Coffee Anyone? – Amidst all the negative rumblings about China’s slowdown and potential impact it might have on the global economy, it’s easy to forget how powerful the rise of the consumer and the middle class is there. A good anecdote for just how powerful this force is – and will become – comes from a recent announcement by Starbucks (SBUX).
CEO Howard Schultz sees China as the most attractive emerging market as consumers switch to coffee from tea. Schultz has a goal of opening 500 stores every year until 2021, which is not something a consumer discretionary company would do if the outlook for consumer spending were bleak.
Crude Still Searching for the Low – oil prices remain the media’s focal point for explaining where the downside volatility is coming from, and this week was no different. Futures for Brent crude hit a 12-year low this week, priced at a discount to U.S. West Texas Intermediate. The key word is and has been “supply glut,” which shows no sign of reversing. In fact, the opposite may be true as supply potentially stands to increase further. With the Iran sanctions being lifted very soon (assuming all goes well with the nuclear check-ups), Iranian exports could add even more supply to an already flooded market. With no signs of a big spurt of demand, that could keep downward pressure on prices for the foreseeable future. Consumers and resource-intensive companies (like transportation) should reap the benefits of lower energy and gas prices. That should trickle through as a positive to economic growth, ultimately.
GE Moves to Boston – after a storied run in Connecticut, GE is parting ways to head to Boston. GE outgrew their facilities in Connecticut and also had some run-ins with policy makers there who were making it harder for the company to justify staying. Goes to show how pro versus anti-business policies can influence where a company headquarters, California being another example that has lost big companies (and the economic benefits they provide) due to high tax rates.
Another Challenging Week for Equities – selling pressures continued across the world and in the U.S. this week as the crazed volatility in China persisted and crude prices tiptoe towards the $20’s. As of this writing, the S&P 500 is down over 2% on the day, which pushes the S&P 500 back into correction territory from its early November highs. We’ve written before that the market sometimes likes to retest correction lows, and we are just about in that vicinity now. For many investors, anxieties are rising and the warning bells are going off with some tempted to sell. We would advise against making hasty decisions based on fear of downside volatility here – market corrections are normal, healthy features of bull markets and it has been sometime (since 2011) since we experienced one in earnest. The fundamental outlook for the U.S. economy and corporate earnings remains constructive and, if anything in our opinion, the downside volatility can present attractive buying opportunities.