Weekly Investor – August 1, 2016
Interest Rate Hike in September?
U.S. equity markets closed slightly lower last week and the S&P 500® Index posted a -0.05% return for the week. However, on a year-to-date basis, the index has gained 7.7% and closed out the month of July up 3.7%. Last week, the Federal Open Market Committee released a statement that outlined a more confident growth outlook due to consumer spending and raised the likelihood of a September rate increase. Additionally, several U.S. economic reports were released last week. Household purchases in the second quarter provided a bright spot as they expanded 4.2%. The first estimate for 2Q GDP growth registered 1.2% at an annual rate, below the consensus expectation of 2.5% growth. Looking ahead to this week, investors will continue to listen to earnings reports from Corporate America and pay close attention to any further statements by the Fed.
The S&P 500® Index was down 0.1% for the week. The top-performing sectors in the S&P 500® Index included Technology (1.5%) and Health Care (0.3%), while bottom-performing sectors included Consumer Staples (-1.5%) and Energy (-2.1%). In the fixed-income market, the 10-year Treasury yield was down during the week, ending at 1.5%.
We continue to seek those companies possessing identifiable catalysts, and focusing on those stocks with favorable odds.
Favorable Odds
E-Trade Financial Corporation (ETFC), a financial services company, provides brokerage and related products and services primarily to individual retail investors.
ETFC has been under the direction of new leadership since the beginning of 2013. Since that time, ETFC has been able to achieve consistent growth of accounts and assets while decreasing the size of its troubled legacy home equity loan portfolio. Over the next few years, we believe a stable economy and improving housing market will accelerate ETFC’s ability to eliminate the remaining portion of its legacy portfolio. This change in operating structure will allow ETFC to focus on its core business, online brokerage, where the company is taking share away from traditional brokers. We believe ETFC has the flexibility to grow profits higher than expected and therefore return capital to shareholders through share buy backs and dividend payments. For these reasons, we have added ETFC to our portfolio as we believe the company represents favorable odds for our portfolio.
Top 10 Equity Holdings
| . | |
|---|---|
| Alphabet, Inc. (Google, Inc.) | 7.0% |
| Post Holdings, Inc. | 6.9% |
| Masco Corporation | 4.7% |
| Baxter International, Inc. | 4.3% |
| ConAgra Foods, Inc. | 4.1% |
| Danaher Corp. | 3.5% |
| The Hain Celestial Group | 3.5% |
| Lowe’s Companies Inc. | 3.5% |
| Red Hat, Inc. | 3.4% |
| CBS Corporation | 3.3% |
This newsletter presents selected recommendations from portfolio managers of Argent Capital Management LLC, a registered investment advisor. Opinions reflect the portfolio manager’s judgment on the date above and are subject to change. A list of stocks recommended by Argent is available upon request. You should not assume that these recommendations are or will be profitable. In the course of it’s business, Argent’s client accounts may be buying and selling these stocks.
