Following what can best be called a “truce”, the U.S. and China trade delegations agreed to terms that will temporarily ease tariffs on Chinese imports and resume China’s plan to buy more U.S. agricultural products. The result: Good news for industrial and multi-national stocks doing business in the world’s second largest economy. After a rough start for the week, the Dow Industrial Average gained 668 points on Thursday and Friday before settling back before the weekend. For the last five trading sessions the Dow and the Nasdaq were up about one percent and the S&P 500 was higher by 0.62%. With investors in a better mood, trade sensitive basic materials, technology and industrial names led the gains offset by safe-haven utilities, health care and consumer staples.
Although the economy should muddle through over the next year or two, the margin for error is small enough that the Federal Reserve may vote to reduce interest rates later this month and for a third time in 2019. Additional rate adjustments could follow over the next year, particularly if growth weakens further. The prospect of declining interest rates is helping to appease traders, who might otherwise be unloading equities to find better risk-reward opportunities in fixed income. In fact, the recent volatility in the stock market suggests that the bulls and the bears are in a tie, balancing elevated trade uncertainty and decelerating growth concerns with the good news of falling interest rates and more reasonable price-earnings multiples.
We will now head into third quarter earning’s season, which will bear watching as companies adjust to such uncertain times. This week we will get results from the big money-center banks including aggressive candidate JPMorgan Chase. Other names on the earnings agenda include Johnson & Johnson, east coast rail carrier CSX Corp. and oil service provider Schlumberger. Lower interest rates and stable valuations will carry the day, which is why I believe a committed approach to the stock market is still in order with a bias to selective sectors and companies that can weather the storms ahead.
Here is the answer to last week’s trivia question: Vacancy rates at U.S. retail malls have been rising as online sales continue to cut into foot traffic. In the third quarter, vacancy rates stood at 7.2%, 8.5%, 9.4% or 10.1%? Answer: Frank from New Jersey got it right – 9.4%, the highest level in eight years.
Today’s Trivia Question: Trader Joe’s was founded in Pasadena, California as Pronto Markets back in 1958. Today, Trader Joe’s is operated by what supermarket chain? Ahold Delhaize (Food Lion, Hannaford, etc.), Albertsons, Kroger or Aldi.