Damn, What Should We Do Now?

If you’re one of the 150 million-plus investors in America and telling people today’s massive sell-off is “not a big deal” you would be considered a big fat liar.  Everyone is impacted, and the economic headwinds the country is suddenly facing means the violent volatility and market slide is likely to continue well into the fall season.

First, the ongoing trade dispute is clearly an issue, which causes all us to place any macro data out of China under the proverbial microscope.  For instance, released at 6:00am NYT today, Wall Street was provided with China’s industrial output number.  The weaker-than-expected print slowed to 4.8 percent in July from a year earlier, the weakest growth in 17 years.

In addition, we received information on Germany’s negative GDP number, which raised the risk that Europe’s largest economy is on the verge of falling into a recession.  According to CNBC, the “Euro zone GDP grew by just 0.2 percent quarter-on-quarter, a significant slowdown from the 0.4 percent growth in the fourth quarter.”

Second, on the domestic front, the quarterly earnings numbers from Macy’s (NYSE: M) were horrific.  The 160-year old retailer still hasn’t figured out the Achilles’ heel of retailing: inventory control.  According to YahooFinance, Macy’s “blamed a bigger-than-expected decline in tourist spending along with weak demand for its own-brand women’s sportswear and for warm weather apparel” for the earnings miss.

Customers who ask Macy’s sales associates if a specific item “is in the back” should feel confident that it actually is.

Adding to the pessimism, the inverted 2/10 Treasury yield is suggesting a recession is on the horizon, which turned out to be the exclamation point for today’s perfect storm.

Wall Street likes to connect the dots when forecasting fiscal events; and when China gives us bad news and our largest retailer does the same, the compounding effect takes place in a traders’ psyche and the end result is a slide to the downside.  The problem is it seems the entire world is slowing down, and this is the scary scenario for investors.

Image result for female shopper at macys

So everyone wants to know what to do.  As Wellington & Co.’s Ian Cooper mentioned this morning, “after a yield inversion, investors push into utilities for safety, as demand for electricity and gas remain a steady need.  In addition, stocks like these offer higher dividends and cash flow.”

Despite the Dow Jones Utility Average (INDEXDJX: DJU) giving up 0.85 percent today, it was minor in comparison to the Dow’s 3.05 percent decline.

Cooper suggested investors take a look at Duke Energy (NYSE: DUK) because of its healthy 4.26 percent dividend yield, and Dominion Energy (NYSE: D) due to its 4.87 percent dividend.

For those in New York, my suggestion is for investors to review National Grid (NYSE: NGG).  The Northeastern utility pays an eye-popping 6.13 percent dividend.

As of this time, the President sent a Tweet about having a “personal meeting” with China’s Xi over the Hong Kong crisis just as the country fixed its daily yuan midpoint at 7.0268, which was much weaker than expected.  Dow futures are +0.25 percent in the evening session.

Stay tuned for tomorrow…

 

By: Todd M. Schoenberger of Wellington & Co. Hedge Fund Research and Author of No Lie Lives Forever

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