June 5, 2019

Good morning!

The stock market’s run of 4 straight “up” months ended last week as the trade battle that has dominated headlines expanded to another country.  The S&P 500 dropped 6.4% in May (total return), making the index’s +10.7% YTD performance less than satisfying.  The latest threatened tariffs – directed at Mexico – are to be implemented in just 1 week (5% on June 10) and could increase fivefold to 25% in 4 months on October 1.  American corporations that have shifted manufacturing plants to Mexico are at the greatest risk.  These companies make their products in Mexico – benefiting from lower labor costs – and then import the goods into the US for sale to American consumers, a transaction that would be subject to the new 5% tariff (source: BTN Research).           

When stock owners become stock sellers, many of those investors become bond buyers.  The surge of money coming to Treasury notes (10-year paper) and bonds (30-year paper) last month drove sovereign debt prices up and yields down.  The yield on the 10-year Treasury note dropped from 2.50% to 2.13%, resulting in a +3.1% price increase and the yield on the 30-year Treasury bond dropped from 2.93% to 2.57%, resulting in a +7.2% price increase (source: Treasury Department).         

The price of oil fell more than $10 a barrel in May – from $63.91 to $53.50 – as oil traders evaluate the possible impact of proposed tariffs on the global economy.  Slowing economies would mean a reduced demand for crude oil.  Ironically, US oil producers reported last week production of 12.3 million barrels a day of crude – the largest weekly total in US history (source: Department of Energy).       

Notable Numbers for the Week:

1.     DECLINING RATE - Of individual tax returns filed in calendar year 2010, 1.11% were audited or 1 out of every 91 returns.  Since then, the audit rate has fallen for 7 consecutive years to 0.59% for individual tax returns filed in calendar year 2017, equal to 1 out of every 169 returns (source: IRS Data Book). 

2.     THIS IS THE MONTH - The month of June has had the greatest number of existing homes sold during each of the last 5 calendar years (2014-2018).  570,000 existing homes were sold in June 2018, an average of 19,000 a day nationwide (source: National Association of Realtors). 

3.     IT’S A JOB - An estimated 40% of this year’s college graduates will be “underemployed” with their 1st job, i.e., they will take a job for which they are academically overqualified (source: Strada Institute).    

4.     POTUS - The 2020 presidential election takes place on 11/03/20 or 17 months from today.  23 Democrats have announced their run for the White House, including 6 women and 17 men (source: New York Times). 

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