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Dividend Investor
Safe Income and Dividend Growth

March 26, 2018

Markets ended last week on a sour note as the U.S. and China imposed tit-for-tat tariffs and Facebook continued to drag tech stocks lower. The major indexes all declined more than 5% for the week, their worst weekly performance in over two years. I’m moving two of our most affected stocks to Hold today.

Markets ended last week on a sour note as the U.S. and China imposed tit-for-tat tariffs and Facebook continued to drag tech stocks lower. The major indexes all declined more than 5% for the week, their worst weekly performance in over two years. The S&P 500 closed just a few points above its February low, while the Dow hit a new year-to-date low.

I’m moving two of our most affected stocks to Hold today.

BB&T Corp (BBT) moves to Hold

Bank stocks started to weaken after Wednesday’s Fed meeting. The Fed raised rates, as expected, and guided expectations toward two more hikes this year—also not surprising. However, long-term bond yields declined after the meeting, causing the yield curve to flatten further. That depresses profits at banks like BB&T, which make money on the spread between short- and long-term interest rates.

Long-term yields were responding in part to lower long-term inflation expectations. Despite the Fed’s assurances that prices are rising steadily, markets expect inflation to remain tame this year and accelerate slowly. At the same time, the stock market’s slide caused an uptick in anxiety, increasing demand for safe havens like long-term Treasuries.

BBT is about 7% lower over the past five trading sessions; the financial stock index (XLF) has declined 6%. BBT broke through its 50-day to the downside Thursday, and closed slightly below its February low Friday. Volume wasn’t especially elevated and the stock is still well above its 200-day, which is down at 49. But, out of an abundance of caution, I’m going to move BBT to Hold today.

3M (MMM) moves to Hold

Last week also brought pain for large industrial stocks, and MMM pulled back nearly 5% Friday alone. The move was triggered by the Trump Administration’s imposition of tariffs on a wide range of Chinese imports. The selloff worsened after China retaliated with its own levies on U.S. goods.

In 2017, China accounted for about 10% of 3M’s sales (an estimated $3.2 billion of $31.6 billion in total sales). But 3M doesn’t just export U.S.-made products to China: the company has 6,000 employees, four research labs and nine manufacturing sites in China.

MMM was already below its 50-day moving average, but Friday’s drop brought the stock below its 200-day for the first time since November 2016. MMM also closed below its February low (and at the lowest price since October).

I’m moving 3M to Hold today, and depending on how the stock acts over the next few days (what we want to see is a quick and powerful rebound), we may make take some profits later this week.