Week Ending 10/14/2017

Summary

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

Notable Market Headlines

Investors with a well-diversified portfolio benefitted this week from strong performance that came from nearly all of the non-traditional investments. U.S. stocks were mixed and bonds inched higher but the real strength this week came from all of the other investments in a portfolio.

Stocks in the U.S. were mixed with large stocks gaining +0.2% while small stocks lost their recent momentum falling -0.5%. The two strongest performing sectors were Technology and Consumer Goods. In the Consumer Goods sector, Wal-Mart and Target both were very big winners (see below for more). Healthcare stocks lagged behind following President Trump’s intent to stop paying subsidies to insurers that were established via Obamacare.

International stocks were the hands-down leaders this week resuming their 2017 momentum. Developed country stocks gained +1.7% and are now higher by +20.5% year-to-date. Investors often think about European countries when thinking about developed markets but the biggest developed country stock market is Japan’s representing more than 23% of the developed markets and it jumped +2.5% this week.

Japan’s Nikkei index, similar to the S&P 500 index for U.S. stocks, rose above 21,000 this week. The index has quite a history given that it rose above 21,000 for the first time more than 3 decades ago in March 1987 as the accompanying graph illustrates. That market was on an incredible run during the mid-late ‘80’s and peaked above 39,000. It then fell below 8,000 in 2003 and has struggled to recover.

Source: www.yahoo.com/finance

International emerging markets posted very strong gains this week as well moving higher by +2.3% with India and South Korea’s markets leading the way up +3.4% and +3.7% respectively.

Less traditional investments turned in strong performances for the week as well. Gold jumped +2.3% after multiple weeks of poorer performance and is now up +13.0% for the year. Commodities surged +2.7% but remain lower by -4.1% in 2017. Real estate stocks also posted strong performance, up +1.7% for the week and are back in positive territory for the year but have struggled.

U.S. bonds gained +0.5% in value this week pushing yields lower. It remains widely anticipated that the Federal Reserve will continue raising interest rates in December which could put downward pressure on bond prices.

Winners and Losers by Sector

Source: S&P Compustat

Stock Highlights

Walmart Stores (WMT), our nation’s largest retailer with annual sales of approximately a half trillion dollars, reaffirmed earnings guidance, indicated sales growth could top 3% in 2019 (above Wall Street estimates), and announced a $20 billion stock buyback program. Investors liked what they heard with the stock jumping +9.7%, adding $22.8 billion of market value, for the week and is now higher by +25.3% year-to-date. In spite of this strong performance in 2017, the stock is just now going back above late 2014 highs given its very poor performance in 2015.

Source: www.yahoo.com/finance

Nvidia (NVDA), one of the hottest stocks of the year with a gain of +82.3%, reached another record higher gaining +7.3% this week. This company is a leader in artificial intelligence (AI) and has expanded its lead in the driverless car market with new products.

PG&E Corp (PCG), a California utility company, saw its stock plunge -16.2% for the week. A report surfaced the company could be responsible for the deadly and highly destructive wild fires in northern California could have stemmed from the PG&E not properly maintain equipment and trees around its power lines. This appears to be speculation at this time but investors are not waiting around to find out.

Overall, some of the year’s biggest losers were also some of the week’s biggest losers. The accompanying tables shows the 5 worst performing stocks in the S&P 500 year-to-date. Clearly retailers are among the biggest sufferers.

Economic Indicator - Reported

Retails sales for September surged, as expected, by +1.6%. The report was significantly impacted by the two hurricanes with auto sales jumping +3.6% and gasoline sales, due to higher pump prices, were up +5.8%. Even after stripping out the hurricane related effects, sales still grew by +0.5% which is well ahead of the trend of approximately +0.2%.

Inflation continues to be below the Federal Reserve’s target level. For September the Consumer Price Index (CPI) gained +0.5% when including a +6.1% spike in the prices of food and energy related to the two hurricanes. When excluding these volatile components, the core rate of inflation was only higher by +0.1%, below economists’ estimates. The core rate is higher by +1.7% year-over-year.

The Producer Price Index (PPI) was also reported for September and was much less impacted by the hurricanes. The headline number was +0.4%, as expected, and the core rate, excluding food and energy, came in at +0.2%.

Economic Indicators – Upcoming

There will be two reports on housing this week. Housing Starts for September are expected to come in slightly below the August number at an annual rate of 1.17 million. Housing starts have been drifting lower throughout 2017. Existing home sales for September will also reported with an estimate of 5.3 million annually. The National Association of Realtors has warned that sales could be negatively impacted by the two hurricanes through the remainder of the year.

Industrial Production, a measure of output in the manufacturing, mining, and utilities sectors, will be reported for September. It is estimated that production grew by only +0.1% but the range of estimates is from -0.9% to +0.8% depending on the economist you ask.

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