Markets "In a Nutshell" for September 11, 2018Sep 11, 2018
Investment Week at a Glance
Stocks dropped last week. The Dow Jones Industrial average lost 0.2% while the S&P 500 fell 1.0%. The New York Stock Exchange Composite (2,000 stocks) dropped 0.8%. The “average investor’s index” (Value Line index) slipped 1.4% and foreign stocks (DJ Global ex U.S.) fell 2.8%. Bond yields were up as the 10 year Treasury ended 2.94%. (Data sources: Barron’s Financial, Wall Street Journal)
The U.S. economic expansion rolls on
More good news for workers as the U.S. Labor Dept reported that workers wages increased 2.9% in the 12 months ended August 31st, the largest gain since mid 2009. There were also 210,000 new jobs created in August as the jobs expansion entered its record 95th month (nearly 8 years).Rising wages mean more money in our pockets which gets spent on goods and services. So how much longer can the economic expansion go? Most economists are not concerned yet although they are watching wage growth closely. Rising wages eventually can cause higher inflation, higher interest rates and a slowing economy.
What’s wrong with the foreign stock markets?
While the U.S. stock markets have enjoyed gains this year (anywhere from 1% to 7% depending on which index you look at), foreign markets have suffered losses with the DJ Global Stock index ex US down 8.1%. Why the difference? Well for one European economic growth rates are about half the U.S. (2.2% annual GDP vs. 4.2% U.S. GDP). Also the corporate profit picture looks much better in the U.S. And finally, momentum is a factor. As the U.S. stock markets go up, more money flows in to the U.S. However, as valuations are much more attractive in the foreign markets (lower p/e ratios), it still makes sense to have some allocation to foreign stock markets.
Value stocks at 17 year low (vs. growth stocks)
It’s a tough time to be a value investor (value investors look for undervalued companies that are selling at discounted prices). While the high flying growth stocks (ie Amazon, Apple, Netflix) have been the darlings of the market this year, stocks in the value sectors (such as energy and materials) have been pounded. So much so that the difference between growth and value stock returns is the biggest since 2001. While this may continue for some time longer, such large differences have always corrected themselves with value stocks making strong recoveries.
According to the Federal Housing Finance Agency, which state had the biggest increase in housing values (at 17%) in the 12 months ended 6/30/18? a. Nevada b. Ohio c. Florida d. California ...Answer is below…
Have a good week!
Answer to quiz: