The Federal Reserve is scheduled to release the results from the second round of its annual bank stress tests after the market close on Thursday June 28, and expectations are high that big boosts in dividends and share repurchases will be approved as part of the process. In fact, Barron’s projects that these returns of capital to shareholders will equal about 100% of U.S. bank profits earned over the next 12 months. The enhanced payouts are bound to increase the attractiveness of bank stocks to investors.
Stocks kicked off the week on a sour note Monday as Wall Street braced for more actions against Chinese companies by the Trump administration.
The Dow Jones Industrial Average dropped 328.09 points to close at 24,252.80, with Boeing and Intel among the biggest decliners in the index. The 30-stock index also closed below its 200-day moving average, a key technical level, for the first time since June 2016.
The Dow rebounded slightly in the final hour of trading after Peter Navarro, a top trade adviser to President Donald Trump, said on CNBC that investment restrictions against China and other countries are not immediately forthcoming and that the market was overreacting.
“He basically said ‘hey guys, it’s Trump playing the ‘Art of the Deal’ with China,” said Scott Redler of T3Live.com.
The S&P 500 fell 1.4 percent to 2,717.07 — posting its worst day since April 6, when it fell 2.19 percent — as tech declined 2.3 percent. Five of the 11 S&P 500 sectors also closed in correction, or down at least 10 percent from their 52-week high. The Nasdaq composite pulled back 2.1 percent to close at 7,532.01 as Netflix dropped 6.5 percent to lead the FANGs lower.
Wall Street is regrouping. Easy money has been made. The fiscal stimulus has been priced in for a long time. The Fed is an ongoing game, but the slightly easing price pressures along the U.S. yield curve are signaling surprisingly stable inflation expectations.
The current mix of easy fiscal and monetary policies has produced an improving outlook for jobs and incomes: the two variables that, along with credit costs, drive three-quarters of the U.S. economy.
Despite some areas of persisting weakness, the labor market situation is probably as good as it will ever get over the near term. At this point in the business cycle, we are witnessing a fully-employed economy hitting the limits of a disappointingly low labor supply.
The growth of household incomes is also picking up. A 2 percent annual growth of inflation-adjusted after-tax incomes in the first four months of this year is a noteworthy improvement over a 1.7 percent gain during the prior four-month period.
Regardless of whether it happens sooner rather than later, any time the market drops, Oracle of Omaha Warren Buffett recommends keeping a level head and picking up a copy of “The Intelligent Investor.”
“Any time the market takes a sharp dive and you get tempted to sell or something, just pull out this book and re-read it,” he says in a video posted on Gates Notes, adding, “When I read this book, it changed my life.