Market Performance Summary

Source: www.YCharts.com

Notable Market Headlines

The market seems to be gyrating up and down on hopes and fears regarding the trade war with China. Early in the week fear gripped investors with stocks falling on Monday and Tuesday then hope returned and stocks rallied to wipe away the week’s early losses. This was all capped by the announcement Friday that the U.S. and China have reached a partial trade deal including China buying more agriculture products and the U.S. not imposing tariffs that were set to go into effect in the coming week.

U.S. large stocks gained +0.7%, as measured by the S&P 500, after being lower by -2.0 as of Tuesday’s close. Both the Dow Jones Industrials and tech-heavy NASDAQ Composite did better up +0.9%. Year-to-date is continues to be a great year for investors in U.S. stocks with the S&P 500 up +20.2% and the NASDAQ higher by +21.4%. Small stocks gained as well on the week, up +0.7%, but continue to lag behind large U.S. stocks in 2019 up just +13.3%.

This week was one that did see multiple reversals in performance from the prior week including a rotation in the sectors that were winners and losers. As the accompanying graph shows last week Consumer Discretionary, Energy, Financials, Industrials, Materials, and Telecom stocks were all lower then this week reversed and moved higher. At the same time, three of the four sectors that were higher last week were then lower this week. This behavior has been somewhat common in 2019 as investors try to guess what stocks will be impacted by the trade negotiations.

Source: www.YCharts.com

International stocks performed much better than U.S. stocks this week with developed country stocks jumping +2.2%. Eurozone markets did the best with the United Kingdom’s markets among the best gaining +3.4% on hopes that a Brexit deal may get worked out. Emerging markets also did very well gaining +1.9% with gains widespread across many countries’ markets.

The non-traditional asset classes were mixed for the week. Both real estate and gold were lower down -0.4% and -1.3% respectively. Gold likely declined on the reports of little or no inflation in the economy as well as some easing of investor fears later in the week. Commodities, impacted by energy prices, rose +2.6% which is a continued reversal from the decline that started in mid-September.

Bond prices have moved sharply higher for the year but that was not the case this week as prices dropped by -1.0%. The drop in price was steeper for the benchmark 10-Year U.S. Treasury which fell -1.7% with the yield jumping to 1.732% coming off its Tuesday low of 1.533%. This is one of the sharper reversals in yields and prices in just a three day period.

Stock Highlights

Fastenal (FAST), a retailer and distributor of fasteners and more through 2,200 stores as well as other avenues, reported stronger than expected quarterly results. Both sales and earnings came in better than the same period last year and both were ahead of Wall Street’s expectations. Increased unit sales and higher prices all helped fuel the strong quarter and outweighed the negative impact of tariffs. At the close of the week Fastenal’s stock was higher by +14.4% and now up +39.0% for 2019.

Align Technology (ALGN), a manufacturer of clear orthodontic aligners and related products, has been growing rapidly the past several. As the accompany graph illustrates, annual revenue has climbed from $300 million 10 years ago to nearly $2.2 billion today. There was no significant news from the company this week but the stock rallied +10.2%. Although this stock has performed very well long-term, it has been a tough 12 months for investors with it hitting a high just shy of $400 in September 2018 and is trading now at $200.

Source: www.YCharts.com

Kohl’s (KSS), with 1,155 department stores in 49 states, was among one of the many retail stocks that performed well this week. The company had meaningful announcements this week and the comments by Wall Street analysts were all relatively negative on fears that e-commerce is causing long-term challenges for this and other similar retailers. Regardless, Kohl’s stock was the third best performer among the S&P 500 stocks this week gaining +9.1% while the stocks of Nordstrom (JWM) and Gap (GPS) also did well and among the top 10 S&P 500 performers. In spite of the week’s gains for these stocks they all remain lower year-to-date by -20% or more.

E*TRADE Financial (ETFC), one of the largest online brokerage firms, is among the multiple firms announcing recent plans to reduce some commissions to zero as noted in our blog. This stock declined sharply on the news but regained some lost ground this week as investors apparently are hopeful the long-term financial impact will not be as bad as originally expected. At the close of the week E*TRADE’s stock was higher by +8.5% but remains lower for the year by -10.0%.

Economic Indicator - Reported

There remain no signs of inflation in our economy with the Consumer Price Index (CPI), the measure of retail inflation, came in unchanged in the most recent month and up just +1.7% during the past 12 months. A drop in energy prices during the month helped offset a small increase in food costs.

In addition to the flat month for the CPI, the Producer Price Index (PPI), the measure of wholesale inflation, dropped by -0.3% in September. This takes the year-over-year change down to just +1.4% which is the lowest level in three years. The core rate for both the CPI and PPI, the rate of change that strips out volatile food and energy prices, declined as well.

Consumer Sentiment rebounded from its lowest level since 2016 reflecting easing concerns about the trade war and other uncertainties. The most recent reading came in at 96.0, up from 93.2 the month before, and was meaningfully better than economists had forecast but remains below its multi-year high just above 100.

Economic Indicators – Upcoming

The following economic data are expected in the coming week: