Markets “In a Nutshell” for November 5, 2019

Investment Week at a Glance

Stocks were up last week. The Dow Jones Industrial average gained 1.4% while the S&P 500 was up 1.5%. The New York Stock Exchange Composite (2,000 stocks) rose 1.2%. The “average investor’s index” (Value Line index) was up 1.3%. Foreign stocks (EAFE index) gained 1.0%. Bond yields dropped (bond prices up) as the 10 year Treasury ended at 1.72%. (Data sources: Barron’s Financial, Wall Street Journal)

What Economic Slowdown?

Earlier this year there were concerns of a global economic slowdown. A trade war, declining manufacturing activity as well as slowing jobs growth all fueled fears that the longest economic expansion on record (at over 10 ½ years) would end. Now, after a stronger than expected jobs report (128,000 in October) and signs of a turnaround in manufacturing (the ISM index at 47.7, up from 46.3 in September) , fears of economic recession have abated. The new optimism has given stock investors confidence. The S&P 500 is at all-time highs with the Dow looking to set records this week.

Corporate Earnings Down?  Stock Market Doesn’t Care!

With just about half of the S&P 500 companies reporting their 3rd quarter earnings, (year over year) earnings are about 4% lower than this time last year. The down quarter makes it 3 down quarters in a row, the first time that has happened since 2015. While the stock market usually follows earnings, it has not been the case so far this year. Lower interest rates and promises of a trade deal have overshadowed earnings. However, for stocks to continue to move forward, earnings will need to pick up and turn positive. Why? Because as stocks are a claim on future earnings, higher earnings has meant higher stock prices over time.

Time to Buy Emerging Market Stocks?

According to Bloomberg, emerging market stocks (stocks in smaller countries such as Brazil, Malaysia, and Poland), are at 17 year lows relative to U.S. growth stocks. While U.S. growth stocks have returned an average of 12% for the past 5 years, emerging market stocks have returned 0.5%.

Quiz:

Stocks in general have stalled since January 2018 with the Dow Jones average up 2.7%. Which of the following sectors has significantly outperformed with a return of 24.7%?  Answer below.

a.   Energy

b.   Utilities

c.   Technology

d.   Health Care.

 

 

Have a good week!

 

 

 

 

 

 

 

 

Answer to quiz:

b. Utilities.