It was another rocky road for stocks this holiday-shortened week, with daily triple digit gains and losses in the Dow Industrials, culminating in a 348-point/1.4% rise on Friday. For the week, all major averages ended higher with the Dow adding 0.4%, the S&P 500 gaining nearly 0.6% and the NASDAQ posting a 1.4% gain with technology stocks – higher by 2% – providing much of the catalyst. Sector-wise, basic material stocks joined tech posting a 1.5% advance and energy moved ahead by 1.1%, as crude oil tacked on $1.87/bbl. to settle at $63.55. Interest-sensitive telecom stocks, however, surrendered 2.2%.
Shares of bellwether retailer Walmart sent the market into a tailspin on Tuesday. A disappointing earnings report overshadowed decent fourth quarter sales figures, where the mix reflected lower margins. Further, e-commerce sales were disappointing, and management’s outlook was less-than encouraging, thus shaking market sentiment for the all-important consumer discretionary sector. After the Federal Reserve released minutes from its January rate-setting meeting, the Dow reversed gains by 467 points on Wednesday. The Fed cited optimism about economic growth and, hence, more expectations of rate hikes. The 10-year Treasury yield spiked to 2.945% during the week.
Interest rates show no signs of easing and a move past 3% is likely. Economic growth and modestly higher inflation combine to raise the cost of capital, proving problematic for stocks, but probably not on a grand enough scale to end the bull market. Although further gains, and even a full retracement of the recent correction are possible, the market’s appearance of invulnerability has been shaken. As such, care in equity selection continues to be warranted at this time.
Here is the answer to last week’s trivia question: Over the past year, inflation has averaged 2.1%, led by the energy sector at 9% and vehicle insurance of 8.5%. The laggard of negative 5.1% was attributed to? Healthcare, airline fares, food or consumer staples. Answer: Airline fares.
Today’s Trivia Question: The price-weighted Dow Jones Industrial Average is calculated by adding the price of the 30 covered stocks and dividing by? 30, 97.85302, 300 or 0.4523396877348.