Month: July 2016

SPDR S&P 500 (SPY)
SPDR DJIA (DIA)
iShares Core High Dividend (HDV)
Vanguard Dividend Appreciation (VIG)
Vanguard High Dividend Yield (VYM)
iShares MSCI Edge Minimum Volatility USA (USMV)
iShares 20+ Year Treasury (TLT)
iShares iBoxx $ Investment Grade Bonds (LQD)

The S&P 500 Index and Dow Jones Industrial Average once again climbed to new all-time highs. A rally of more than 10 percent is in the cards, with initial upside targets as high as 2400 for the S&P 500 Index. Dividend funds rallied along with the market, even as investors searched the rally for bargain stocks.

The Nasdaq and small-cap Russell 2000 are enjoying more moderate rebounds. iShares Russell 2000 is within about 5 percent of its old high. Mid-caps, as measured by iShares S&P 400 (MDY), are already at a new high.

Bond prices have yet to slide as might be expected amid a stock rally, possibly due to the bull run’s early nature or overseas central bank activities.  We’ll have to wait and see how these assets perform, but given the run-up in 2016, a correction would not surprise in the least.

iShares MSCI Japan (EWJ)
CurrencyShares Japanese Yen (FXY)

After securing a two-third majority in the upper house of parliament, investors expect Japan’s Prime Minister Abe will unleash a stimulus of at least 10 trillion yuan. A visit by former Federal Reserve Chairman Ben Bernanke also ignited speculation that the Bank of Japan will unleash the second arrow of Abenomics, quantitative easing. The BoJ triggered a 50 percent devaluation of the yen following Abe’s election in 2012, but gave up close to half of those gains in 2016 as the BoJ opted for negative interest rates instead of expanded quantitative easing. The Nikkei rallied and the yen weakened on Monday and Tuesday before taking a breather on Wednesday.

Fidelity Floating Rate High Income (FFRHX)
DoubleLine Core Fixed Income (DLFNX)
Thompson Bond (THOPX)
Fidelity Corporate Bond (FCBFX)
Fidelity High Income (SPHIX)

Many bond funds are trading at or near all-time highs, including the group shown below. We’re seeing a small pullback, matching the dip seen in TLT and LQD. Funds leaning towards high yield, such as FFRHX and THOPX, have not experienced the pullback because investor optimism is driving down the spread between high-yield and investment grade bonds.

Sector Performance

Defensive utilities and consumer staples underperformed last week, while materials, financials and industrials were the best performing sectors. SPDR Materials (XLB) has 10.5 percent of assets in Dupont (DD) and Dow Chemical (DOW), both of which recently climbed.

Friday’s strong jobs report propelled financials. Speculators have yet to significantly adjust their rate hike expectations, but economists are starting to talk about a September increase.

Semiconductors and Internet stocks also outperformed. Over the past week, iShares PHLX Semiconductors (SOXX) climbed more than 6 percent. Micron Technology (MU) and Nvidia (NVDA) both rallied more than 10 percent on the week to pull the sector higher. Stocks such as Intel (INTC) and Texas Instruments (TXN) were up about 6 percent.

Although the broader healthcare sector is still about 15 percent below all-time highs, FSPHX and FPHAX both climbed to new 2016 highs last week. FPHAX also broke out to a new 2016 high as big pharma recovers, helping lift the performance of the sector.

iShares MSCI Emerging Markets (EEM)

Emerging markets broke out to a new 2016 high last week and are close to setting a new 52-week high. The sector has now formed an inverse head-and-shoulders pattern. If the pattern completes, it could carry the stock to near $44 per share, which is the top of EEM’s trading range this decade. The rally so far has generated primarily in natural resource producers riding the commodities rally, such as Brazil, Russia and South Africa.

SPDR Energy (XLE)
First Trust ISE-Revere Natural Gas (FCG)
Market Vectors Gold Miners (GDX)
Market Vectors Steel (SLX)
Market Vectors Coal (KOL)

SLX and KOL broke out to new 52-week highs, signaling the commodities rally may be ready to take another step forward. Weak trade data out of China did not slow the rally, instead investors are betting on more stimulus from the Chinese government.

Gold prices pulled back in the past week. The $1300 level is support and on the upside, $1400 is the next level for the bulls to tackle. Thus far mining shares have not followed the gold price lower and like KOL and SLX, are trading close to its 52-week high.

Oil prices tumbled about 4 percent on Wednesday following a lower-than-expected inventory decline. More importantly for the market, gasoline and heating oil inventories are rising, signaling future demand could drop. A potential bright spot is the early emergence of La Nina, which could spell colder than normal weather across much of the northern United States this winter. In the meantime, however, oil prices may struggle to recover the $50 per barrel level.

Fidelity Low-Priced Stock (FLPSX)

FLPSX has another 5 percent to go before recovering its all-time high set a year ago. Similar to EEM, this chart also shows an inverted head and shoulders. It will complete when FLPSX climbs above $49.5 per share, and the upside target would be $56 per share, a gain of 14 percent from Tuesday’s close.

The S&P 500 Index opened at a new all-time high on Monday following last week’s strong economic data.  Positive earnings reports could propel the rally throughout the week.

Japan’s Prime Minister Abe won a supermajority in the upper house of parliament. The victory was seen as an endorsement of the debt financing and debt monetization policies pursued by Abe and the Bank of Japan (“Abenomics”). Investors bid up Japanese stocks and sold the yen in the wake of the vote.

U.S. stocks continued to benefit from last Friday’s better-than-expected jobs report. Homebuilders rallied last week and homebuilder funds are at or near all-time highs. Consumer discretionary also broke out to a new high, and technology is on the cusp of a new all-time high.

The Job Openings and Labor Turnover Survey (JOLTS) will be released on Tuesday.  Analysts expect it will confirm recent strength in the labor market, although the consensus calls for a slight drop from April, to 5.7 million job openings. Updated crude inventory levels, the mortgage purchase applications index and the Federal Reserve Beige Book will all be available on Wednesday.

Inflation and retail sales data, both critical economic indicators, will be released on Friday. Economists forecast the CPI increased 0.3 percent in June, with core CPI up 0.2 percent. Analysts expect a 0.1 percent rise in June retail sales (0.5 percent ex-autos). Industrial production and capacity utilization for June will also be out on Friday and could impact GDP forecasts. Both are expected to show an increase in production.

Alcoa (AA) reported quarterly earnings per share (EPS) of $0.15 on revenues of $5.3 billion on Monday, exceeding expectations of $0.09 EPS on $5.2 billion. Investors will continue to focus on the company’s plan to split into two separate business units.

Several major banks are scheduled to report earnings later in the week. Big banks reported strong lending growth last quarter, despite weak investment and trading activity. Regional banks derive a larger portion of revenue from lending and could enjoy similar second quarter benefits. Analysts expect EPS of $1.44 on revenues of $24.1 billion from JP Morgan Chase on Thursday. Citigroup (C) is expected to deliver EPS of $1.14 on consensus revenues of $17.71 billion, while Wells Fargo (WFC) is expected to report EPS of $1.01 on revenues of $22.21 billion. Two larger regional banks, PNC Financial (PNC) and U.S. Bancorp (USB) are also set to report this week.

Analysts expect EPS of $0.74 on $3.08 billion in sales from Yum Brands (YUM) on Wednesday. Transportation index component, CSX Corp (CSX), will also report on Wednesday; analysts anticipate double-digit declines in earnings and sales from a year ago.

Stocks pushed to all-time highs on Friday following a jobs report that exceeded expectations.

The Dow Jones Industrial Average finished the week above 18,100 points, while the S&P 500 Index breached its all-time high of 2125 to ultimately close at 2129.90. June’s jobs report alleviated labor market concerns that have loomed since May’s weak data. 287,000 new jobs were created last month, solidly ahead of the median forecast of 173,000. Another good sign from the report was the uptick in the unemployment rate to 4.9 percent. We expect to see a rising unemployment rate as the jobs market continues to strengthen because discouraged workers are not counted by the government statisticians as unemployed. As they start looking for work again, they will be added to the unemployment report.  Additionally, initial jobless claims fell by 16,000 last week to a nearly three-month low of 254,000.

Earlier in the week, markets were bolstered by positive action from the Bank of England (BoE). Citing uncertainty following the Brexit vote, the central bank relaxed regulatory requirements for banks and reduced capital requirements, raising the lending limit to ?150 billion. Elsewhere, the Royal Bank of Australia held interest rates steady at 1.75 percent; speculators are pricing in a possible rate cut next month.

The U.S. manufacturing and nonmanufacturing PMIs from the Institute of Supply Management (ISM) reached their highest levels in the past sixteen and seven months respectively. The latest Chinese Service Purchasing Managers Index (PMI) released Tuesday reported to be 50, signaling the midpoint between expansion and contraction. UK services’ PMI fell to 53.5, but still remaining in expansionary territory.

The U.S. trade balance expanded to $41.1 billion in May as exports declined. Although weekly crude oil inventory fell and the report also indicated a reduction in domestic production, ample gasoline supplies might dent demand going forward. The price of oil dropped nearly $4 on the week, to $45.12 per barrel.

On Thursday, PepsiCo (PEP) delivered better-than-expected EPS of $1.38 and revenues of $2.01 billion. Pepsi also raised its forecast for the year, based on strong sales in North America. Shares of the company rose on the news and extended the rally in to Friday. Walgreens (WBA) reported earnings per share of $1.18 on revenues of $29.5 billion. Profits increased by 14.7 percent versus year-ago levels, but revenues missed estimates. Despite the strong earnings, investors focused on the revenue miss, and shares of WBA fell in the wake of the report.