Guest: Dryden Pence, Pence Wealth Management, CIO
Topic: Market Monitor
Pence’s Market Outlook
A good economy and a bad market don’t coexist for long. Even though December closed as the third worst month for stocks in the last 15 years, economic growth in 2018 is expected to have been a decade high. Today’s jobs report came in way ahead of expectations at 312,000 jobs and puts the economy at 33 consecutive quarters of job gains. Since the recession, the US economy has created about 20 million new jobs. At $60k GDP per capita that means an estimated $1.2 trillion in new income.
The unemployment rate rose on two separate occasions last year because of people re-entering the workforce due to rising wages and good job prospects. Wage increases are at decade highs, the labor participation rate increased from 62.9% to 63.1% which is the highest level since 2014. This signals continued strength in the US economy, of which roughly 2/3rds of total output is the US consumer. Americans spent $850 billion at Christmas this year, the highest growth in 6 years. Both Cyber Monday and Black Friday were historical records growing by at least 20%. In short more people are working, and making more money, than ever before.
Pence’s Stock Picks
The continued rise of online shopping
E-Commerce in the United States has been growing at around 15% a year since 2009, roughly 4x faster than sales growth at traditional brick and mortars. According to a 2018 NPR/Marist poll, today 69% of Americans classify themselves and online shoppers, and 43% purchase items online at least once a month. 49% of respondents stated they start their product search on Amazon.
The $5.7 billion in interest income Apple received over the last 12 months alone would make Apple the 153rd largest company in the S&P 500 by sales.
Additionally, Apple’s transition to a services style business has created a behemoth. The segment generated $37 billion in revenue last year and is expected to hit $50 billion by FY2020. This is a number larger than the combined revenue of Adobe, Salesforce and Netflix, which is largely recurring revenue that carries high margin.
In Fiscal 2018, Visa processed more than $11 trillion worldwide in transaction volume on Visa branded cards, and Visa has a roughly 60% market share of total transaction volume in both the United States and Europe.
In the United States, the combination of Debit and Credit is the most frequently used payment instrument across all age groups according to the Federal Reserve.
The company has grown revenue at an around 10% rate and is expected to continue at that growth rate.
Disclosures: Pence owns AMZN, AAPL & V personally and for clients