Equities paused this week, as wrangling between the House and Senate’s tax bills continue. A lot had been priced in to the market that significant tax relief for corporations would be finalized by the end of the year. The Senate version has a tax reduction for companies tabled until 2019 and patience by traders is waning. Nonetheless, stocks recovered from intra-day losses during the week to settle down only slightly. The Dow Industrials gave back 0.5%, while the NASDAQ and S&P 500 indexes were lower by 0.2%. I am still troubled by the lack of market participation by the transports, which shed 2.6% as averaged by the Dow Transportation indicator. Elsewhere, stocks were mostly mixed sector-wise with energy rebounding 1.3% on higher crude prices and consumer goods gained an equal amount on average. In the minus column, telecom was again the goat with a decline of 1.4% following termination of talks between T-Mobile and Sprint and the Department of Justice voicing concerns over the AT&T – Time Warner merger. Financials were targeted as well, as delays in a positive tax outcome will be a negative for the group.
Not much news on the economic front this past week. However, should mortgage interest deductions and local property taxes be eliminated or reduced, it will put a damper on housing starts and home sales and possibly cause a ripple effect for the economy. Consumer confidence remains high, which is a positive for retail in the upcoming holiday-heavy fourth quarter. Some bellwether names in this space will be reporting this week, including Home Depot, Best Buy, Wal-Mart and Target. We will also get a reading on Applied Materials’ fourth quarter with estimates of $0.91 per share vs. $0.69 a year ago.
Challenges remain for the economy and valuations for stocks are extended. But equities still have appeal, especially in today’s low-interest-rate environment, where attractive alternatives are hard to find. I therefore remain cautiously optimistic on the outlook for the market and suggest investors focus on high-quality names with growing dividends and ample dividend payout ratios that also have well-defined profit and market prospects.
Here is the answer to last week’s trivia question: What U.S. company is the largest broiler chicken producer? Tyson Foods, Pilgrim’s Pride, Sanderson Farms, Perdue. Answer: Frank from New Jersey had the correct answer -Tyson Foods.
Today’s Trivia Question: Major U.S. air carrier TWA (formally Trans World Airlines), founded in 1921 was ultimately taken over in 2001 by? Delta Air Lines, Continental Airlines, American Airlines or United Airlines.