Markets “In a Nutshell” for February 12, 2019

Investment Week at a Glance

Stocks finished mixed for the week. The Dow Jones Industrial Average was up 0.17%, the S&P 500 rose 0.05%, the New York Stock Exchange Composite (2,000 stocks) was down 0.30% and the average investors index (Value Line Index) was down 0.22%.  Foreign stocks (DJ Global ex U.S.) were down 1.32%.  Bond prices were higher for the week, pushing the yield on the 10-year U.S. Treasury down 6 basis points to finish the week at 2.63%.  (Data sources: Wall Street Journal)

U.S. stocks on longest positive streak since November 2017

U.S. stocks have continued their climb higher after the tumultuous December and have notched a 7th consecutive weekly gain, the longest such streak since November 2017. This is despite the same unresolved, negative headlines that dragged the market down into a bear market last year: global growth slowdown and China trade concerns. U.S. 4th quarter corporate earnings results have come in lower than what analysts were predicting in the summer of 2018, but better than what they feared in December at the height of the pessimistic sentiment. Economic data from around the globe does continue to be weak, but the U.S. remains relatively strong compared to the rest of the world and recession talk has largely subsided regarding the rest of 2019. (Wall Street Journal)

Slower earnings may cause broad price increases

As companies brace for slower earnings growth, some have opted to increase prices on the goods they sell to offset the higher costs to make their products and the slowing demand to buy them. Many companies that have decided to take this route are the large consumer goods companies, like Procter & Gamble, Colgate-Palmolive and Clorox, that are deeply affected by higher costs of raw materials and transportation. Price increases are expected to be in the mid to high single digits, significantly higher than many analysts were expecting.

Inflation has been muted for much of the recovery and expansion of the economy, but now might be set to rise as many companies plan to begin increasing prices. This may be have a serious impact on consumer spending given these are the types of staple products bought by all consumers. One of the reasons for the higher costs to produce consumer goods are the tariffs placed on China, where talks to reach a resolution are set to continue this week. A deal is still far from finished and the deadline of March 1st to reach a deal is increasingly looking like it must be extended if there is any hope to come to an agreement. Rising inflation has a number of consequences that could lead to a slowing of the economy and the looming threat of any spike in prices is a real risk to stock and bond markets. (Wall Street Journal)

Quiz:

What has been the top performing sector so far in 2019 (as of 2/8/2019)?

a. Industrials

b. Real Estate

c. Energy

d. Information Technology

Answer is below…

 

Have a good week!

 

Answer to quiz:

a. Industrials have had the highest total return so far this year at 13.42% followed by Real Estate (11.57%), Energy (9.83%) and Information Technology (9.66%).