After a dismal month of May in which the Dow dropped 6.7%, the month of June has seen the Dow gain over 5% so far. What sparked the May selloff was fears of an economic slowdown but when the Federal Reserve said it was “flexible” in its interest rate policy the markets saw this as a positive and began moving higher. The labor report for May showed much less job creation than expected but the unemployment rate held steady and wages continued to rise indicating the labor market, while mixed, is holding up and continues to drive consumer activity which is 2/3rds of the economy. At the closing bell today, the Dow was up 78 at 26,062 on higher trading volume. The IBD index switched back to “market in rally” mode.
We are back from the annual KMS Conference! It was ok and we were able to remain awake throughout 80% of the meetings. One interesting presentation was about the markets and economy. It featured one guru who thinks the stars are aligned for a recession in early 2020 while the other guru, from Fidelity, begged to differ and said the current environment was experiencing a historically high level of unpredictability and that defensive investment sectors, like bonds and utility stocks, were trading at lofty valuation levels not seen since 1975. Fidelity noted that whenever defensive sectors are this overvalued the material stocks like steel and copper tend to do well and are indicative of a growing economy. Now I just need to figure out which guru is right, and I too could be a guru. One resource that we track here however is siding with Fidelity by noting that conventional economic forecasts during unconventional times tend to misread trends often by wide margins.
It was “Merger Monday” as United Technology or “UTX” announced a deal to purchase Raytheon and Salesforce.com said it will buy out Seattle based Tableau Software. The UTX deal is an all stock merger which will create the second largest aerospace/defense company behind Boeing. The new entity will generate approx. $74 billion in annual revenue. The Salesforce buyout of Tableau is for $15.7 billion and according to Geekwire magazine will allow Salesforce to open its version of HQ2 in Seattle via its Tableau footprint. I called a scout dad who works at Tableau and he said the news was a surprise and was not sure what to make of it other than it might be a land and labor grab by Salesforce. Google had recently tried to get a property developer in Kirkland to break a lease with Tableau so they could take their space and expand.