Today’s big market news was that China decided to abruptly devalue their currency with the biggest move in over twenty years. In recent years, China has been trying to move toward a model of growth via consumption and away from a reliance on external investment. Part of this has been the move toward a more free-market currency policy. Moving toward this new economy takes a long time, and given recent economic weakness in China, they decided to take a step back and devalue their currency to help strengthen their economy. This decision rippled through the financial markets, contributing to a one percent loss in the U.S. stock market. Many well-known stocks with Chinese or commodity exposure were down significantly more than the overall market. On paper, this currency move should be good for safe-haven and defensive assets, and bad for commodity prices and stocks with Chinese exposure. At the simplest level, it makes goods and services originating in China cheaper and makes things made elsewhere more expensive for people in China.
Year To Date Returns
Now that we have entered the third quarter, I thought it might be interesting to look back at the performance of different market sectors. Year to date, the S&P 500 is roughly flat and the typical (median) stock is down about one percent. On a sector basis, as you can see below, the market has been quite bifurcated. Investors who have been heavily invested in healthcare or consumer staples have likely outperformed while investors in industrials, utilities, energy and telecom have underperformed. Considering the variance in sector returns, I would expect to see a fair amount of dispersion between active managers on a year-to-date basis.
On June 30th, there will be a leap second. Scientists need to do this every so often to syncronize atomic clocks with the slowing rotation of the earth. Some clocks will read 11:59:59 twice, others will read 11:59:60 and others still will smear the leap, as they call it. This seems simple enough, but last time this happened, Mozilla, Reddit, LinkedIn and other sites all reported crashes. In Australia, 400 flights were grounded due to a Qantas Airlines software crash.
As far as the markets go, this will be the first time in the electronic age that this will have been done during the week. It is happening at night time here, but apparently we are closing our afterhours trading early. In Asia, most systems are smearing the leap second by slightly adjusting each second in the day leading up to the event. A second doesn’t seem like much, but there are now computer trading systems that can react in as little as one-millionth of a second.
In one second:
Yesterday, I mentioned that dividend paying stocks have been a bit weak most recently and that it is possible that rising interest rates might be a headwind for these stocks. I received some responses from people mentioning specific high-quality names that they like, regardless of interest rate movements. I thought it would be interesting to look back to see what a group of “blue-chip” stocks has done over the last twenty years, which is presumably a long-term period for most investors. I used the Dow as a simple representation of what people think of as being “blue-chip”. The worst of these stocks, DuPont, still turned $1 into $4 and returned 7.1% on an annualized basis. Apple, which is clearly an anomaly, turned $1 into $88 and achieved a 25% annualized return. Of course there is a bias in this list, since they occasionally replace the losers with winners. Is your favorite long-term holding on this list? Does it rank higher or lower than you expected over the past twenty years?