Weekly Market Digest: A CFP®’s Take on the Potential Purdue Pharma Settlement

This week markets continued their volatility on the back of increasing tensions between the US and China, with additional tariffs going into effect the day before Labor Day.

Despite continued volatility, equity markets clawed back some gains from last week’s close with US Markets and foreign markets posting positive returns.

One substantial market focus this week was asset correlation in the month of August. This month, there has been an unusual amount asset class correlation, where varying assets such as stocks, bonds, and commodities have moved in similar directions on trading days. Typically, investors expect to see each asset class perform somewhat uniquely with any given shift in the markets, so the recent mirroring has some investors raising their eyebrows.

Weekly Returns

S&P 500: 2927 (2.8%)
FTSE All-World ex-US(VEU): (2.2%)
US 10 Year Treasury Yield: 1.50% (-2.34%)
Gold: $1,523.74 (-0.2%)
EUR/USD: 1.099 (-1.4%)

Major Events

  • Monday – Over the weekend, President Trump attended the G-7 Summit where the focus reportedly remained on the United State’s Trade War with China and tensions with Iran. Little came of the meetings other than a reaffirmation of political stances by G-7 country leaders.
  • Monday – Also over the weekend Andrew Luck – the 29 year old quarterback for the Indianapolis Colts, surprised with his retirement from the NFL.
  • Tuesday – A former Fed President went on record stating that the Fed should consider making a political shift in its communication and actions to positively impact the US economy. Traditionally the Fed separates itself from politics and focuses on other means of driving economic impact.
  • Tuesday – Peloton Interactive Inc. applied to list its shares on the Nasdaq as PTON.
  • Wednesday – The FBI searched several locations tied to high-profile United Auto Worker’s representatives, expanding an investigation into corruption.
  • Thursday – News on the recently resurrected IPO of Saudi Arabia’s Aramco surfaces that Japan’s stock market may be used for the international portion of an offering, skirting other countries exchanges that would have been expected.
  • Friday – Campbell Soup Co. jumped over 6% on Friday on earnings thanks to soup and snack sales. Larger food companies in the US have struggled recently as consumer taste has changed around what have traditionally been considered staple brands.

Our Take

This week, news of a potential settlement plan by Purdue Pharma surfaced, intended to resolve over 2,000 lawsuits related to OxyContin and opioid addiction in the United States. The proposed settlement which has yet to be agreed to, is a creative solution that may benefit all involved.

The settlement would have the company file for bankruptcy, restricting further claims from being submitted against it. Upon exiting bankruptcy, Purdue would be run by a group of Trustees as a public-benefit corporation, no longer owned by the Sackler Family. Future proceeds from the sale of OxyContin, along with a $3 billion payment by the Sackler’s, would be used to fund programs to combat and assist with opioid addiction.

Naturally there are a range of opinions on whether or not this is a good deal for those involved. However, the concept of completely ceding ownership, and delivering future profits to solely benefit addiction while still providing a valuable product to those in severe physical pain, is an interesting one. While it’s unfortunate to see what the series of events were that caused Purdue to come to this potential solution, it does raise the question of whether other companies will or should get ahead of these types of issues more proactively in the future.

Those who feel companies should get ahead of these types of issues proactively, or should avoid them altogether, might be interested in a portfolio that’s focused more heavily on the social impact of their business. Of course, a socially responsible portfolio can’t avoid any and all controversies. But it can help reduce them while allowing individuals to vote with their investment dollars, choosing to support companies doing a better job managing environmental, social, and governance issues. It is one reason Personal Capital offers a Socially Responsible portfolio option.

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