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Weekly Market Recap: Dec. 2, 2019

The week in review

  • New home sales at 733k
  • Consumer confidence at 125.5
  • Trade in goods deficit at $66.5bn
  • 2nd est. 3Q19 GDP rose 2.1% q/q saar
  • Durable goods orders rose 0.6% m/m
  • PCE/Core PCE rose 1.3% y/y/1.6% y/y

The week ahead

  • Markit/ISM mfg. & services PMIs
  • Cons. sentiment & employment situation
  • Motor vehicle sales

Thought of the week

One component of the Tax Cuts and Jobs Act (TCJA) was a one-time tax repatriation “holiday,” which allowed companies to bring home foreign profits at a favorable tax rate. The question, from an investor standpoint, was how companies would use this repatriated cash in conjunction with larger profits stemming from a lower tax rate. So far, companies have repatriated roughly $740bn and made an additional ~$186bn in earnings due to a lower tax rate from 1Q18-3Q19. While dividends, capital expenditures, mergers and acquisitions (M&A), wages and debt repayment saw modest increases, as shown in this week’s chart, stock buybacks were the primary beneficiary of this extra cash. But why focus on buybacks? There are a number of reasons: the uncertainty created by U.S.-China trade tensions made capital spending less attractive, the timing of buyback programs is flexible (i.e. there is no definitive schedule that must be adhered to) and buybacks improve company metrics such as earnings per share (EPS) and return on equity (ROE). However, as the benefits from tax reform fade, we expect the S&P 500 buyback yield to approach its long-run average of 3%. As such, a slower pace of buybacks should not only drag on EPS growth going forward, but also simultaneously lead to increased volatility as corporations provide less explicit support for equity markets.

S&P 500 sector returns

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Past performance does not guarantee future results.

Diversification does not guarantee investment returns and does not eliminate the risk of loss.

Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

The price of equity securities may rise or fall because of changes in the broad market or changes in a company’s financial condition, sometimes rapidly or unpredictably. International investing involves a greater degree of risk and increased volatility. There is no guarantee that companies that can issue dividends will declare, continue to pay, or increase dividends. Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage.

JPMorgan Distribution Services, Inc., member of FINRA.

J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. Those businesses include, but are not limited to, J.P. Morgan Investment Management Inc., Security Capital Research & Management Incorporated and J.P. Morgan Alternative Asset Management, Inc. and JPMorgan Asset Management (Canada) Inc.

©JPMorgan Chase & Co., December 2019

Unless otherwise stated, all data is as of December 2, 2019 or as of most recently available.

Disclosure: J.P. Morgan

Past performance does not guarantee future results.

Diversification does not guarantee investment returns and does not eliminate the risk of loss.

Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

The price of equity securities may rise or fall because of changes in the broad market or changes in a company’s financial condition, sometimes rapidly or unpredictably. International investing involves a greater degree of risk and increased volatility. There is no guarantee that companies that can issue dividends will declare, continue to pay, or increase dividends. Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage.

JPMorgan Distribution Services, Inc., member of FINRA.

J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. Those businesses include, but are not limited to, J.P. Morgan Investment Management Inc., Security Capital Research & Management Incorporated and J.P. Morgan Alternative Asset Management, Inc. and JPMorgan Asset Management (Canada) Inc.

 

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