Market Moves

U.S. Stocks rebounded even as the U.S. dollar index (DXY) strengthened. This appears to signal that investors are easing off of their concerns about the trade talks happening next week between U.S. and Chinese officials. As the markets relaxed concerns, portfolio managers appear to be establishing new investment positions on the day before the fourth quarter opens.

This is a rather bullish behavior because it means that these professionals are willing to put some money into growth stocks even before the final quarter begins. Allocating money to growth stocks a few days ahead of the nonfarm payroll report and weeks ahead of earnings season means going out on a limb.

It must be deemed important if these professionals are willing to put themselves into this kind of risk at this moment in time. They may have a strong belief in the market's prospects for the final quarter of the year, or they may feel a strong need to improve the performance of their fund. Either way, their response signals optimism about the risks they are taking.

In fact, an equal-weighted portfolio of computer hardware companies Apple Inc. (AAPL), International Business Machines Corporation (IBM), Intel Corporation (INTC), and HP Inc. (HPQ) shows an interesting pattern in comparison to the Nasdaq 100, as tracked by the Invesco QQQ Trust (QQQ). While these four stocks combined have actually held closely to the index for the year, they appear to be diverging upward ahead of the fourth quarter. This is likely a bullish indication for these four stocks.

Chart showing investor optimism via tech stock investments

The Search for Yield

Although investors seem to be measurably less nervous to start this week than they were last week, a common activity among them seems to be searching for interest income. Those who do so usually search among bonds and dividend-paying stocks. There is often a competition for investor money between these two types of investments. It can be useful to create a head-to-head comparison of such investments. A simple way to do this is demonstrated in the chart below.

The chart shows a comparison between the iShares 20+ Year Treasury Bond ETF (TLT) and the Utilities Select Sector SPDR Fund (XLU). The relative strength of performance between these two investments shows which one investors prefer between the two over a period of time. Right now, utility stocks seem to command a bit more attention. That is a bullish signal, generally speaking, since stocks are considered slightly more risky than bonds.

Chart showing utility stocks outperforming bonds in 2019

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The Utility Stock That Looks Like a Growth Stock

The price action for shares of Southern Company (SO) shows a multi-month upward trend that simply keeps moving higher. The price increase for 2019 is nearly 40% through the first three quarters. Most investors wouldn't expect a utility company's stock to change that much so quickly. Two reasons for the share price climb likely include the company's solid business success in electricity distribution and an attractive dividend payout of 4% per year.

Chart showing the share price performance of Southern Company (SO)

The Bottom Line

U.S. stock indexes rebounded ahead of the fourth quarter's start. In particular, four stocks ended on new highs for the month, outpacing the broader market for the day. These stocks (Apple, IBM, Intel, and HP) may become investor favorites through the end of the year. Despite the interest in these growth stocks, investors still seek safer investments such as bonds and utility stocks. Among utility stocks, Southern Company has had an amazing run so far this year.

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