Weekly Investor – July 30, 2018
S&P Stays Positive Despite Trade Fears, Earnings
Equities whipsawed last week as trade risks and earnings permeated headlines. All told, the S&P 500® Index returned 0.61% last week, while mid- and small-cap stocks were negative. On Wednesday, the S&P closed above 2,840 for the third time in 2018, only to drop on poor earnings to close the week. Tech companies Twitter Inc. and Facebook dropped as much as 20% after reporting earnings. Looking ahead to next week, earnings season continues as 145 companies in the S&P 500 are expected to report, including Apple Inc., Berkshire Hathaway, Pfizer Inc., Caterpillar Inc., The Kraft Heinz Co. and The Allstate Corp.
Turning to trade news, toward the end of the day Wednesday, President Donald Trump and European Commission President Jean-Claude Juncker agreed on a framework for future trade that includes provisions for the European Union to purchase additional soybeans and liquified natural gas, while working toward lowering overall tariffs between two of the world’s largest trading partners.
In broader economic news, Gross Domestic Product (GDP) grew at a robust 4.1% annual rate in the second quarter — the highest growth rate since 2014 — while growth in the first quarter was revised upward to 2.2%. A rebound in consumer spending contributed 2.7 percentage points to the growth rate compared to 0.4 percentage points in the first quarter.
The S&P 500 Index was up 0.6% for the week. Its top-performing sectors included Energy (2.3%) and Industrials (2.1%), while bottom-performing sectors included Consumer Discretionary (-0.5%) and Technology (-1.2%). In the fixed-income market, the 10-year Treasury yield was up, ending at almost 3.0%.
We continue to seek companies that reflect our Change-BasedSM investment approach.
Red Hat Has Room to Grow
Red Hat Inc. (RHT) provides open-source software products and services to large businesses and enterprises. Open-source software refers to software with source code that anyone can inspect, modify and enhance. Red Hat makes money on support, training and integration of its software.
With the accelerating adoption of cloud computing, we believe Red Hat can see its end markets grow faster than currently anticipated. Red Hat has a long history as the gold standard for open-source software. We believe the change in enterprises’ and large businesses’ shift to cloud computing provides Red Hat a long runway for growth.
Top 5 Equity Holdings
Large Cap Growth
| Alphabet Inc. | 8.1% |
| Baxter International | 4.6% |
| Marvell Technology | 4.3% |
| Mastercard Inc. | 4.2% |
| JP Morgan Chase & Co. | 4.1% |
Small Cap Core
| Fortinet Inc. | 3.3% |
| Wintrust Financial | 3.0% |
| G-III Apparel Group LTD | 2.4% |
| Mastec Inc. | 2.4% |
| Merit Medical Systems | 2.3% |
Dividend Select
| JP Morgan Chase & Co. | 5.8% |
| Occidental Petroleum | 4.5% |
| ConocoPhillips | 4.3% |
| Marvell Technology Group | 3.8% |
| Target Corporation | 3.7% |
Mid Cap
| Cintas Corporation | 3.4% |
| NVIDIA Corporation | 3.3% |
| NetApp Inc. | 3.1% |
| CDW Corporation | 3.1% |
| NVR Inc. | 2.8% |
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.
