Stocks were generally down last week as a selling mood permeated the markets. Despite oil’s strong performance and better-than-expected retail sales, domestic stock markets ended the week off. The Dow Jones Industrial Average was down over 1.1% while the S&P 500 and NASDAQ Composite were both down 0.51% and 0.36%, respectively. Chinese equities were off just under 3%, but Japan’s Nikkei 225 Composite posted a 1.85% return for the week.
The U.S. Consumer
Preliminary U.S. retail sales rose 1.3% in April vs expectations of 0.8%, marking the fastest growth in over a year. This is good news for the economy and a departure from the mixed reports that were released the beginning of May. Of the areas that contributed most to the rise in spending, autos, gas stations and online retailers were at the top of the pack. It is beginning to appear that the depressed gas prices are starting to make their way into the economy. As is typically the case, consumers will hold onto the windfall of lower gas prices due to its volatility. The extended period of lower prices has consumers ready to spend those dollars, contributing to the positive surprise for April. In addition, economists are hopeful that the increase in wage growth and strong retail sales figures will help boost the U.S. economy in the second half of 2016. Consumer spending accounts for roughly 66% of the U.S. economic output.
Oil
Oil rose last week on temporary supply disruptions across the globe and an increase in global demand. Canadian wildfires and attacks on Nigeria’s oil infrastructure brought global production down 2.5 million barrels-per-day while news broke that global demand was up 1.4 million barrels on a year-over-year basis. Canada’s battle with the massive wildfire shut down nearly 1.4 million barrels-per-day in production while Nigeria’s battle with militants attacking its oil installations effectively cut production from 2.2 million barrels-per-day to 1.65 million barrels, marking a 22-year low for the country. Both the temporary slow-down and the increase in demand were positive pressures on the price of oil, with the price ending the week up more than 3% to close at a little over $46.20 a barrel. This is off roughly 50 cents from its 2016 high last Thursday. Oil has posted a 25% return year-to-date and energy names have benefitted from the rise with the Russell 3000 Energy Sector up 8.16% for the year as well.
A Match Made in Heaven
In mergers and acquisitions news last week, JAB Holdings Co., the parent company of Keurig Green Mountain Coffee, has agreed to purchase Krispy Kreme Doughnuts and take the company private for roughly $1.35 billion. This represents a 25% premium from its close on Friday, May 6. In its prime, Krispy Kreme was trading near $50 a share, but over-expansion and financial trouble caused the shares to plummet, bottoming at just over one dollar a share in 2009. Since then, the doughnut maker has focused on international expansion but that has been plagued by a stronger U.S. dollar over the last few years. JAB Holdings bought Keurig Green Mountain Coffee the end of 2015 for nearly $13.9 billion and has slowly built up a stable of coffee and bagel companies, as well as other household brands.
Fun Story of the Week
Aviation history has been made. For the first time, passengers actually cheered when babies cried on a JetBlue flight from JFK to Long Beach. Every time a baby cried, the airline offered the passengers 25% off their next flight. Four screaming babies meant their next flight was free. The stunt was part of an ad campaign by JetBlue, released just in time for Mother’s Day. While the airline hasn’t confirmed whether the promotion will be featured on any other upcoming flights, JetBlue surely made this particular six-plus hour flight from New York to California a little less stressful on the mothers with babies. Each time a baby would cry, the tell-tale “ding” from the flight attendants would signal the savings. With an hour or so to land, the last baby to cry was met with cheers and smiles rather than sighs and complaints.
GENERAL DISCLOSURE
This newsletter was written and prepared by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings. Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
DJIA
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
NASDAQ COMPOSITE
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
NIKKEI 225 AVERAGE INDEX
The Nikkei 225 Average Index is a Japanese index that tracks the top 225 companies listed on the Tokyo Stock Exchange. It includes the most liquid Japanese stocks listed in the first section of the Tokyo Stock Exchange. It is price-weighted and yen-denominated.
RUSSELL 3000 ENERGY INDEX
The Russell 3000 Energy Index is subset of the Russell 3000 Index and is comprised of companies that are considered to be within the energy sector.
Wall Street Journal, May 2016. http://www.wsj.com/articles/krispy-kreme-to-be-acquired-by-jab-for-1-35-billion-1462798137
Wall Street Journal, May 2016. http://www.wsj.com/articles/u-s-retail-sales-in-april-grow-at-best-pace-in-more-than-a-year-1463142745
CNBC, May 2016. http://www.cnbc.com/2016/05/09/oil-prices-dip-on-brimming-crude-stocks-canada-fires-move-away-from-oil-sands.html
CNBC, May 2016. http://www.cnbc.com/2016/05/09/oil-prices-dip-on-brimming-crude-stocks-canada-fires-move-away-from-oil-sands.html
CNBC, May 2016. http://www.cnbc.com/2016/05/10/us-markets.html
Financial Times, May 2016. http://www.ft.com/intl/cms/s/0/baef5a06-17a5-11e6-bb7d-ee563a5a1cc1.html#axzz48YJSWFtD
Fox News, May 2016. http://www.foxnews.com/travel/2016/05/04/when-babies-cried-on-jetblue-flight-passengers-cheered.html?intcmp=hpff
