Stocks moved higher this past week as China removed tariffs on some U.S. imports and the European Central Bank cut interest rates to curb its economic slowdown. The Dow Industrials gained nearly 1.6%, continuing its winning streak from last week. The S&P 500 – closing above 3,000 – was higher by about one percent as was the Nasdaq Composite Index. Value stocks, defined as companies with low price-to-earnings multiples, recovered from multi-year under-performance compared to momentum names. Hence, basic materials and energy stocks were the big winners with respective gains of 4.2% and 3.6%. Except for a small retreat in consumer goods, all market sectors were positive. With better headline news, gold fell below $1,500 to settle at $1,491/oz.
Meanwhile, the economy is performing unevenly as we head into the final quarter of the year. August brought disturbing news on manufacturing, but the service sector saw surprising strength (with less sensitive global trade wind activity), advancing at its best pace since May. At the same time, job growth was mildly disappointing last month, but both the labor-force participation rate and average hourly wages ticked higher, while the jobless rate held near a half-century low. Overseas, however, remains quite uncertain as traders continue to deal with Brexit issues, slowing worldwide growth and a lack of substantive trade war relief. As for interest rates here at home, the Federal Reserve is expected to cut its benchmark rate by a quarter percentage point to a range of 1.75%-2%. That will be the second rate cut of the summer.
Through it all, stocks are setting new records highs, with the reversals of August giving way to smoother sailing thus far in September. Cautious optimism on trade and expectations of lower interest rates to come likely explain traders positive mood. Consequently, investors would be well served by taking a constructive view of the stock market and maintain dividend paying positions with an eye on value.
Here is the answer to last week’s trivia question: United Parcel Service, Inc. was founded 112 years ago in August of 1907. It became a publicly held company in what year? 1922, 1948, 1971 or 1999. Answer: Not until November,1999.
Today’s Trivia Question: These well-known brands – Crisco, Milk-Bone, Knott’s Berry Farm and Folgers – are products of what company? Unilever, J.M. Smucker, Nestle or Procter & Gamble.