Weekly Investor – December 31, 2018
Headwinds Abound for Investors
After beginning the week in freefall, equities rose last week on a dramatic melt up. Wednesday saw the Dow Jones Industrial Average gain 1,086 points for the day. In addition, Treasury Secretary Steven Mnuchin stirred fears of a liquidity crisis in the financial system by calling all six major banks to check on their status. Although Mnuchin declared liquidity is fine within the banking system, the announcement unnerved many investors. The S&P 500® Index is on pace for its first annual loss since 2008 as slowing growth, tariffs and a further tightening from the Federal Reserve remain key headwinds for investors. In stock news, many retailers jumped on the back of the strong holiday.
Looking ahead, sentiment will continue to drive short-term returns of the market as the partial government shutdown will continue to make headlines this week. Fourth quarter earnings season will start mid-January, which is expected to see continued strong earnings growth with the S&P 500 anticipated to grow earnings by over 20% for the full year. While investors have pulled tens of billions of dollars from equity mutual funds over the past weeks and bearish sentiment is at a five-year high, both tend to be contrarian indicators that might point to a rebound in equities if some of the current clouds over the market lift.
The S&P 500 was up 2.9% for the week. Its top-performing sectors were Consumer Discretionary (4.7%) and Technology (3.7%), while bottom-performing sectors were Real Estate (-0.1%) and Utilities (-1.9%). In the fixed-income market, the 10-year Treasury yield was down, ending at 2.7%.
We continue to seek companies that reflect our Change-BasedSM investment approach.
Change-Based Investment
Huntsman Corporation (HUN) manufactures chemicals for the international plastics, automotive and construction industries. Based in The Woodlands, Texas, Huntsman was founded by Jon Huntsman Sr. in 1970.
Since late 2016, Huntsman has been transforming itself from a commodities chemical company to a specialty chemicals company. Successful completion of this change should drive higher profits and a higher valuation for the company. Huntsman began this transformation with the partial spin-off of its commodity and pigments business – Venator (VNTR) – announced in late 2016. We expect Huntsman will continue to adjust its product mix over time with the goal of becoming a specialty chemicals manufacturer. Given the positive, fundamental change the company is undergoing, we believe Huntsman fits our Change-BasedSM investment approach.
Top 5 Equity Holdings
Large Cap Growth
| Alphabet Inc. (Google) | 8.1% |
| Post Holdings, Inc. | 5.5% |
| Mastercard, Inc. | 4.6% |
| Red Hat, Inc. | 4.4% |
| JP Morgan Chase & Co. | 4.1% |
Small Cap Core
| Fortinet Inc. | 3.3% |
| Merit Medical Systems | 3.1% |
| Wintrust Financial Corp | 2.9% |
| Planet Fitness, Inc. | 2.8% |
| Premier, Inc. | 2.6% |
Dividend Select
| JPMorgan Chase & Co. | 5.7% |
| Pfizer, Inc. | 4.8% |
| ConocoPhillips | 4.4% |
| Life Storage, Inc. | 3.8% |
| Occidental Petroleum | 3.8% |
Mid Cap
| Amedisys, Inc. | 3.5% |
| CDW Corporation | 3.4% |
| Cintas Corporation | 3.2% |
| Helen of Troy Ltd. | 3.0% |
| 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.
