Fridays leading into holiday weekends, particularly the Friday prior to Labor Day, usually don’t generate much excitement on Wall Street and if there is, it’s usually a bad sign. So with that in mind, today’s results were nothing to be concerned about.
In fact, the results for this Friday, the last trading day of August, weren’t too shabby when considering there was a concerning consumer data point released earlier today. Regular readers know that I’ve been beating the consumer drum quite a bit recently and it is a story worth following for investors.
“The University of Michigan’s final sentiment index fell to 89.8 in August from a previously reported 92.1 and 98.4 in July,” according to Bloomberg. “The gauge of current conditions dropped to the lowest since October 2016, while the expectations index matched January as the weakest since that same period.”
Even with that the Nasdaq Composite finished lower by 0.13% while the S&P 500 eked out a gain of 0.06%. The Dow Jones Industrial Average finished the day up 0.16%. In late trading, just over half of the Dow’s 30 components were trading higher.
Dow Winners With Asterisks
Today’s Dow Jones Industrial Average winners were not large in percentage terms, but two of the standouts merit caution and not just because they are defensive names. Plenty Dow stocks with defensive leanings have been solid performers for the bulk of this year, but UnitedHealth (NYSE:UNH) isn’t a member of that group.
The healthcare benefits giant gained 1.35% today, good for the best performance among Dow stocks, but the shares still finished August with a loss of more than 1.44%. The best-case scenario is that traders were doing some nibbling at UNH shares today in anticipation of a possible rally over the last four months of the year, but my prescription for caution here stems from a looming democratic debate in September, which could stir more Medicare For All talk. That’s always a drag on UNH.
Walgreens Boots Alliance (NASDAQ:WBA) jumped 1.57% today, but this is another example of a dog Dow stock with fleas. Despite today’s gain, this Dow stock also finished August with a loss of more than 7%.
Two other Dow stocks that were winners today, each closing higher by about 1% that I’d be careful with are Caterpillar (NYSE:CAT) and Dow (NYSE:DOW). These are both tariff-sensitive names that notched double-digit declines this month. Maybe trade talks will progress, providing catalysts for these type of cyclical stocks, but in absence of those headlines, investors considering Dow stocks of this nature are likely making no more than technical bets over the near-term.
Defensive Departures
As I noted above, there were some bounces in defensive Dow stocks today while some similar names saw departures. Namely, McDonald’s (NYSE:MCD) and Procter & Gamble (NYSE:PG) were two of the blue chip index’s worst-performing names today, each shedding more than 1%.
Speculation here, but today’s action in those stocks may have been nothing more than some profit taking because McDonald’s and P&G posted an average August gain of 3.66%. Given September’s reputation for being a rough month for stocks, it would not be surprising to see those Dow stocks do a little better next month.
Dow Bottom Line
With all the talk about trade tensions and the Federal Reserve’s plans for interest rates, investors should not take their eyes off the earnings ball. Unfortunately, the news isn’t so hot to this point in the the third quarter.
“During the first two months of the third quarter, analysts lowered earnings estimates for companies in the S&P 500 for the quarter,” according to FactSet. “The Q3 bottom-up EPS estimate (which is an aggregation of the median EPS estimates of all the companies in the index for the third quarter) dropped by 3.0% (to $41.64 from $42.90) during this period.”
On another note, investors looking for sector-level ideas for September may want to consider financial services and utilities, which on a historical basis, are the best-performing groups in the ninth month of the year.
Todd Shriber does not own any of the aforementioned securities.