In this week’s news, growth emerged as an overall pattern in the market. Amazon continues to dominate markets as they dip their toes into the “home” brand market, Japan strives to create an environment for growth, while Goldman Sachs overtakes Chevron and Exxon Mobil. Read on to get all the inside details in this week’s investing news…
Amazon’s Quest for World Domination Continues – one day they’re heading into space, the next they’re testing drone deliveries, and still the next they are rolling out their own line of private brands. It seems as though CEO, Jeff Bezos, is convinced there isn’t any market Amazon can’t successfully enter. In a strategy designed to boost margins, Amazon is releasing ‘home’ brands for sale out of its own inventory. They’re starting out with everyday items like vitamins, coffee, laundry detergent, diapers, and spices, with brand names like Happy Belly and Mama Bear. It was also revealed this week that Amazon is dipping its toe into the food delivery business, entering direct competition with outfits like Grubhub (whose stock went down nearly 10% on the news).
The Problem with Goldman’s Equity Outlook – Goldman Sachs recently released an update to its equity outlook for 2016, and in the bank’s opinion things have soured. It rated its outlook for stocks as “neutral” over the next 12 months, adding that they don’t see any particular reason to own them. One of the quotes from the report said that, “until we see sustained signals of growth recovery, we do not feel comfortable taking equity risk, particularly as valuations are near peak levels.” There are two problems we see with this outlook. Number one is that they’re not actually calling for a recession, and they’re not bearish—they just see limited upside. But, it is our belief at Zacks Investment Management that the longer you own stocks, the better off you will be over time. History backs us up on that. And, absent a recession, stocks almost always go up. So, why bet against stocks when the economy is still expanding? It doesn’t make sense in our view. Number two is that Goldman is not ready to be bullish again on stocks “until [they] see sustained signals of growth recovery.” Our issue there is that stocks are leading indicators—they tend to rise in advance of growth. So, by the time Goldman sees the signals it’s waiting for, it will probably already be too late.
Is the Rising Sun (Japan) Back on the Horizon? – Japan has struggled over the last couple of years to create sustained growth and inflation despite extraordinary monetary policy measures. The goal has been to achieve 2% inflation with growth—a goal that has eluded Japan ever since the monetary policy program began (called “Abenomics”). But, Japan saw signs of light in Q1, as increases in government spending and consumer spending bumped GDP by a solid 1.7%. The growth rate exceeded all forecasts and marked Japan’s fastest growth rate in a year. We wouldn’t go betting on Japan just yet, though. One data point doesn’t make this a trend, and with an aging population and debt-to-GDP at close to 300%, we think there are major structural battles ahead.
Your Natural Gas Dealer is an…..Investment Bank? – in more Goldman Sachs news, it was reported this week that they have officially overtaken Chevron and Exxon Mobil to become one of the biggest natural gas merchants in North America. You might be very confused by this factoid. What the heck is Goldman doing in the natural gas business? The reality is that it is actually quite common for the biggest banks to have a stake in the commodities business, as part of their broader diversified portfolio of assets. Other banks have recently shunned or shrunk exposure to natural gas in the wake of depressed prices, but Goldman is holding strong. Last year they reportedly bought and sold 1.2T cubic feet of physical gas in the U.S.—equal to 1/4th of the country’s residential consumption.