Stocks surged following the results of the midterm elections, that came in pretty much as predicted. And the Federal Reserve – also as expected – left interest rates unchanged for now. The Dow Industrials rose a robust 2.8% for the week, thanks to a 545-point gain in the average on Wednesday. The S&P 500 advanced 2.13% and the Nasdaq Composite Index edged higher by less that 0.7%, as high-flying growth stocks continued to slump. Crude oil prices retreated by $3.16/bbl. to settle on Friday below $60. So, energy stocks were mostly lower for the week, but consumer staple names like Proctor & Gamble, Kimberly Clark and Colgate-Palmolive saw some strong bidding as the group slowly recovers.
The economy is continuing to press ahead strongly. Not only has the labor picture brightened but exports are climbing again, and non-manufacturing data remains on an irregular upward path. Current thinking is for a continued solid showing, with GDP growth likely averaging 2.5%-3.0% in the current quarter and for much of next year. After standing pat last week, the Federal Reserve will most likely resume raising interest rates with the next increase probably coming at the December FOMC meeting. That would be the fourth hike this year and presumably followed by as many as three increases in 2019.
The bulls are again fully engaged, having made a nice recovery from the reversals of October on upbeat earnings, solid business fundamentals and some relief that the divisive midterm elections are over. More earnings are ahead this week, namely Applied Materials estimated to have made $0.97 per share vs. $0.93 in the fourth quarter of last year. And Cisco Systems will report for the first quarter of fiscal 2019 with a consensus of $0.72/share compared to $0.61. In conclusion: I think the backdrop for the economy and equities remains sufficiently positive for investors to stay in the game.
Here is the answer to last week’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. Answer: VIX or the Volatility Index.
Today’s Trivia Question: In 2010, Google made an offer to buy what then private company for nearly $6 billion, but was turned down? Snap, GoPro, Fitbit or Groupon.