“In this business if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.” -Peter Lynch

1. Index Funds Had More Assets by Value Than Stock-Picking Rivals — Funds that track broad U.S. equity indexes hit $4.27 trillion in assets as of Aug. 31, giving them more money than stock-picking rivals for the first-ever monthly reporting period. Funds that try to beat the market had $4.25 trillion as of that date. In the past decade, $1.32 trillion fled actively managed U.S. equity mutual funds and exchange-traded funds as nearly $1.36 trillion was added to low-cost funds that mimic market indexes. That shift lowered the price of investing for individuals, reduced the influence of stock pickers and turned a handful of Wall Street outsiders into the biggest power brokers in the industry.
2. General Motors Factory Workers Headed to Picket Lines in 10 States — the United Auto Workers union called on thousands of workers to walk off the job in an effort to secure better pay, more job security and other benefits. The walkout is one of the largest private-sector work stoppages in decades. The UAW further announced it will pay striking workers $250 a week, but that does not go very far, especially when they need to cover their own health insurance. GM’s credit rating could also topple into junk bond status if the strike lasts more than a week or two, according to Moody’s.
3. S.Korea Downgrades Japan Trade Status — South Korea is following through with plans to drop Japan from a list of countries receiving fast-track approvals in trade, a reaction to a similar move by Tokyo to downgrade Seoul’s trade status. The dispute between the nations began in July when Japan imposed tighter export controls on three chemicals South Korean companies use to produce semiconductors and displays for smartphones and TVs, which are major import items for South Korea. The escalating row is rooted in wartime history and could cast uncertainty into the global supply chain and economy.
4. The Federal Reserve Cut Its Benchmark Interest Rate — the Federal Reserve cut its benchmark interest rate by a quarter-percentage point for the second time in two months, as Chairman Jerome Powell left the door open to more cuts. Three officials voted against the decision, with two saying rates should have been left unchanged, and one supporting a bigger cut. Mr. Powell repeatedly cited the costs of rising trade-policy uncertainty.
5. NY Fed to Conduct Third Repo Operation — the New York Fed is offering an overnight repurchase agreement operation for the third day in a row, injecting $75B into a vital corner of finance to restore order in the banking system. The temporary liquidity follows the Fed’s reduction in the interest rate on excess reserves, or IOER, another attempt to quell money-market stresses. The prior operations have soothed markets, with repo rates declining Wednesday to more normal levels after jumping to 10% on Tuesday, four times where they were last week.
6. Pentagon Weighs Sending More Military Assets to Mideast — President Trump is weighing responses to the attacks on Saudi oil facilities, and U.S. military officials are considering sending more antimissile batteries, a squadron of jet fighters and added surveillance capabilities, as well as possibly committing an aircraft carrier and other warships to the region.

The week ahead — Economic data from Econoday.com:

“Trading doesn’t just reveal your character, it also builds it if you stay in the game long enough.” — Unknown

1. Apple’s Unveiled New Products at Fall Event — the tech giant stucks with its three-device approach to its new iPhone lineup, rolling out a trio of devices in the iPhone 11 family featuring Apple’s A13 chip, which Apple says is the fastest ever to be in a smartphone. The cheapest of these three devices, the iPhone 11, has a dual-camera design that supports ultrawide shots and night-mode capabilities for low-light situations. The front-facing camera allows users to take slow-motion selfies, which Apple calls “slofies.” . The big surprise came when Apple (AAPL) revealed that it would charge $4.99 a month for its previously announced streaming video service, Apple TV+, which is now set to launch on Nov. 1. That price was lower than the $9.99 monthly fee that some analysts and reports had expected before the event, and it makes Apple’s offering cheaper than streaming services from Netflix Inc.
2. More Deaths Linked to Vaping, CDC Warns — three more deaths linked to vaping have been reported in Indiana, California and Minnesota, bringing the total number of such U.S. deaths to five. Some type of chemical irritation is likely associated with the illnesses, but more information is needed to determine the exact cause. U.S. health officials are now investigating more than 450 cases of possible vaping-related illnesses in 33 states, while last week, the governor of Michigan announced the state will become the first to ban flavored e-cigarettes. President Trump said the U.S. plans to pull most vaping products from the market. citing growing concerns about health hazards and rising use by teenagers of the alternative to cigarettes. The Food and Drug Administration intends to ban popular fruity flavors, as well as menthol and mint e-cigarettes, from stores and online sellers, leaving just tobacco-flavored products. The move poses a major threat to a fast-growing industry estimated to reach $9 billion in sales this year and dominated by startup Juul Labs.
3. Trump to Delay Tariffs on China by Two Weeks — President Trump said the U.S. will delay by two weeks a planned increase in tariffs on some Chinese imports, a move that could ease chilled relations between the two nations ahead of planned trade talks in Washington next month. The planned tariff increases were to cover largely nonconsumer items—materials businesses use to produce goods—with the levy going from 25% to 30%. In response, China’s Commerce Ministry said that it welcomed the postponement and that Chinese companies had started making price inquiries for U.S. agricultural goods including soybeans and pork. Beijing suspended purchases of the U.S. products in August. Ministry spokesman Gao Feng said that the possible resumption of agricultural products isn’t a bargaining chip in trade talks.
4. ECB Cuts Rates and Launches Sweeping Stimulus Package — the European Central Bank cut its key interest rate and launched a sweeping package of bond purchases Thursday that lays the ground work for what is likely to be a long period of ultraloose monetary policy, jolting European financial markets. Mr. Trump said the ECB was “trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports.” The ECB joins central banks around the world, including the Federal Reserve, that have been cutting interest rates in recent weeks amid a bitter trade dispute between the U.S. and China, a fall in trade volumes and a slowdown in global growth. Second-quarter figures released Thursday by the Organization for Economic Cooperation and Development showed year-to-year economic growth in the Group of 20 leading economies was at its weakest since the start of 2013.
5. AAII’s weekly Sentiment — The percentage of investors reporting as bullish in AAII’s weekly survey rose from 28.64% last week up to 33.13%. That is the highest since August 1st when 38.44% reported bullish sentiment. With two consecutive weeks of improvements, bullish sentiment is now well off of its lows from the second week of August (21.66%) and is back within a normal range relative to its historical average of 38%.

Meanwhile, bearish sentiment is now the lowest that it has been since the first week of August. With bearish sentiment falling 8.26 percentage points this week to 31.25%, it was the largest drop since June 13th’s 8.38-percentage point decline.

The week ahead — Economic data from Econoday.com:

“One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute” – William Feather

1. Trade War Between the U.S. and China Rippling Effect — new U.S. tariffs on clothing and other imports from China that went into effect Sunday are expected to hit consumers. President Trump has since told U.S. companies to look for alternatives to China. A round of retaliatory Chinese tariffs has now also taken effect, targeting imports of U.S. soybeans, crude oil and pharmaceuticals. It is crimping growth in Asian industrial giants such as Japan and South Korea and hitting factories as far from the front line as Germany. Global industrial production fell in the three months through June, as did trade flows, and a series of surveys of manufacturing companies in Asia and Europe suggests a rebound is unlikely over the coming months.
2. U.S., China Agree to Renew Trade Talks — China’s Ministry of Commerce says leaders of the U.S. and Chinese trade talks held a phone call and agreed to meet early next month in Washington, D.C., for another round of negotiations. Deputy-level officials will work together in mid-September to lay the groundwork for the meeting. On a related note, the markets already expect the Fed to cut interest rates modestly at the Sept. 17-18 policy meeting. Investors place a 90% probability on a quarter-percentage-point rate cut and a 10% probability on a larger, half-point cut, according to CME Group.
3. Apple Returns to Bond Market— taking advantage of the steep decline in benchmark interest rates, Apple (NASDAQ:AAPL) is joining U.S. companies including Deere (NYSE:DE) and Disney (NYSE:DIS) by launching its first bond deal since 2017 and selling $7B of debt. All three companies issued 30-year bonds with yields below 3%, a first for the corporate debt market. Bonds issued by big-name corporations give investors a relatively safe alternative that still pays more than government bonds.
4. Argentina Imposes Currency Controls — The spiraling economic crisis in Argentina has prompted the central bank to slap capital controls on businesses as the peso lost more than a quarter of its value since primary elections last month. Exporters will face limits of five days to repatriate foreign currency, while institutions will need authorization of the bank to buy dollars in the forex market, except in the case of foreign trade. The decision reverses one of the first big achievements of President Macri who removed strict capital controls after taking power in December 2015 (the restrictions had prompted the MSCI index to strip Argentina of its status as an emerging market, demoting it to a frontier market).

The week ahead — Economic data from Econoday.com:

“Michael Marcus taught me one other thing that is absolutely critical: You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best judgment, being wrong, making your next best judgment, being wrong, making your third best judgment, and then doubling your money.” – Bruce Kovner

1. Cigarette makers Philip Morris International and Altria Group Are in Advanced Talks to Merge — the potential blockbuster deal would reunite two tobacco giants struggling with shrinking demand. The two companies split in 2008 but hold the same portfolio of cigarettes, including Marlboro. The products are sold by Altria in the U.S. and Philip Morris elsewhere. A combination would create a company with a market value of roughly $200 billion.
2. Judge Ordered Johnson & Johnson Must Pay $572 Million for the Opioid-Addiction Crisis in Oklahoma — Judge Thad Balkman said the state proved the company launched a misleading marketing campaign to convince the public that opioids posed little addiction risk and were appropriate to treat a range of chronic pain. The verdict caps the first opioid case to go to trial among thousands brought by state and local municipalities and could signal further findings of liability for drug companies facing similar cases. The three major drug wholesalers – McKesson (NYSE:MCK), AmerisourceBergen (NYSE:ABC) and Cardinal Health (NYSE:CAH) – should see some action now that J&J’s exposure is clarified.
3. Impossible Whopper Goes on Sale Nationwide — Burger King (NYSE:QSR) will bring the Impossible Whopper to all of its 7,200 U.S. locations today after a successful test run in seven markets. The nation’s second-largest burger chain began testing the plant-based burger from Impossible Foods at locations in St. Louis in April. Those outlets saw traffic outperform national averages by 18.5% that month, according to a report from inMarket.
4. Retailer Forever 21 Weighs Bankruptcy Filing — things are getting harder in the retail landscape as Forever 21 reportedly considers filing for bankruptcy, in a move that could put pressure on mall owners Simon Property Group (NYSE:SPG) and Brookfield Property Partners (NASDAQ:BPY). Struggles also saw Hudson’s Bay (OTCPK:HBAYF) offload Lord & Taylor on Wednesday to clothing rental startup Le Tote for $100M. Not everything is so bleak, however, as sneaker retailer Puma (OTCPK:PUMSY) opened its first U.S. flagship store today on the corner of Fifth Avenue and 49th Street in Manhattan.
5. Florida Braces for Hurricane Dorian — Hurricane Dorian is strengthening and is forecast to hit Florida as a Category 4 storm during the busy Labor Day weekend, becoming the first major hurricane to hit the area in 15 years. American Airlines (NASDAQ:AAL) and Southwest (NYSE:LUV) are allowing travelers to change their Florida flights without fees ahead of the storm, potentially weighing on the carriers which have weathered a difficult summer. Some of the nation’s largest investor-owned hospitals are also gathering supplies in preparation, including Tenet Healthcare (NYSE:THC), HCA Healthcare (NYSE:HCA) and Universal Health Services (NYSE:UHS). There’s additional concern for insurers and orange juice farmers, while the oil industry watches if the storm will pass into the Gulf of Mexico.
6. S&P calls ‘default’ in Argentina — Argentina’s decision to “unilaterally” extend maturities on its short-term debt constitutes a “default,” according to Standard & Poor’s, which slashed the country’s long-term foreign and local currency issue ratings to CCC – “vulnerable to nonpayment.” The downgrade came after Argentine bond prices fell and country risk soared to levels not seen since 2005 on Thursday amid fears of a full-blown financial crisis.

The week ahead — Economic data from Econoday.com: