A small recovery on Friday did little to undue the rout equities took this week. Stocks plunged on Wednesday with the Dow giving up 832 points and continued Thursday with another 546 drop. For the week, the S&P 500 and the Dow Industrials were negative by over 4% and the Nasdaq Composite by nearly as much. Particularly troubling was a 6.4% selloff in the transports – a key economic predictor. Most foreign exchanges saw similar declines underlined by a 7.6% plunge in the Shanghai Composite. And there was no place to hide as all market sectors were in the red with industrial names down 6.6% on average followed by basic material stocks off by 6.2%. Energy and financials followed the momentum and gave back about 5%. Safe-have utilities was the “best” performing group with a 1.4% loss. What are investors concerned about these days? . . .
. . . short-term interest rates and the rise in long-term bonds yields. The ten-year treasury note traded at a seven-year high and closed the week at 3.167% and the thirty-year bond settled at 3.339%. The short-term rate spike stemmed from last Friday’s report showing a jump in average hourly wages in the past year, the issuance of somewhat more hawkish monetary comments by Federal Reserve Chair Jerome Powell and the strong showing in the so-called core rate of the Producer Price Index. Also, the effects of our trade standoff with China are being felt by some industries (autos, building supplies, industrial products, etc.) that rely on inexpensive imported raw materials. The rise in oil prices aren’t helping either, although WTI and Brent crude fell for the week. Still, such concerns may be overblown, as neither interest rates nor inflation seems on the cusp of an extended rise, nor does the Federal Reserve seem ready to abandon its gradual, non-disruptive approach to monetary tightening. On balance, the economy remains strong and third-quarter earnings season should provide some reassurance. This week we get to hear from blog candidates . . .
. . . Johnson & Johnson, east coast rail CSX, medical technology provider Danaher and oil services giant Schlumberger. As to whether we are seeing a short-term pullback, a long-needed correction or the beginning of a bear market, the answer will play out over the next few weeks. In the meantime, we will wade through earning’s reports looking for signs of strength and corporate guidance and watch for new sector leadership. On balance, the investment backdrop is about what one might expect this late in a bull market: Supportive, but with a few wrinkles. So, for now, I would not shift gears, but remain nimble.
Here is the answer to last week’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. Frank from N.J. got it right: Wild Oats. Following a ruling by the FTC, Whole Foods was ordered to sell its stake in Wild Oats in 2009 however, which is now a producer of organic food products and owned by private equity firm Yucaipa.
Today’s Trivia Question: What is the largest U.S. lumber company based on production of board feet of lumber? Georgia-Pacific, Weyerhaeuser, Rayonier or Louisiana-Pacific.