It was a week of incongruities. Equities moved higher despite the ten-year Treasury note reaching 3.068% and the dollar oddly rose. While the Dow Jones Industrials gained 2.25%, the Nasdaq Composite gave back 0.3%. Two opposing market groups: High flying technology and stodgy utilities joined hands for a rare twin performance and were the only two sectors that were in the red for the week. And despite increasing tariffs on China, the Shanghai Composite rose 4.3% helping to send the iShares MSCI Emerging Markets exchange traded fund up 3%. Elsewhere, basic material stocks and energy related plays were strong, helping the S&P 500 to a new record high. Speaking of which, cannabis stocks – and their related tracking ETF’s – are becoming the new Bitcoin craze with 50% week-to-week swings.
But the market does not always follow the rule book and traders appear to be torn between what is good for stocks and what may cause a pullback. Indeed, the economy has the wind to its back and earnings continue to improve. Interest rates, however, are on the rise and inflation may take some of the luster off equities. As we enter the fourth quarter, we are seeing some slippage in exports, lesser improvement in manufacturing output and a flattening in retail spending. U.S. housing starts rose some 9% in August, but housing permits fell suggesting a possible slowdown ahead. And although GDP will hover around 3%, a tight labor market, trade tensions and a postponement in capital spending may take the wind out of the bull’s sails. Finally, though valuations are reasonable, they are far from cheap. So . . .
. . . round and round we go. On balance, I think the investment picture is still sufficiently bright for most investors who want to stay the course. Thus a carefully selected package of high-quality, value-centric equities that pay increasingly growing dividends should deliver decent total returns over time.
Here is the answer to last week’s trivia question: During the financial crisis of 2008, JPMorgan Chase bailed out investment banker Bear Stearns. What commercial bank did Chase also save? The Bank of New York, Great Western Financial, First Federal Bank of California or Washington Mutual Bank. Answer: Washington Mutual, the largest bank failure in U.S. history.
This Week’s Trivia Question: General Motors was initially formed in 1908 with its Buick Brand. The company went on to acquire other car manufactures to form the world’s largest auto company of its time. What was the last car brand added to the company’s line? Pontiac, Chevrolet, Cadillac or Oldsmobile.