Tuesday, October 1, 2019
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It’s all about the consumer
Monday brought the third quarter to an end.
It was a quarter that saw the Fed cut interest rates twice. The yield curve inverted for the first time in over a decade, signaling to some investors that recession is imminent. And Trump’s trade war with China continued to weigh on sentiment across markets.
When the dust settled, however, the S&P 500 and Dow both closed up better than 1% and within 2% of record highs.
And a quick look at the stocks that lead the Dow higher during the quarter reveals investors betting on one key theme that indicates a belief this expansion will continue: the U.S. consumer.
The best performing stocks in the Dow during the third quarter were Procter & Gamble (PG), Apple (AAPL), Nike (NKE), and Home Depot (HD). Walmart (WMT) was the index’s sixth-best performing stock, rising 7.4% against a 7.7% increase for Intel (INTC) shares.
P&G rose 13.4% during the third quarter and finished Monday's session just pennies off its record high. Over the last year, P&G shares are up 50% making it the best performer in the Dow over that period by more than 20 percentage points. Apple stock gained 13.2% during the third quarter while Nike and Home Depot both gained more than 11.5%.
And although each of these companies has their own unique story to tell the market, taken together this group is a clean cross-section of how investors have placed bets on the health of the U.S. consumer.
P&G, for example, continues its turnaround after Nelson Peltz’s activist campaign, which began nearly three years ago. In early September, Apple released one of its most exciting phone lineups in years. Home Depot is enjoying housing-related tailwinds from lower interest rates and homebuilding activity at a 12-year high. While both Nike and Walmart have been rewarded by investors for their investment in e-commerce while also mitigating impacts from the U.S.-China trade war.
But the collective performance of these stocks reflects the market’s view — expressed in part during September’s rotation and the backup in Treasury yields — that a recession is not, in fact, imminent and that consumers will keep the expansion alive.
And it was a fear of recession that gripped markets for much of the quarter, culminating in mid-August’s yield curve inversion and the stock market’s worst day of the year.
Now as we’ve highlighted in recent days, some economists have pointed to recent consumer confidence data as a sign the economy is in fact in a fragile state. And Friday’s September jobs report will be a major check on the health of the U.S. labor market, as job gains are ultimately what supports the consumer spending being counted on to keep this expansion alive.
But the big picture story these share-price gains tell is that the consumer is still worth betting on.
What to watch today
9:45 a.m. ET: Markit US Manufacturing PMI, September final (51.0 expected, 51.0 prior)
10 a.m. ET: ISM Manufacturing, September (50.3 expected, 49.1 in August); ISM Prices Paid, September (50.5 expected, 46.0 in August)
10 a.m. ET: Construction Spending month-on-month, August (0.4% expected, 0.1% in July).
4:05 p.m. ET: StitchFix (SFIX) is expected to report adjusted earnings of 4 cents per share on $431.56 million in revenue.
UK factory production shrinks for fifth month in a row [Yahoo Finance UK]
Credit Suisse exec quits over spying scandal [Yahoo Finance UK]