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Investors Focus on the Strength and Stability of American Companies

U.S. equities rose for the fifth straight week, shrugging off worries over trade, as the S&P 500 index climbed 0.8 percent. Since the start of the third quarter, the index has gained 4.5 percent, led by healthcare, industrials and financials. That was not the case last week, however. With the exception of healthcare, which posted another strong week, last week’s best gainers were real estate, staples and technology, which stabilized after stumbling the previous week. And so far in the quarter, the debate over whether value or growth stocks are more attractive has been replaced by a market in which both value and growth sectors are participating.

Economic Strength Provides a Tailwind for Stocks

In terms of equity performance at the sector level, the third quarter is shaping up to be quite different from the first half. In the first two quarters, consumer discretionary and technology were the best performers by a wide margin. They were joined by telecom and energy in outperforming the S&P 500. So far in the third quarter, industrials, financials and healthcare are the best performers, while consumer discretionary and tech, despite being up, have trailed the overall market.

Investor Enthusiasm Dampened by Trade Worries

U.S. equities hung on to post their third straight weekly gain last week, but just barely. The threat from Washington of an expansion in the trade war to cover virtually the entirety of Chinese imports, along with some direct jawboning of the Federal Reserve, dampened what little enthusiasm there was. The more severe reaction was in the bond market, where the yield on the ten-year Treasury note jumped by five basis points on Friday to end the week at a one month high of 2.89 percent, and the 2-10 year spread widened from 24 to 30 basis points. The dollar also slumped late in the week, giving a temporary reprieve to developing market equities.

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