Stocks were down across the board this past week, as geopolitical tensions between the United States and North Korea weighed heavily on investors’ minds. However, considering all the rhetoric and threats, the markets were quite resilient and Friday saw a modest reversal to Thursday’s steep selloff. The retreat was probably well needed, as equities are at record highs with virtually no volatility. While the Dow was negative by 1%, the S&P 500 and the NASDAQ moved lower by about 1.5%. Small and mid-cap stocks were particularly hard hit giving up nearly 3%. And all sectors were in the red, led by the more volatile financial, energy and basic material stocks. Traders headed for safety and consumer staples and utilities were the least of the negative bunch. Treasuries were also sought after and safe-haven gold rose nearly $30 to a two-month high.
The economy remains positive with a few starts and stops along the way. For example, factory orders are at an eight-month high; manufacturing is showing resilience; and exports are rising again. However, growth in non-manufacturing is slowing; the slump in auto sales is now seven months long and counting; and personal income is flattening out. This uneven pattern suggests that current-half GDP growth will vary little from the 2.6% increase in the second quarter and, thus, inflation should remain low.
Second quarter earnings season is mostly behind us and was respectable in most regards except for brick-and-mortar retail. A few more reports from retailers are on tap for this week including aggressive choice Foot Locker, which will do well to match last year’s $0.94 per share. The July retail sales report will come out on Wednesday. We will also hear from Deere & Co. with Street estimates of $1.91 vs. $1.55. With geopolitical risks looming and valuations stretched, investments in higher-quality, dividend paying stocks appears to be the most prudent strategy.
Here is the answer to last week’s trivia question: The “40” in the WD-40 Co. brand represents the fortieth attempt to perfect the iconic lubricating formula. What does the “WD” stand for? Will-Do, Wilmer Dawson, Water Displacement or Wear Detraction. Answer: Water Displacement.
Today’s Trivia Question: The ticker symbol DOOR is attributed to what NYSE listed company? Avon Products, Masonite International, Domino’s Pizza or ADT.