Markets Pause Going Into Weekend

Stocks, bonds, and commodities all ended today’s session with very little change inside a smaller-than-usual trading range for this week. With market volatility decreasing, buyers may be preparing to start next week in an upbeat mood. But market averages obscure significant moves in individual stocks. Utilities stocks, for example, did well today, as evidenced by a higher close for the Utilities Select Sector SPDR Fund (XLU), which gained about 0.4% today.

Netflix, Inc. (NFLX), on the other hand, shed over 2% to close the session. This leads to an important question about that company’s outlook – at least in the minds of investors today. Does the market think that the streaming strategy of any other competitor – such as Amazon.com, Inc. (AMZN),Comcast Corporation (CMCSA), or even The Walt Disney Company (DIS) and its Hulu product – is a better bet than Netflix right now? The price action over the summer so far would seem to indicate that investors do think this way.

After Netflix lost subscribers for the first time in its history and had to report that unsavory news at the last earnings call, investors have put the stock in a mild downward trend. When comparing the result of this action with those of the other companies previously mentioned, the short-term trend seems pretty stark. Disney’s shares have outperformed all others over the same period.

To be sure, these competitors have a lot more to their business than streaming. However, given the importance of entertainment content to all other facets of their business and Netflix’s aggressive posturing in the world of in-house productions, these trends may not be unrelated after all.

As the markets quietly closed for the weekend, the trends for various bond yields fanned out in proper order with an overall yield curve that has been getting steeper all summer so far. A steeper yield curve is considered an indicator of good economic conditions ahead. But what may be even more timely to consider is the fact that the curve is getting steeper because interest rates are falling.

In the chart below, rates have taken a pronounced dive over the past couple of months, with the shortest-term interest rates falling the fastest. (When short-term rates are higher than long-term rates, it is referred to as inverted yield curve, which is considered an indicator of poorer economic conditions to come.) The combination of good economic expectations and lower interest rates will likely lead to a natural interest in home buying. It may be that the upcoming fall season will turn out to be favorable for home buyers. If so, investors should be interested in considering ways to benefit from this trend.

Investors looking to take advantage of lower interest rates might consider investing in homebuilder stocks. At least one ETF makes that easy to do – the SPDR S&P Homebuilders ETF (XHB) invests in an index of several such companies. The chart for this ETF shows that it has been upward-trending for most of the year, similar to the market, but also shows a subtly stronger uptrend than the market at large.

While the markets catch a breath from an otherwise breathtaking week, some stocks are continuing to form trends, whether up or down. Netflix looks decidedly weaker, and homebuilder stocks may have economic reasons for their continued upward trend.

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