2018/adrm/carra-wp-2018-03.pdf
U.S. MANUFACTURING IS GROWING, BUT THE RATE OF GROWTH IS SLOWING: ISM
CORPORATE EARNINGS:  https://horsesmouth.com/how-rate-cuts-influence-stocks-a-review-of-the-data
LONG BULL MARKET CONTINUES: https://www.wsj.com/articles/global-stocks-edge-higher-on-u-s-china-trade-deal-hopes-11573812514?mod=searchresults&page=1&pos=2
OPTIMISM LEADS TO STRONGER YIELDS: https://www.wsj.com/articles/rising-treasury-yields-quiet-investors-concerns-11573736400?mod=article_inline