The Dow Industrials, as well as the other major averages, gave back about 4.5% this past week. Investors continue to fret over the yield curve, as the two-year Treasury note yields more than that of the five-year note, known as an inverted yield curve. While these two benchmarks are not a usual predictor of bad times ahead, the overall flattening of the short-term and long-term yields is more troubling to traders. Although the U.S. and China are in a ninety-day hiatus from invoking cross-trade tariffs, investors are not optimistic about a meaningful resolution. Hence, trade dependent industrials, basic material stocks and financials all tumbled around 5.5%. Small and mid-cap stocks were even harder hit with declines in the 5.5% range. And the Dow Transport Average was negative by a whopping 8%, thanks in part to a strengthening in oil prices as well as a potential slowdown in the economy. The only sector in the green was safe-haven utility stocks that bucked the trend gaining 1.3%, on average.
While the economy continues to hum along, Wall Street is looking to 2019 where earnings comparisons will be difficult to match, and world-wide economies are slowing. Here at home, housing starts are waning as interest rates rise and auto sales are beginning to ebb. The consumer is still in charge, however, with more tax-reduced earnings in their pockets. But Saudi Arabia and non-OPEC member Russia agreed to a deal to stabilize oil prices ahead of the OPEC meeting in Vienna, and higher gasoline prices may take some of the wind out of consumers’ sails. So . . .
. . .the stock market’s resilience is being tested. A more dovish Federal Reserve and signs of a possible breakthrough in our trade relations with China briefly lifted spirits on Wall Street. Nonetheless, worries about getting a long-term deal and concerns about the pace of domestic economic growth brought on renewed selling late in the week. As for a catalyst, there needs to be more constructive news from the Fed on next year’s monetary policy and meaningful progress on trade to move equity markets higher as we approach year-end. Caution remains prudent during these turbulent times.
Here is the answer to last week’s trivia question: What do the following brands have in common: Hidden Valley Ranch, Burt’s Bees, Kingsford Charcoal and Liquid-Plumr? Made in Mexico, products of The Clorox Co., privately held or no longer available at dollar stores. Answer: All are product brands of The Clorox Company.
This Week’s Trivia Question: In 1914, Greyhound Bus Lines was founded in Hibbing, Minnesota. From 1987 to 1998, the company’s operations were controlled by? Soap maker Dial Corp., The U.S. Department of Transportation, Amalgamated Transit Union or National Trailways Bus System.