Political news has turned from tax reform to a government shutdown, but equities persist higher despite ongoing wrangling in Congress. All major averages scored new high ground during the holiday-shortened week rising about 1% overall. Smaller-cap stocks were less inclined, however, with the Russell 2000 up only 0.3%. Virtually all market sectors were in the green led by healthcare and consumer goods, but energy stocks succumbed to a $1.00/bbl. decline in oil prices and trended lower by about 1.4%. Utility stocks were also negative as the 10-year Treasury yield settled at 2.639%, its highest level in three and a half years and closing in on the 30-year bond yield of 2.935%, a possible negative sign for stocks.
The manufacturing sector is doing well, with figures showing strong gains in industrial production and factory usage. These advances followed reports affirming that the pace of manufactured goods has continued from last year’s gains. Such broad participation augurs well for 2018, with a possible advance in GDP growth of 3%. The drop in the corporate tax rate from 35% to 21% – which will boost company profits and possibly lead to an acceleration in wage growth – should also provide support for the economy going forward this year, in both the consumer and the industrial areas. However, growth comes at a price with inflation starting to rise and interest rates likely to follow.
Earnings season has gotten off to a strong start, and the pace of fourth quarter results will step up this week as we hear from Verizon, Kimberly-Clark, Johnson & Johnson, 3M, Intel and Colgate-Palmolive, all with higher earnings from a year ago in the making. Assuming no prolonged government shutdown, stocks may continue to move ahead in the short-run with higher earnings helping to normalize currently high valuations. It’s hard to fight the tape as they say, so investments in good-quality, dividend growing stocks is still the game.
Here is the answer to last week’s trivia question: This week film and camera pioneer Eastman Kodak Co. was up 192%. The speculation is that Kodak announced it will? Be purchased by Japan’s Fuji Film; Introduce a new line of low-cost digital cameras; Use blockchain/digital ledger technology for licensing by photographers; or report sharply higher sales and earnings for the fourth quarter. Answer: Use blockchain/digital ledger technology for licensing by photographers
Today’s Trivia Question: The largest privately held company in the U.S. is? Koch Industries, Mars, Inc., Toys ”R” Us, Inc. or Cargill, Inc.