Manufacturers leaving China, subscribers leaving Netflix, plus more news
U.S. companies are looking outside of China for manufacturing in response to ongoing trade disputes. Banks are turning to personal and business loans to drive revenue, and Netflix saw its first subscriber loss in Q2. How can these stories and others impact the market? Read on for details.
U.S. Manufacturers are Moving Operations Outside of China – U.S. corporations have been feeling the effects of the ongoing trade dispute between the U.S. and China. We learned this week that following the tariff increase to 25% in May, many corporations have decided to shift supply chains from China to other countries in Southeast Asia. Popular U.S. brands like Crocs shoes, Yeti coolers, and GoPro cameras are looking to countries like Vietnam, India, and Malaysia to build new factories and fundamentally reshape global supply chains. Most companies undertaking this move have said that these supply chain moves will most likely be permanent, as doing so involves substantially time and financial investment. This trend underscores the slowing growth numbers recently posted from China, which could play into slower than expected global growth rates for 2019.1
Financials Post Strong Earnings on Consumer Lending – The yield curve is “u-shaped,” but for banks it may as well be flat or inverted. With the 30-year U.S. Treasury Bond at 2.57% and the 1-year U.S. Treasury Bond at 1.95%,2 the net interest margin for banks is tight. In these environments, one might reasonably expect Financials not to post stellar earnings. But trends in consumer lending are driving quarterly profits higher at banks like JP Morgan, Wells Fargo, and Citigroup, which are reporting that consumers are taking advantage of low interest rates by borrowing more and driving more business to consumer lending divisions. As trading and investment bank fees stagnate or decline, banks are increasingly turning to personal and business loans to drive revenues.3
Investing is emotional. A bull market can be as exhilarating as a bear market is terrifying (ask any investor who went through 2008). But in our view staying invested is key – since 1926, investors who remained in the market over the long-term came out ahead 99% of the time.4
It’s important to maintain perspective during rough periods so you don’t overreact. If you have $500,000 or more to invest, get our free guide, How to Avoid Emotional Investing. It provides our advice, based on decades of experience, to help you navigate through turbulent times.
The Fate of the USMCA – There has not been much reporting recently on the ‘new NAFTA,’ known as the USMCA. Many people may even believe that the new trade deal is law – but it’s not. All new trade deals must be ratified by Congress, which has yet to approve the new arrangements between the U.S., Mexico, and Canada. U.S. Trade Representative Robert Lighthizer is best known today for his work trying to arrive at a trade deal with China, but when he is not working with Chinese officials, he spends time in the halls of Congress trying to sell the USMCA. Disagreements remain over enforcement provisions for the deal.6
Netflix Loses Subscribers in Q2 – Signal of a Broader Slowdown? – In an anecdotal (and earnings related) sign that the business cycle may be turning over, Netflix reported this week that its total number of subscribers actually declined in Q2, the first time that’s happened in nearly a decade. Netflix said it lost 130,000 domestic subscribers in the quarter, which could be a sign of economic slowdown or evidence of long-term growth challenges that face the company as competition grows fiercer from rivals like Hulu, Disney, Comcast, and Apple. Netflix remains king of the space with 60.1 million U.S. subscribers and 91.5 million globally, but growing pains could weigh on the company and the stock looking ahead.7
No matter how these stories unfold, it is impossible to control the highs and lows of market. But there are ways you can manage the highs and lows of your own emotions and stay focused on your long-term goals.
In our view, staying invested is key – since 1926, investors who remained in the market over the long-term came out ahead 99% of the time.8
If you have $500,000 or more to invest, get our free guide, How To Avoid Emotional Investing.9 It provides our advice, based on decades of experience, to help you navigate through turbulent times.
2 U.S. Department of the Treasury, July 17, 2019. https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
3 The Wall Street Journal, July 16, 2019. https://www.wsj.com/articles/consumer-lending-powers-big-bank-earnings-upstaging-wall-street-11563301446?mod=djem10point
4 Source: Morningstar Direct, 12/31/18. Analysis is performed by looking at the rolling monthly return periods for the S&P 500 Index over the 1-month, 3-month, 1-year, 5-year, 10-year and 15-year to determine if the total return of the index was positive. Respective percentages were calculated off of the number of periods that the index was positive out of the entire history of the data set from 1926-2018.
5 ZIM may amend or rescind the “How To Avoid Emotional Investing” guide for any reason and at ZIM’s discretion.
6 The Wall Street Journal, July 17, 2019. https://www.wsj.com/articles/lighthizer-charms-congress-but-struggles-to-sell-usmca-11563355920
7 The Wall Street Journal, July 17, 2019. https://www.wsj.com/articles/netflixs-new-subscriptions-fall-short-in-latest-quarter-11563395753?mod=djem10point
8 Source: Morningstar Direct, 12/31/18. Analysis is performed by looking at the rolling monthly return periods for the S&P 500 Index over the 1-month, 3-month, 1-year, 5-year, 10-year and 15-year to determine if the total return of the index was positive. Respective percentages were calculated off of the number of periods that the index was positive out of the entire history of the data set from 1926-2018.
9 ZIM may amend or rescind the “How To Avoid Emotional Investing” guide for any reason and at ZIM’s discretion.
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