Stocks swung wildly this past week with one percent intra-day moves taking the major averages down for the third straight week. The big worry was tumbling bond yields as the 10-year Treasury yield traded as low as 1.47% on Thursday, its lowest level since 2016, while the 30-year bond yield dropped below 2% for the first time ever. What’s more, the yield of the 10-year note fell below that of the two-year. The yield inversion spooked markets with fears of an impending recession. The Dow ended off 1.5% for the week to close at 25,886. The S&P500 fell 1% and the Nasdaq by nearly 0.8%. Small and mid-caps were also weak. Declining stocks outpaced advances by 3 to 2 and more stocks hit new 52-week lows than new highs. Virtually all market sectors were in the red led by energy names lower by 3.8%. However, safe-haven telecom and utilities stocks were positive, and gold closed the week above $1,512/oz.
We can blame the pessimism these past few weeks on factors ranging from lackluster guidance about future results to plunging bond yields to the continuing trade war with China to concerns about slowing global growth. According to FactSet, consensus estimates imply a 3% year-to-year decline in the S&P 1500’s per-share profits in the third quarter. Turmoil in Hong Kong and economic contraction in Germany added to the woes. The seas are less turbulent here at home, where the economy continues to press forward, if unevenly; the Federal Reserve appears accommodative on fully supporting the business upturn; and second quarter earnings have largely exceeding expectations.
Clearly, the last few weeks have been unsettling, but as this long bull market has shown, panic selling on market declines has been ill considered. Thus, investors should exercise persistence in their equity market strategy with higher-quality names that pay dividends well covered by increasing cash flows.
Here is the answer to last week’s trivia question: Publicly traded Equifax, Inc. and Trans Union LLC compete to collect and maintain consumer credit information on most U.S. consumers. What is the third major consumer-based credit bureau? Dunn & Bradstreet, Moody’s, Experian or First Data Corp. Answer: Dublin, Ireland-based Experian plc, a unit of aerospace and automobile parts manufacture TRW until it was sold in 1996.
Today’s Trivia Question: The official rental car company of the PGA is? Avis, National, Hertz or Alamo.