Money Hawk: 12/2/16
December 2, 2016
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Wednesday marks the end of the month and a lot has changed since earlier in the month as market uncertainty along with prospects for an interest rate increase created a cautious and corrective move for the major indexes several weeks prior to the presidential election on November 8th. The reaction afterwards to president elect Trump’s surprise victory however was strong and swift with both the S&P & NASDAQ as of the close Tuesday, up 3.7% for the month and the DJIA up 5.4%. Since Jan 1, the S&P 500 is up 8%, the NASDAQ up 7.5% and the DJIA up 9.8% – all very respectable gains considering the uncertainty of an election year and the likelihood of rate increases in the near future.
As we turn to December, the last month of the year, investors will be looking for more clarity on president elect Trump’s economic plans among other events, namely the fed’s interest rate policy. At this point, the market has placed a bullish bets on infrastructure and defense stocks as well as banking and financial stocks with the expectation that Trump’s plans to increase infrastructure and defense spending and higher interest rates will support these stocks. Meanwhile, apparel stocks, retail, food & restaurant and various medical and drug related stocks have been poor performing sectors. Considering the sharp gains on the month, some profit-taking could take shape into year end on the leading sectors and create some potential buying opportunities.
Stock of the Week
After the election we have seen gains in the financial sectors, oil and natural gas, construction stocks, defense stocks, and infrastructure stocks. The stock of the week has to be JP Morgan ($JPM). JPM has climbed more than 50% since the beginning of the year. A combination of interest rate talk and the election has driven the price to just under $80 a share, already a huge move for the year. Almost all finance and bank stocks have popped up recently.
Insurer Allstate completed a 1.4 billion dollar takeover of device insurer SquareTrade. Although SquareTrade is private, the valuable business it will provide for Allstate will be critical to Allstate’s future. Large customers of SquareTrade include Amazon.com, Target Corp., Costco Wholesale, and Toys ‘R’ US. As the news of the merger reached the markets, $ALL, the ticker for Allstate was down about 3%. This is expected as the company expended a lot of capital to get enough money to complete the transaction. But the news of the merger is hopeful in the long run.
Major manufacturer Johnson&Johnson is mulling a takeover of Swiss pharma company Actelion. This isn’t necessarily good news for the stock. Coming off an all-time high, the stock already seems top-heavy. Although the deal isn’t done yet, and there is some speculation that it might fall through, there isn’t much change in the stock that is expected as a result from this.