This week was all about interest rates, putting the favorable earning’s picture on the back burner. The ten-year Treasury yield shot up to 2.96% at week’s end, threatening a possible inverted yield curve on the horizon. The Federal Reserve is only able to adjust short-term rates and the yield on the long bond is sending signals of a possible recession ahead. Thus, equities are being spooked and reactive to headline news about the future of the economy. However, data showing a rebound in retail sales, surprisingly strong figures for housing starts and building permits, and increases in industrial production, while reassuring, are having little impact on trading.
For the week, the major averages were positive by about 1%, but the Dow was negative three out of five sessions, with increased pessimism showing its ugly head late in the week. Consumer staple stocks were the hardest hit, led by shares in tobacco companies that kept a lid on the rest of the sector falling 4.4% as a group. Oil prices are continuing to rise, with another $1.00/bbl. gain for the week, thus energy and energy-related issues did well climbing nearly 2.75%. Despite higher fuel costs ahead, transportation stocks were able to score a 2% gain. In summary: Earnings for the rest of the year look solid, especially for financials and industrials; short-term interest rates will continue to climb with at least two more hikes this year; and international firestorms in Syria and North Korea, Russian sanctions and import tariffs with China continue to fuel the fire of skeptics.
With such uncertainty, positive returns for stocks are hardly assured. But with the economic and profit fundamentals still quite compelling, the case for stocks remains reasonably strong. This week we will hear from some consumer names such as Kimberly-Clark with per share earnings estimated at $1.69 compared to last year’s $1.57. Then 3M will report ($2.50 vs. $2.16) followed by Verizon ($1.10 vs. $0.95), Intel ($0.72 compared to $0.66), UPS ($1.55 vs. $1.32) and consumer brands company Colgate-Palmolive at $0.72 as compared to $0.67.
Here is the answer to last week’s trivia question: Fremont, California’s Electronics for Imaging, Inc. is primarily engaged in the manufacture of? Office copying machines, industrial printing solutions, 3D printing equipment or digital photography products. Answer: Industrial printing solutions for packaging, ceramics and large-scale signage.
Today’s Trivia Question; Ketchup king H.J. Heinz Co. – now a part of The Kraft Heinz Co. – can trace its roots back to 1869. The company’s first product was? Horseradish, Mustard, Pickles or Brown (Steak) Sauce.