Week Ending 9/9/2017

Summary

Source: S&P Compustat, www.yahoo.com/finance for Commodities

Notable Market Headlines

U.S. stocks incurred the most selling pressure for the week starting the week with a more than 200 point drop in the Dow Jones Industrials. Things tended to settle down from there leaving U.S. large stocks down -0.5% at the close of the week while small U.S. stocks lost -0.9%. This is the second week in a row that fears surrounding North Korea shook investors.

International stocks fared better with international developed markets actually higher by +0.8%. Germany stocks were among the biggest winners with gains of +2.4%. International emerging markets were down -0.6%. One of the emerging markets that significantly bucked the downward move was Brazil with a gain of +3.2%. Both international developed and emerging markets continue to outpace U.S. stocks by a wide margin in 2017 demonstrating the value of a well-diversified portfolio.

The less traditional asset classes also added value to a well-diversified portfolio for the week. Gold rallied +1.5% as investors tend to flock to it during times of fear and uncertainty. Gold is now higher by almost +17% year-to-date outpacing U.S. large stocks by more than 6%. Not only is gold performing well in 2017, the accompanying graph shows the weekly performance for every week this year when U.S. large stocks were lower with the performance of gold during the same week. As this graph shows, U.S. large stocks have been down during 13 weeks this year but gold was higher during 8 of those same 13 weeks demonstrating is diversification value in a portfolio.

Source: www.yahoo.com/finance (S&P 500 index; symbol GLD)

In addition to gold being higher, commodities gained +0.1% and real estate rallied +0.8%. Neither of these have done well year-to-date but, over time, tend to provide added diversification in a portfolio by not always moving in the same direction as stocks (similar to the performance of gold).

Bonds produced one of their strongest gains of the year up +0.5% for the week. U.S. Treasuries, just on type of bond including in the overall performance of bonds, posted strong gains resulting in the lowest yield, 2.061%, since the election. This is the result of investors flocking to safe investments as well as concerns that inflation remains very low in the economy.

Winners and Losers by Sector

Source: S&P Compustat

Stock Highlights

Health care stocks were among the biggest winners for a second consecutive week. While the overall market was down for the week, health care stocks were the best performing sector gaining +1.4% following a gain of +3.2% the prior week.

Abbvie Inc. (ABBV), a $26.7 billion in revenue biological company, reported positive clinical results driving its stock higher by +13.2% for week or a gain of $15.8 billion in market value. It is now up +36.3% for year. Longer-term this company has reported strong revenue growth for the past few years after stalling in 2013. It’s stock has more than doubled since mid-2013 reflecting the company’s strong revenue growth.

Campbell Soup (CPB) was down -11.7% the prior week following its report of poor quarter numbers but recovered a meaningful piece of that loss with a gain of +5.6% for the week. The stock remains down -20.8% year-to-date and Wall Street analysts remain pessimistic. It’s worth noting though that this is a stock, due to the general predictability of the food industry, that historically has held up better than others during major bear markets.

United Rentals (URI) has seen its stocks rally for newly 3 straight weeks from a low of $107 to now higher than $129. Investors are expecting this company to benefit from the rebuilding in Texas and Florida due to the two hurricanes.

Equifax Inc. (EFX), a global data company with databases of both consumer and business data, experienced a massive cyberattack. The stock fell -13.0% for week on this news but still higher by +4.2% year-to-date. The company, and possibly stocks, will likely face tremendous pressure in the coming weeks as it deals with the ramifications of such an attack.

Economic Indicator - Reported

It was a relatively quiet week on the economic front.

The July Factory Orders report showed a decline -3.3% due primarily to falling aircraft orders. Aside from that the report was positive with strength in many areas and revisions higher to prior reported numbers. This is one indicator pointing to strength for the economy in the third quarter.

The second estimate of second quarter productivity came in above estimates at +1.5% as compared to +0.9% for the first estimate. This is good news for the economy as this indicates more efficient production resulting in more output for the same costs.

Economic Indicators – Upcoming

Investors will get two reads on inflation in the coming week with both the Producer Price Index (PPI) and the Consumer Price Index (CPI) expected. Both have been persistently lower than our Federal Reserve is targeting. The PPI is expected to rebound from a -0.1% reading in July to +0.3% in August. The CPI is also expected to be higher by +0.3%.

Retail sales, accounting for roughly two-thirds of the economy, will be reported late in the week. The expectation is for a gain of +0.1% but economists vary greatly on their forecast. Auto sales are expected to be the biggest drag on this report with other areas expected to be relatively strong.If the report does come in at +0.1%, this will be just a fraction of the prior month’s gain.