Wall Street continued its winning ways this week closing in on an all-time high. Specifically, the Dow Industrials ended the week at 18,004, up 0.6% and within one-percent of the peak set back in May of last year. Despite a selloff late in the week led by technology, the S&P 500 was higher by 0.5%, but the tech-heavy NASDAQ fell short with a loss of 0.7%. Market sectors were split with energy stocks moving higher by an impressive 5.5% as oil prices rose 8% to close at $43.73/bbl. Healthcare, basic materials and financials also saw up arrows, which was offset by weakness in utilities, technology, telecom and consumer goods. On the earnings front, reports were not all that bad and companies reported equal to or higher than beaten down analysts’ forecasts, but revenues (think growth) on average were mostly lower than expected. There are just so much costs companies can take out of their operations and, while stock buybacks helped per share results, they cannot prosper without top-line improvement.
Stock price valuations are the conundrum with analysts arguing both sides of the 17 times current price earnings ratio. A recent Barron’s poll showed that 26% of money managers believe stocks are overvalued, 12% feel they are undervalued and 62% are on the fence. Historically, the current valuation is not bad, in my opinion, but if sales and earnings continue to stagnate or trend lower, lower valuations will follow bringing down stock prices.
Looking to the week ahead, the Federal Reserve Open Market Committee meets on Wednesday with the odds favoring an interest rate freeze, but comments following the meeting may shake both fixed income and equity markets. As for earnings’ news, 3M Co. reports on Tuesday with estimates of $1.93 per share compared to $1.95 a year ago. Later in the week we will hear from Gilead Sciences ($3.09 vs. $2.94); Dow Chemical ($0.82 vs. $0.84); United Parcel Service ($1.22/$1.12); and Colgate-Palmolive estimated to have earned $0.63 per share vs. first quarter 2015 of $0.66. Through it all, the bull market perseveres and the outlook for equities is reasonably bright.
Here is the answer to last week’s trivia question; Petroleum jelly and other skin care products sold under the Vaseline name, was once owned by? Eastman Kodak, General Tire & Rubber, J.M. Smucker’s or Standard Oil Company? Answer: From 1908 until 1911, Cheseborough Manufacturing Co. that invented Vaseline was owned by the Standard Oil Co. Cheseborough eventually merged with Ponds in 1955 creating Cheseborough-Ponds, and their products are now owned by Anglo-Dutch conglomerate Uniliver.
Today’s Trivia Question: The International Monetary Fund (IMF) is part of? The United Nations, The G-7, The World Bank or the Federal Reserve.