You wouldn’t know by this week’s wild ride, but the Dow and the S&P 500 were little changed on the week, each lower by about one-half of one percent. However, the Dow Industrials had four triple-digit day gains and losses in the holiday-shortened week to include two three-hundred point moves on Tuesday and Wednesday. The NASDAQ enjoyed a 1.6% return. First it was news of a financial crisis in Italy that turned out to be less of an event than originally perceived and, thus, markets reversed on Wednesday. More tariff threats on Thursday sent the average down nearly 256 points followed by a better-than-expected job’s report of Friday, reversing much of the previous day’s decline.
So, here again, headline news is taking over prudent investment judgement, as traders try to position themselves for the worst or best to come for the economy and, eventually, for stocks. The turmoil affected some sectors more than others with technology repeating last week’s strong leg up and energy stocks – despite a 3% drop in crude oil – advanced 2.5%, on average. A bump in health care names were offset by similar losses in financials and telecoms, while all other sectors broke even. For the first five months of the year, the S&P 500 is up about 2.3%, much of which has been driven by some of the so-called FAANG stocks that alone make up about an eighth in the cap-weighted index. But with a tepid start to the year, valuations are more reasonable at 16.5 times estimated 2018 full-year earnings compared to 18.2 in January. Should the market continue to move sideways as earnings improve, a late-year rally may be in the cards.
Going forward, the recent standoff between the bulls and the bears, and the resultant range-bound trading, will probably persist for a while. But best not time the market at this point (or anytime for that matter) and a strategy of a well-positioned, diversified portfolio of dividend-paying domestic and foreign stocks that will appreciate with earnings and cash flow, continues to remain a prudent plan.
Here is the answer to last week’s trivia question: Which of the following companies is NOT using the NASDAQ as their primary trading platform? CSX Corp., Automatic Data Processing, Inc., International Game Technology or PepsiCo. Answer: International Game Technology. The other three companies moved their listings from the New York Stock Exchange: ADP in 2008, CSX in 2015 and PepsiCo in 2017.
Today’s Trivia Question: Harley-Davidson was one of the early pioneers of the modern-day motorcycle. It produced its first commercial motorbike in Milwaukee, Wisconsin in what year? 1899, 1905, 1919 or 1924.