The June issue is NOW AVAILABLE, click here to access. Data files for the Investor Guide to Fidelity Funds are posted below. Market Perspective: Investors More Confident as Tech Rallies Equities […]
Janet Yellen remained relatively positive in today’s speech before the World Affairs Council of Philadelphia. She did not indicate the specific timing for rate hikes, but Friday’s subdued jobs report may delay any changes.
Stocks continue to perform well and most data argues for a rate increase based on Fed officials’ public statements. The labor market has also been very strong, including rising wage growth, which is a key metric for Fed officials concerned about inflation.
The Fed will release its April consumer credit report on Tuesday and is expected to show an increase of $18 billion. Productivity and unit labor costs for the first quarter will also be released. Both of these numbers impact wage growth. Weekly crude inventory data will be released on Wednesday. The report is expected to state a small decline.
The mortgage application index and the Job Openings and Labor Turnover Survey (JOLTS) will also be released on Wednesday. Thursday’s initial unemployment claims figures will better inform the market with fresh data. Economists forecast 270,000 initial claims. Wholesale inventories for April are out on Thursday as well. This number directly impacts GDP estimates. The University of Michigan Consumer Sentiment Index is due out Friday. The consensus estimate is for a reading of 94.5.
Athletic apparel company lululemon athletica (LULU) is expected to report earnings per share of $0.31 on revenues of $487.7 million on Wednesday. FuelCell Energy (FCEL) is scheduled to report a net loss of $0.40 per share on revenue of $35 million. The company’s stock rallied in May after announcing a joint project with Exxon Mobile. The two firms are working on a new method to capture power plant carbon dioxide emissions. Investors will focus on client volume when the tax preparation services company H&R Block (HRB) delivers earnings Thursday. The consensus estimate is for an EPS of $3.16 on revenues of $2.29 billion.
Overseas, the latest eurozone GDP numbers will be available on Tuesday. The Chinese trade balance for May will also be released. Estimates call for a decline in both Chinese exports and imports. The trade balance is expected to be near-record highs at a positive $58 billion. Chinese CPI and industrial production will be out on Wednesday, which is expected to fall from 3.4 percent in April to 3.3 percent in May.
Click Here to view today’s Global Momentum Guide WEEKLY SECTOR PERSPECTIVE Equities shrugged off Friday’s employment report to finish the week with a small advance. 80,000 new jobs were […]
Stocks look to close flat for the holiday-shortened week following a weaker-than-expected jobs report. The Dow Jones Industrial Average and the S&P 500 Index are now within 2 percentage points of their all-time highs. The S&P 500 also breached a key psychological level of 2100 points for the first time since April and closed at its highest level in seven months on Thursday.
Economic data was strong heading into Friday. The S&P/Case-Shiller House Price index released Tuesday indicated home prices are back to within 4 percent of the record high set in 2006. As expected, the latest ISM and Markit manufacturing surveys released Wednesday showed growth for the third consecutive month. Consumer spending posted its biggest gain in six years in April, leading to upward revisions of GDP growth. The Atlanta Fed’s GDP Now model is currently forecasting 2.5 percent GDP growth for the second quarter.
The latest Fed Beige Book released Wednesday reflects continued strength in the economy and the labor market. Auto sales in May fell from April, but are still on pace for a record 2016. Weekly unemployment claims data was better than expected, though May non-farm payroll numbers fell short of expectations with the creation of just 38,000 jobs.
The recently resolved Verizon strike mitigated job growth with 40,000 job losses that will be added back in the June report. Wage growth was strong, rising at an annualized rate of 2.5 percent and unemployment fell to 4.7 percent.
Stocks initially dropped on the labor report, but quickly recovered. Odds of a June hike fell to 4 percent and odds of a July hike fell from near 60 percent to near 30 percent. Strong economic data in the month ahead could revive expectations of a July hike, but a June hike is unlikely.
Oil prices remained relatively unchanged as OPEC failed to reach an agreement on production cuts. With prices near $50 a barrel, there’s less urgency for production cuts among nations with lower production costs and stable finances. Domestically, the weekly EIA crude inventory report showed a 1.4 million barrel draw down rather than the anticipated build, which should help to keep prices near the $50 level. The Energy Select Sector SPDR exchange-traded fund (XLE) was down slightly on the week.
In overseas news, Japanese Prime Minister Shinzo Abe proposed a new series of measures to stimulate the world’s third-largest economy, but they won’t be implemented until the autumn. Chinese manufacturing surveys held steady. A poll out early in the week generated some uncertainty over the upcoming UK referendum on EU membership, sending the pound lower versus the U.S. dollar. On Thursday, the European Central Bank (ECB) held interest rates steady, as investors anticipated.
In the last remaining earnings reports of the quarter, investors heard from Medtronic, Michael Kors, Broadcom and Ciena. Medical device manufacturer Medtronic (MDT) beat profit and revenue expectations, and shares rallied sharply on Thursday. Luxury fashion retailer Michael Kors (KORS) also beat expectations when it reported earnings Wednesday. The company increased same store sales as well as overall revenues, easing concerns over reports that Nordstrom (JWN) was phasing out sales of KORS handbags. Shares of Broadcom (AVGO) popped 5 percent on Friday after the chipmaker beat expectations and raised its quarterly dividend. News was even better at Ciena (CIEN), where profits declined less than expected. Shares of CIEN were up nearly 20 percent in two days of trading following the report.
First Trust Dow Jones Internet (FDN) Global X Social Media (SOCL) First Trust ISE Cloud Computing (SKYY)
Cloud and social media stocks climbed to new 2016 highs over the last week to rally the broader Internet sector. Demandware (DWRE), which comprises about 1 percent of FDN, is being purchased by Salesforce.com (CRM) for cash. Shares of DWRE climbed more than 50 percent on the day, which translates into a 0.5 percent increase in shares of FDN. That gain is keeping FDN in the black as much of the sector trades lower today.
SPDR Energy (XLE) FirstTrust ISE Revere Natural Gas (FCG) Global X Copper Miners (COPX) Market Vectors Coal (KOL) Market Vectors Steel (SLX)
The energy sector has consolidated even as oil prices nudge towards $50 a barrel. XLE has support near $64 a share. That could be tested in the coming weeks if the U.S. dollar continues to strengthen.
A chart below compares the price of West Texas Intermediate Crude (WTIC) to the inverted U.S. Dollar Index. Aside from some short-term aberrations, the price of crude tends to move inverse to the U.S. dollar. If the dollar rally extends into June, crude oil is likely to stall or correct.
China’s manufacturing weakness in May will likely continue into June if the U.S. dollar strengthens. Industrial metals have already corrected, in part because due to China’s futures trading restrictions. Regulators successfully burst the bubble in iron ore, steel rebar and other hotly traded commodities.
Many emerging markets rely on commodities exports to fuel their growth. When exports dry up or prices fall, these countries often face slow growth and overwhelming debt. EEM’s 2016 chart illustrates its similarity to the above commodity funds.
Looking farther back, the 1-year chart of EEM is forming an inverse head-and-shoulders pattern. With a low near $28 and neckline above $35, an upward break could send EEM into the low $40s.This pattern has yet to complete, but it shows the potential for a bullish move if markets head north. On the downside, the nearest support is at $31 per share.
iShares US Medical Devices (IHI) iShares US Health Providers (IHF) iShares Nasdaq Biotechnology (IBB) SPDR Pharmaceuticals (XPH)
Biotech and pharma are still leading the healthcare sector higher. Over the past two weeks, these sectors are up 9 percent, triple the overall healthcare sector’s 3 percent gain. Both IBB and XPH have similar charts. IBB is approaching resistance at $290 and XPH at a tad below $46 per share. Both funds could add another 10 percent if they clear those levels.
Medical devices remains the strongest sub-sector; it hit a new all-time high in the past week.
The Nasdaq beat the Dow and S&P 500 by a wide margin in May, though it has yet to break into the black for the year. Technology companies such as Apple (AAPL) and Microsoft (MSFT) recovered some of their April losses, lifting the tech-heavy index.
The Dow had been the best performer in 2016 as investors stuck with blue chips for most of the year, but it lost its lead to the S&P 500 Index in May. Mid- and small-caps outperformed in May as investor confidence grew. For that reason, SDY was also an underperformer.
The S&P 500 Index remains near its all-time highs and the 2100 level will be the battle line between bulls and bears in the week ahead.
With the odds of a Fed rate hike climbing, utilities surprisingly outperformed over the past week, with XLU up nearly 2 percent. Technology, healthcare and consumer discretionary were more typical outperformers thanks to strong economic data and relative immunity to interest rates.
Semiconductors remain in a strong uptrend and earnings from Broadcom (AVGO) tomorrow could keep the hot streak alive. Analysts expect $2.38 per share in earnings, and those estimates have increased from $2.20 at the start of the quarter. AVGO is 11 percent of SOXX.
Technology is nearing its all-time high. Thus far in 2016, the defensive sectors and industrials have broken out to new all-time highs, but a new high in this growth sector would be a significantly bullish event for the overall market.
Financials continue to climb higher amid rising rate hike expectations. A 1.5-percent gain would push IAK to a new all-time high. Insurance companies benefit from higher interest rates because it both raises the return on their assets and allows them to shift capital away from riskier investments.
iShares iBoxx High Yield Corporate Bond (HYG) iShares iBoxx Investment Grade Corporate Bond (LQD)
High-yield bonds have stalled along with oil prices, while investment-grade bonds held firm with the 10-year treasury yield. A larger pullback in LQD is likely if interest rates increase.
SPDR S&P 500 Large Cap Growth (SPYG) SPDR S&P 500 Large Cap Value (SPYV)
Value and growth are in a stalemate as June kicks off. Commodities have weakened, despite growth in financials. Technology’s rebound has been a boon for growth, but consumer discretionary has been hurt by losses in areas such as department store retail.
Market Vectors Gold Miners (GDX) Global X Silver Miners (SIL) SPDR Gold Shares (GLD)
Gold and precious metals took a hit on the Fed’s hawkish tone of late, but they remain in a correction similar to the rest of the commodity sector.
