Investors were in a better mood this week despite some choppiness. Equities were up nicely during mid-week, bracketed by Monday and Friday’s triple digit declines. In all, the major market averages were higher by about 2.5%. Small and mid-cap stocks did even better with advances of 4.3%. The Dow Transportation Average also came out of hiding and gained 4% for the week. The stars, however, were in the basic materials sector rewarding investors with a nearly 6% advance and the only group in negative territory were utility stocks, giving back about .5%. Energy names managed to join in despite a $4.45/bbl. drop in crude prices. The final week ended a rather nasty slide for the month of October, which tends to be volatile by historical standards. The Dow Industrial Average was negative by over 5%, the S&P 500 surrendered 7% and the Nasdaq 8.3% for the month.
Economic news this week was quite positive with non-farm payrolls adding 250,000 new jobs, well ahead of expectations; third quarter productivity came in at 2.2%; and wages grew at an annual rate of 3.1% in October, accelerating from September’s 2.8% and hitting a nine-year high. The strong data, however, was greeted with concerns that the Federal Reserve will take the employment and wage growth into consideration for further short-term rate increases later this year and next. A short-lived headline of a breakthrough with China on tariffs failed to hold and took the sail out of Friday’s early gains.
The earning’s season is winding down and results were mostly positive, despite less-than-stellar guidance. We have yet to hear from CVS Health, which will report on Tuesday with expectations of $1.71 per share for the third period vs. $1.50 last year. So, the bulls should gradually retake the reins, with the help of lower valuations and modestly higher dividend yields. On balance, the stock market outlook remains positive and I continue to favor heavy weighting in quality stocks that still have decent value.
Here is the answer to last week’s trivia question: Over the past three years Apple, Inc. has secretly been working on the development of an electric car. What is the code name for the project? iCar, MacWheels, Titan or CarPlay. Answer: Project Titan.
Today’s Trivia Question: The index created by the Chicago Board Options Exchange that measures market risk is called? VIX, Beta Barometer, ARMS or Sentiment Indicator.