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Dow's Top Q3 Performers Show Consumers Are on Spending Spree

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The third quarter came to a finish yesterday. It’s been a topsy-turvy ride for equities in the quarter with the Fed trimming rates twice, the yield curve getting inverted for the first time in almost a decade and the Sino-American trade war continuing to weigh on investors’ sentiments.

In its last move, the Fed cut target interest rate by 25 bps to a range of 1.75-2%, a widely expected move to sustain the decade-long economic expansion amid trade concerns. Decline in business investments as well as exports coupled with persistently low level of inflation were cited as the primary reasons for the rate cuts.

Talking about yield curve inversion, the benchmark 10-year Treasury yield was at its lowest level against the 2-year Treasury note in August since 2007. The yield on the benchmark 10-year Treasury note was at 1.476%, 5 basis points lower than the 2-year note’s rate of 1.526%.

With the 10-year rate below the 2-year note, fixed income traders were expecting a slowdown in the near term. Lest we forget, the 2-year yield had always surpassed the 10-year note in every slowdown over the past 50 years.

So, what led to the inverted yield curve? Thanks to the ever-changing China trade narrative, the stock market continued to gyrate, compelling investors to pull money out of equities and opt for safe-haven government bonds, eventually leading to a decline in the 10-year Treasury yield. After all, bond yields tend to move opposite to prices.

Nonetheless, when the dust settled however, the broader Dow eked out a gain of within 2% in the third quarter. In fact, a better look at the top performers from the blue-chip index showed that recession is not imminent and consumers will continue to bolster the economy.

The top-performing stocks for the third quarter in the Dow were Procter & Gamble (PG - Free Report) , Apple (AAPL - Free Report) , Nike (NKE - Free Report) and Home Depot (HD - Free Report) . In fact, Walmart (WMT - Free Report) was the blue-chip’s sixth-best performing stock, rising 7.4% compared with a 7.7% jump in Intel (INTC - Free Report) shares. You can see the complete list of today’s Zacks #1 Rank stocks here.

Talking about the best performer, Procter & Gamble had seen its shares climb more than 50% over the last year. During the third quarter, in particular, its shares went up 13.4%. Apple’s shares gained 13.2% while Nike and Home Depot saw their shares rally more than 11.5%.

Nelson Peltz’s activist campaign did help Procter & Gamble bounce back from earlier losses, while Apple’s exciting phone line-up stood in good stead. And with homebuilding activity at a 12-year high coupled with lower interest rates, Home Depots’ shares have only one way to go, and that’s up. By the way, Nike and Walmart’s focus on e-commerce did help them progress leaps and bounds and mitigate impact of the trade war.

Thus, their collective performance indicates that consumers, who constitute the bulk of economy activity, have driven growth and helped Wall Street end in the green for the said quarter. After all, buoyed by a resilient labor market and solid income gains, consumers remain the primary source of firepower for economic growth.

According to the Commerce Department, sales at U.S. retailers rose 0.4% in August, mostly led by motor vehicle and online purchases. Retail sales climbed north after an upwardly revised 0.8% increase in July.

By the way, the measure that excludes car dealers, food services, building materials, stores and gasoline stations rose 0.3%, on par with projections. Needless to say, this core retail sales measure is predominantly viewed as a more reliable gauge of underlying consumer demand.

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