Back from an extended European vacation, there was literally nothing good to write home about over the past three weeks. Investors are still on the sidelines regarding trade issues, as no resolution is in sight and tensions continue to escalate. Since I last reported a weekly update, the Dow Industrial Average has declined 3.5% and the S&P 500 has given back over 4%. The tech-heavy Nasdaq has performed even worse with a loss over the past three weeks of 6.5%. For the past five trading sessions, the Dow was negative by 0.7% and the S&P 500 in the red by 1.2%. The Nasdaq, however, was lower to the tune of 2.3%, as technology was one of the worst performing sectors. Adding to the negative trading mood was a nearly seven percent drop in the price of West Texas crude as supply overshadowed anemic demand. Thus, energy stocks felt the brunt of this week’s selling with an average 3.7% retreat. On the positive side, safe-haven telecom, utilities and health care stocks were higher by 2%, 1.5% and 1%, respectively.
Looking back over the first five months of the year: The long economic expansion has been consistent, if uninspiring; inflation has been muted; interest rates have stayed low; and profit growth has been steady. If this backdrop has been consistent, it also has been unexciting. But that is likely what has helped the stock market fashion an unprecedented decade-long joyride. Now, the question is where do we go from here? The stock market, with a price-earnings multiple of around 17 is certainly not cheap. However, with the fundamentals still supportive, that is with the economy projected to continue growing modestly (especially if we see a lessening in global trade tensions), with inflation likely to remain under control, and with the Federal Reserve seemingly on board with accommodative interest-rate policies, the market is not overly expensive either.
While equities may drift lower in the short-term on headline news, the longer-term trend is still positive for now. I am maintaining a prudent approach to holding on to positions in high-quality, dividend names with solid growth potential.
The U.S. stock and bond markets will be closed on Monday in observance of Memorial Day. Enjoy the rest of the three-day weekend.
Here is the answer to “last week’s” trivia question: The official freight carrier of Major League Baseball is? Old Dominion Freight, J.B. Hunt Transport Services, Heartland Express or Knight-Swift Transportation. Answer: Old Dominion Freight.
Today’s Trivia Question: Japan’s Sony Corporation’s entertainment business includes music, television and which major motion picture studio? Twentieth Century Fox, Paramount, Columbia or Universal.