Markets "In a Nutshell" for May 15, 2018May 15, 2018
Investment Week at a Glance
Stocks gained last week. The Dow Jones Industrial average was up 2.3% while the S&P 500 rose 2.4%. The New York Stock Exchange Composite (2,000 stocks) was up 2.1% and the “average investor’s index” (Value Line index) increased 2.1%. Foreign stocks (DJ Global ex U.S.) rose 1.5%. Bond yields were flat with the 10 year Treasury yield ending at 2.97%. (Data sources: Barron’s Financial, Wall Street Journal)
Companies gobbling up stock in record amounts
Barron’s columnist Andrew Barry writes in this week’s Barron’s that U.S. corporations are buying back their stock in record amounts. The projected $650 billion of buybacks would eclipse the previous record of $589 billion in 2007. As we explained during our February investment seminars, it was likely that much of the $trillion corporate windfall from Trump tax reform was going to translate into corporate buybacks. And despite corporate promises that the money would be used to expand business and increase wages, it appears that buybacks are where the money will go. Buybacks reduce stock supply which is often bullish for stock prices.
Will higher rates hurt the economy and stocks?
As the 10 year U.S. Treasury note settles around an annual yield of 3% (after hitting an all time low of 1.3% in 2015), borrowers are starting to recognize that the era of super low rates may be over. An article in the 4/25 USA Today cites higher mortgage rates (the average 30 year mortgage rate at 4.74%) and higher cash type yields (2 year Treasuries paying over 2.5%) as threats to the economy and stock market. Higher rates mean less cash in consumers’ pockets as it cost more to buy houses, cars, etc. Higher rates also can eat into corporate profits as consumer spending slows. On the plus side higher rates are better for savers.
Sell in May?
There is a Wall Street adage that says, “Sell in May and Go away’,” referring to stocks. How true is it? BTN Research calculates that since 1990 stock performance in the 6 month period ending April 30 has beaten the 6 month period ending October 31st 666% to 89%. Before you rush to sell your stocks, BTN also reports that the last 4 out of 5 years have seen better performance in the time period ending Oct 31.
The ten year U.S. Treasury Note is hovering around 3% for the first time since 2014. What year is the last we saw a 4% Treasury yield? a. 2000 b. 2007 c. 2011 d. 2013...Answer is below…
Have a good week!
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