Markets "In a Nutshell" for October 30, 2018Oct 30, 2018
Investment Week at a Glance
Stocks finished lower for the week. The Dow Jones Industrial Average was down 2.97%, the S&P 500 fell 3.94%, the New York Stock Exchange Composite (2,000 stocks) was down 3.86% and the average investors index (Value Line Index) was down 4.05%. Foreign stocks (DJ Global ex U.S.) were down 3.78%. Bond prices were higher for the week, pushing the yield on the 10-year U.S. Treasury down 12 basis points to finish the week at 3.08%. (Data sources: Barron’s Financial, Wall Street Journal)
Stock Selloff Continues
Domestic equity markets sold off last week reacting severely to disappointing forward outlooks and earnings reports from a handful of higher profile companies. Moving past the negative headlines, underlying corporate earnings still appear to be strong with growth of about 20% over last year. While the level of market volatility we are currently experiencing can be unnerving, it is important to put it in the context of more broad market performance. The S&P 500 has fallen nearly 10% from its 2018 high but is still in the positive by about 4% in the last 12 months.
With earnings season well underway, last week was extremely busy with 37% of the companies that make up the S&P 500 reporting. McDonalds, Tesla, and Ford all surprised investors with positive reports but it wasn’t enough to offset Amazon and Google’s slowdown in revenue growth, despite reporting earnings that’s exceeded expectations. By week end, the S&P 500 as a whole had earnings that grew by approximately 23% from the year prior.
Last Friday, the Commerce Department released its initial estimate that GDP grew at an annualized rate of 3.5% in Q3, outpacing expectations and well above the 2% trend in more recent years. Despite this positive development, domestic equity market volatility increased the demand for safe haven U.S. Treasuries and pushed the yield on the 10-year lower last week. Remember, bond yields and bond prices have an inverse relationship, as yields fall the prices of bonds rise.
Collectible items occasional become “manias” as buyers hope the latest fad becomes extremely valuable. In the 1990’s there was a short lived version of this cycle, what was the item?
a) Tickle Me Elmo
d) Beanie Babies
Have a good week.
Answer to quiz:
d) Beanie Babies – People bought these stuffed toys as investments as some predicted that the rare Beanie Babies would see their value increase by 8,000% over the next decade. Fast forward to today….they basically have no resale value at all.