The financial crisis in Turkey bled into the early part of the week, but not to the extent that most pundits were predicting based on similar outbreaks in Greece, Portugal and Ireland in past years. Better news followed later in the week on reports that the U.S. and China will begin some kind trade negotiations and a possible meeting of top officials at the White House in November. For the week, the Dow Jones Industrials, which are heavily weighted with tariff related companies, gained 356 points or 1.4%. The S&P 500 moved higher by about half of that percentage but is closing in on an all-time high that was set back in January. Telecommunication and utility stocks were the clear winners with respective gains of 3.3% and 2.5%. A weak technology sector, however, led the Nasdaq Composite lower by 0.3%. Transports were strong as oil continues to fall and, thus, energy related names were off by 3.7% on the week – the worst performing group.
The economic fundamentals remain robust as we move toward the second half of the year. Nonetheless, GDP is unlikely to move ahead with the same breakneck speed it did in the second quarter, when growth topped 4%. Slowing gains in employment, manufacturing and industrial production, and a sluggish factory utilization reading in July now suggest that GDP will rise by a still reassuring, but less impressive, 3%, or so for the remainder of 2018. Earnings for the second quarter were solid, although guidance was a bit tempered as trade uncertainties remain center stage. Some of the retail names were strong this week, particularly Nordstrom and Walmart, and a slew of retailers will be reporting this week, which will provide more insight into the state (and outlook) of the consumer.
On Wednesday we will get a third quarter report from Royal Bank of Canada, which is expected to have earned $2.11 per share for the July ending period vs. $1.86 last year. For now, the bulls hold the edge, although as recent volatility suggests, their hold has become more tenuous than it was earlier during this historic market advance. The bull market may well move along, but further gains may be harder to come by as headwinds from trade, emerging markets and higher interest rates persist.
Here is the answer to last week’s trivia question: GEICO is an acronym for the legal name of this giant property and casualty insurance company. The “G” stands for: Government, General, Goodwin or Georgia? Answer: Government Employee Insurance Company, a unit of Berkshire Hathaway.
Today’s Trivia Question: Almond Joy and its sister product Mounds were once produced by the Peter Paul Candy Manufacturing Co. founded in 1919. Today, these two iconic candy bars are made by? Mars, Nestle, Hershey or Mondelez International.