Weekly Investor – December 24, 2018
Fallout From The Fed
Lingering concerns about the future of Federal Reserve interest rate policies are for now the dominant source of concern on Wall Street. The central bank raised interest rates on Wednesday for a fourth time this year and suggested strongly that another two hikes are likely in 2019. Stocks immediately sunk lower following the announcement. Equities did briefly bounce on Friday morning following comments that the Fed is attuned to possible changes in the outlook and not necessarily committed to their current path. However, this proved to be short lived and equities finished lower, near worst levels. Communications services and tech (FAANGS) were among the underperformers. When the final bell rang, the S&P 500® Index was down -7.1% on the week and almost -10% for the year.
Looking ahead, as the market continues to digest the Fed’s decision, investors have more than enough to contemplate including the implications of an impending government shutdown, tighter U.S. monetary policy, flagging global growth and uncertainty surrounding U.S.-China trade relations. Despite the growing list of concerns, U.S. markets have sold off so sharply in recent weeks there’s some wondering if a relief rally is possible before we close out the year. Stay tuned.
The S&P 500 was down –7.1% for the week. Its top-performing sectors were Utilities (-4.5%) and Basic Materials (-4.7%), while bottom-performing sectors were Consumer Discretionary (-8.6%) and Energy (-9.0%). In the fixed-income market, the 10-year Treasury yield was down, ending at 2.8%.
We continue to seek companies that reflect our Change-BasedSM investment approach.
Change-Based Investment
Headquartered in Atlanta, Georgia, HD Supply Holdings, Inc. (HDS) is one of the largest distributors of products to the facilities maintenance, construction and industrial markets.
Initially, HD Supply’s growth opportunities were constrained by high debt levels; however, following sales of non-core assets and reduction of debt to a normal level, management is free to focus on growth in its two remaining divisions, Facilities Maintenance and Construction and Industrial. Since restructuring the balance sheet, HD Supply has done one acquisition in Construction and Industrial and made changes in the sales force at the Facilities Maintenance division. We believe HD Supply’s lower debt, higher margin and higher growth make it a good fit for our Change BasedSM investment approach.
Top 5 Equity Holdings
Large Cap Growth
| Alphabet Inc. (Google) | 8.0% |
| Post Holdings, Inc. | 5.7% |
| Red Hat, Inc. | 4.5% |
| Mastercard, Inc. | 4.5% |
| JP Morgan Chase & Co. | 4.1% |
Small Cap Core
| Fortinet Inc. | 3.2% |
| Merit Medical Systems | 2.9% |
| Wintrust Financial Corp | 2.9% |
| Planet Fitness, Inc. | 2.8% |
| Amphastar Pharm. | 2.6% |
Dividend Select
| JPMorgan Chase & Co. | 5.7% |
| Pfizer, Inc. | 4.8% |
| ConocoPhillips | 4.3% |
| Life Storage, Inc. | 4.0% |
| Occidental Petroleum | 3.9% |
Mid Cap
| Amedisys, Inc. | 3.4% |
| CDW Corporation | 3.4% |
| Cintas Corporation | 3.2% |
| Helen of Troy Ltd. | 3.1% |
| Bright Horizons Family | 3.0% |
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.
