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October 2019

September is behind us and what a month it was!! Sept 30 marked the end of the 3rd quarter, the 3rd straight quarter the S&P 500 and Dow Jones Industrial Average posted gains. Year to date, the DJIA is up 15.51% and the S&P 500 is up 18.77% while Ames Capital Management is up 21.53%. May it continue!!

The Federal Reserve cut interest rates by a quarter point Sept 18 and may reduce further when the Fed meets Oct 29-30 and Dec 10-11, their final two meetings of the year. The yield on the 10 Year US Treasury dipped to 1.43% on Sept 3, its lowest yield in 2019. The yield on the 10 Year US Treasury ended @ 1.67% Sept 30 and could very well move lower as 2019 winds down. Amazingly, there is $17 trillion of sovereign debt with a negative yield around the world!!

September may have marked a turning point in the IPO market. A number of high profile IPOs have faded well below their issue price while other offerings were shelved due to weak demand including WeWork and Endeavor Holdings. Uber, Lyft and Peloton all went public even though they were unprofitable and likely to remain so for years to come. Beyond Meat, best performing IPO of 2019, fell over 40% from its peak in July and it remains unprofitable. Another IPO which investors soured on is SmileDirectClub. It became the first US IPO in three years to price above its target range and close down on its first trading day last month, as per Renaissance Capital.

Now that October has arrived, we will be receiving numerous earnings reports as the quarterly earnings season gets underway. With the major markets near all time highs, it is imperative that companies report strong earnings to keep the rally going. Earnings and earnings growth are the main drivers of share prices. As we have seen, relying on book value can distort a company’s true value. Marketwatch.com, a Dow Jones publication, reported on Sept 13 that a study found that 84% of the S&P 500’s market capitalization now comes from intangible assets, compared to 17% in 1975.

October may also turn out to be an important month on the international front as well. China and the US are set to meet Oct 10 to resume negotiations on their trade dispute. Justin Trudeau, the Prime Minister of Canada, faces a difficult reelection bid when Canada holds its election Oct 21. Mario Draghi will retire as President of the European Central Bank at the end of October and will be succeeded by Christine LaGarde, former Chair of the International Monetary Fund. Brexit may finally arrive in the UK if the European Union member nations do not unanimously agree to another extension by Oct 31.

My weekly radio show airs each Friday at 12.30PM EST on WWPR 1490 AM. The show can also be heard live on the station’s website (www.1490wwpr.com). My prior radio shows and newspaper columns are available here.

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