Significant headline news events were in short supply last week yet the major indices moved higher which has been the path of least resistance. For the week, large caps outpaced small cap stocks; the market leading Nasdaq rose 1.36%, followed by the S&P 500® Index (1.16%), Dow Jones Industrial Average (0.92%) and the Russell 2000® Index (0.50%). Economic data, including the Consumer Confidence Index, continue to support the markets. The Index’s 100.8 reading for August is the second highest since 2004, eclipsed only by the March 2018 reading. Also, the S&P 500® Transportation Index has gained over 9% since late June. Many traders view the Transportation Index as a barometer of economic growth; here, the recent performance suggests equity market gains over the next several months. Last week, the U.S. Energy Information Administration announced that the U.S. likely surpassed Russia to become the largest oil producer in the world; Saudi Arabia is ranked third. The recent jump in oil production has enabled the U.S. to lead the world in oil output for the first time since 1973.
The news on the trade front remains uncertain. On Thursday, a spokesperson for the Chinese government commented that the U.S. and China were discussing details for a new round of trade negotiations; on Friday, however, President Trump told aides to go ahead with threatened tariffs on $200 billion of Chinese goods. Separately, trade negotiations continue with Canada. U.S. businesses have increased their lobbying efforts to avoid a trade war; China has also assured U.S. businesses of the country’s desire to support continued investment in the Chinese economy. The stakes are high for both countries. The markets, despite the sometimes-conflicting commentary, continue to believe that the countries will eventually negotiate trade agreements.
Looking ahead, the mid-term elections, and trade issues will continue to dominate news headlines; also, in the run-up to the end of the third quarter, investors will be alert for positive, or negative, earnings pre-announcements. A good example is a company in the marine transportation and diesel engine business. The stock fell approximately 10% last week due to concerns that delays in parts procurement and the slowdown in Permian basin oil production would hurt earnings. Today, an industry analyst issued a report indicating that all of the company’s business segments are improving and their diesel engine business is ahead of previous projections; shares rose 6.5% today as investors reassessed their assumptions. Federal Reserve interest rate policy, inflation and economic data continue to support positive market sentiment without the “irrational exuberance” that might signal a potential market peak.
Source: Pacific Global Investment Management Company
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.
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