Triple-digit moves in the Dow Industrials this holiday-shortened week ended with a net gain of 1.6%, after a strong payrolls report and some constructive trade rumors helped lift stocks. The S&P 500 was 1.9% to the better and the Nasdaq composite index gained 2.3%, as we start the new year on a positive note. Oil prices firmed to settle at $47.96/bbl. with a $2.63/bbl. weekly advance sending energy stocks to the top of the sector performance list at an average gain of 5.3%. In fact, all sectors had up arrows including names in the telecom space as well as consumer services.
As mentioned, job growth surged in December as non-farm payrolls increased by 312,000 – well above expectations. GDP will likely to have gained close to 3% in 2018, but there are the usual headwinds spooking traders: Some choppy economic data, including a pull-back in consumer confidence and lesser gains in personal income and consumer spending; a possible prolonged government shutdown; no final resolution on the trade front with China; and a potential slowdown in the world economy. However, overall economic fundamentals and corporate profits remain largely supportive. So, assuming no major missteps by the Federal Reserve and at least a partial meeting of the minds in a politically charged Washington, the investment backdrop should slowly become more welcoming.
The recent fourth-quarter selloff likely was overdone, but the retreat in equity prices has taken some of the froth out of the market as valuations are now more in line with expectations. Therefore, better investment opportunities should exist going forward if investors are willing to take a long-term view. Strong free-cash flows should also lead to additional share buybacks and dividend hikes. Fourth quarter earnings season will shed some light on prospects into 2019. Delta Air Lines, while releasing slightly weaker December results, should report strong final quarter earnings per share of $1.26 on Wednesday compared to $0.96 last year. Overall, the market may struggle to head higher, but will likely retain the ability to do so.
Here is the answer to last week’s trivia question: TRESemmé hair care products are owned by Anglo-Dutch conglomerate Unilever, which acquired the brand from what company? Wyeth Consumer Products, Revlon, Helen of Troy or Alberto-Culver. Answer: Alberto-Culver which was sold to Unilever in 2010 for $3.7 billion
Today’s Trivia Question: How much is car-riding service company Uber likely to be worth following an initial public offering this year? $120 million, $1.2 billion, $12.0 billion or $120 billion.