The Dow Jones Industrial Average hit a new record early in the week, but finished virtually flat after surrendering 381 points on the last two trading days. The S&P 500 gave back nearly one percent for the week and the Nasdaq Composite tumbled over 3%. Consumer discretionary names and technology were the hardest hit sectors. Consumer service stocks were down nearly 4% and technology fell 2.5% on average. Gold climbed above $1,200/oz. and West Texas oil settled at $74.34/bbl. Brent crude now trades at a four-year high of $86.09 helping shares of energy companies by adding 1.3% in value, second only to telecom stocks at 1.8%
The pullback in equities was triggered by a jump in the 10-year Treasury yield, which spiked to its highest level since May of 2011 at 3.227%, up by a 0.171 percentage-point. The yield hike was quite sudden in the wake of a favorable ADP employment report on Thursday and a twenty-one year high from a survey of business conditions by the Institute for Supply Management of non-manufacturing firms. It was followed on Friday by a Bureau of Labor Statistics report of a 3.7% unemployment rate, the lowest level since 1969. As often seen, what is good for Main Street may not always be good for Wall Street. The robust economy, higher gasoline prices and rising wages are signaling more inflation ahead and putting pressure on the Federal Reserve to be less accommodative. While one more rate hike is expected in December, next year can see quite a few more increases; worrying investors that the economy may slow, and stocks will follow.
Third quarter earning’s season is about to begin and – for the most part – reports should be positive. Down the road, however, comparisons to a strong 2018 are going to be hard to match. Thursday we will hear from Delta Air Lines, which may have felt some pressures from the September hurricane in the company’s important southeastern business as well as higher fuel costs, but estimates are still for $1.76 vs. $1.57 per share a year ago. And Friday, some of the big money-center banks will report including JPMorgan Chase with estimates of $2.26 per share vs. $1.76 last year. Despite interest headwinds and trade concerns, I believe the bulls will remain in charge for the time being, given the solid fundamentals for the economy. But the road ahead may be bumpy at times.
Equity markets will be open on Monday, but the U.S. Bond Market will be closed in observance of Columbus Day. Enjoy the holiday.
Here is the answer to last week’s trivia question: The largest selling prescription drug in the U.S. is Humira for the treatment of rheumatoid arthritis, Chron’s disease, psoriasis and other indications. The drug is manufactured and sold by what pharmaceutical company? AbbVie, Pfizer, GlaxoSmithKline or Merck. Answer: AbbVie (formerly the legacy pharmaceutical division of Abbott Laboratories).
Today’s Trivia Question: Amazon.com, in its ongoing pursuit for disruption of long-running industries, entered the grocery store business by buying Whole Foods in 2017. Whole Foods unsuccessfully tried to buy what other grocery store chain in 2007? SuperValu, Food Lion, Waldbaum’s or Wild Oats Markets.