Month: January 2017

Earnings season will pick up this week as several blue-chip giants and sector leaders are scheduled to report. Of the 12 percent of S&P 500 firms that have delivered earnings, 61 percent have beaten estimates. Financials lifted the estimated S&P 500 growth rate from 3.0 percent (as of December 31) to 3.4 percent (reported earnings plus current estimates). For the second straight quarter, most companies are on track to report overall earnings growth, and at the current pace we could see a final growth rate closer to 5 percent.

In technology this week, Alphabet (GOOG), Microsoft (MSFT), Yahoo (YHOO), Texas Instruments (TXN), EBay (EBAY) and Intel (INTC) will report.  McDonald’s (MCD), Comcast (CMCSA), Diageo (DIA), Unilever (UN), Colgate-Palmolive (CL) will headline the week’s consumer sector reports.

Abbott Labs (ABT), Johnson & Johnson (JNJ), Biogen (BIIB), Bristol Myers (BMY), Celgene (CELG) and Abbvie (ABBV) are among the healthcare firms set to report this week, while energy sector earnings will include Chevron (CVX), Halliburton (HAL), and Baker Hughes (BHI).

This will be an important week for industrial earnings. Sub-sector funds such as iShares US Aerospace & Defense (ITA) will see almost all of their top-10 holdings report this week. Boeing (BA), Caterpillar (CAT), 3M (MMM), AK Steel (AKS), Alcoa (AA), Steel Dynamics (STLD), Allegheny Technologies (ATI), DuPont (DD), Lockheed Martin (LMT), Illinois Tool Works (ITW), Rockwell Automation (ROK), United Technologies (UTX), Dow Chemical (DOW), Ford (F), Northrup Grumman (NOC), Raytheon (RTN), General Dynamics (GD), and Honeywell (HON) are all scheduled to report.

Verizon (VZ) and AT&T (T) will also report this week. Vanguard Telecom (VOX) has 46 percent of assets in the two firms. iShares US Telecom (IYZ) is more diversified, but still has 20 percent of assets in these two firms.

While the bulk of financials have reported, as measured by market capitalization, but dozens of small and regional banks will report this week, important for funds such as SPDR S&P Regional Banking (KRE) as Hennessy Small Cap Financial (HSFNX).

Overseas markets will continue adjusting to currency market moves. President Trump could sign an executive order calling for renegotiation of NAFTA. Last week’s Brexit speech by British Prime Minister May continues to reverberate in Europe. The British High Court will make another ruling on the parliamentary procedure for Brexit later this week. The U.S. Dollar Index could fall below 100 this week.

December existing home sales and Markit’s flash manufacturing PMI will be released on Tuesday. Home sales are expected to show a slight uptick month-over-month, while manufacturing is expected to improve. Wednesday’s U.S. crude inventory data is anticipated to reflect a 1.7 million barrel draw on the heels of last week’s 2.3 million barrel increase. Oil market speculators came into the week at bullish extremes, raising the risk of a short-term pullback.

On Thursday, the weekly unemployment claims figure is expected to rise from last week’s 234,000 to a forecasted 247,000, which is still well below levels indicating full employment. Analysts forecast December new home sales rose 0.3 percent from November. The flash services PMI from Markit will be out as well.

The U.S. Durable Goods Orders report for December, as well as core capital equipment orders will be out on Friday. More importantly, fourth quarter Gross Domestic Product (GDP) will be released. The consensus forecast calls for 2.2 percent growth.  The Atlanta Federal Reserve’s GDP Now Model, which has been quite accurate in the past, was calling for 2.8 percent growth in its last update. The final GDP figure should be closer to the Atlanta Fed number, which would be positive for interest rates and the financial sector.

Although trading marginally lower on the week, major indexes remained within the tight trading range established in December. President Trump’s comments regarding the strength of the U.S. currency sent the dollar index lower before it rebounded following remarks by Federal Reserve Chair Janet Yellen.

Overseas currencies, especially the British pound, also experienced volatility. Prime Minister Theresa May outlined her nation’s plan for leaving the European Union irrespective of other trade agreements. Although the euro rose before the official interest rate announcement from the European Central Bank (ECB), the currency fell after the statement was released. The ECB left interest rates unchanged and plans to continue the quantitative easing (QE) program outlined last month. While the benchmark 10-year Treasury was lower by 2 percent, domestic markets finished the week down by less than 1 percent. Reflecting overseas trading, shares of MSCI Emerging Markets ETF (EEM) and iShares MSCI EAFE (EFA) were also marginally lower. Gold remains slightly above $1,200 per ounce.

Although the Empire State Manufacturing Index showed a lower than expected growth rate, the Philly Fed Survey surged 23.6 percent in January to easily beat analysts’ forecasts of 16 percent. This was the fastest growth rate since 2014. The Federal Reserve Beige Book released Wednesday indicated a slow, but steady pace of growth. The report highlighted a tight labor market and a moderate increase in inflation. The Labor Department’s U.S. Consumer Price Index rose 0.3 percent, as anticipated, driven by a rise in rents and gasoline prices. Industrial production also grew at the fastest pace in two years. Weekly unemployment claims unexpectedly came in lower than the previous report.

Steady interest rates and a drop in Federal Housing Administration insurance premiums drove an increase in mortgage refinancing last week, while purchase applications remained steady. Housing starts increased more than expected due to an increase in multifamily rental units. West Texas Intermediate Crude (WTI) fell as the weekly inventory report showed a larger than expected build, though oil remains above $52 per barrel. Shares of the Energy Select Sector SPDR ETF (XLE) were marginally lower for the week.

Shares of both Morgan Stanley (MS) and Goldman Sachs (GS) traded slightly lower as investors took profits. Both companies handily beat analysts’ earnings per share (EPS) and revenue forecasts. Despite benefiting from the perceived favorable environment that investors expect under the new administration like other financial institutions, shares of Citigroup (C) also sold off after the company reported impressive EPS and revenue numbers. In contrast, shares of Netflix (NFLX) surged higher by more than 5 percent when the company reported EPS, revenue and subscriber growth figures that easily beat Wall Street estimates. While International Business Machines (IBM) beat estimates when it reported on Thursday, the company’s revenues declined for the 19th straight quarter. Shares were lower by 3.5 percent in after-hours trading as IBM continues the difficult transition from an operating hardware and systems company to one focused on cloud services and artificial intelligence.

The Nasdaq hit a new all-time high over the past week, while the Dow Jones Industrial Average and Russell 2000 are in a trading range, consolidating early December gains.

Technology has driven most of the Nasdaq’s outperformance. Consumer discretionary, also weighted heavily in the Nasdaq at 21 percent of assets, pushed to a new high over the past week. Consumer staples rebounded strongly as interest rates pulled back. Industrials and financials, which led the post-election rally, remain in consolidation.

Financial companies broadly surpassed earnings estimates over the past week. J.P. Morgan (JPM) and Bank of America (BAC) exceeded expectations last week, and Morgan Stanley (MS) beat on Tuesday. On Wednesday morning, both Goldman Sachs (GS) and Citigroup (C) also beat earnings estimates. Instead of tracking with earnings reports, however, XLF tracked with the U.S. dollar, which fell 1 percent on Tuesday and then bounced higher on Wednesday.

Last week we speculated that a drop below 101 would threaten the short-term bullish trend in the dollar, and it did fall on Tuesday. A dip below 100 is now possible. If historical trends hold true, a correction to around 97 on the U.S. Dollar Index is possible over the next three months.

The euro and Chinese yuan have rallied versus the dollar in 2017. The Mexican peso has struggled as speculators contemplate the new U.S. administration. Aside from changes in trade, Mexico receives a large flow of remittances from illegal aliens working in the USA. A border wall and enforcement of immigration laws could have a meaningful impact on Mexican GDP.

Although a weaker U.S. dollar could help energy in the short-term, the production cut deal could terminate early. Saudi Arabia alleged it will have cleared oversupply by mid-2017.  If energy demand remains stable, however, the end of the deal would lead to higher production and lower prices in the second half of the year.

Interest rates mirror the broader stock market’s consolidation pattern. Three-month LIBOR points to rising rates in the near term, while LIBOR is holding steady after the Federal Reserve’s December hike. At 0.77 percent, LIBOR is slightly above the Fed’s interest rate range of 0.50 to 0.75 percent. The Fed indicated three rate hikes in 2017 are possible, but the markets remain skeptical.

Fidelity Floating Rate High Income (FFRHX), PowerShares Senior Loan (BKLN) and RidgeWorth Seix Floating Rate High Income (SAMBX) are still holding steady or edging higher. Thompson Bond (THOPX) remains in the sweet spot of the bond market.

WisdomTree U.S. Quality Dividend Growth (DGRW) has outperformed other dividend funds due to healthcare and technology exposure.

British Prime Minister Theresa May outlined the Brexit process on Tuesday. Currency traders took the pound to a new 52-week low on Monday following talk of a “hard Brexit.” May did say Britain would leave even without a new trade agreement with the EU, but she also said Parliament would vote on a deal. Whether that interpretation gained currency, or it was simply oversold, the pound rebounded more than 2 percent following the speech, climbing to a one-week high.

Donald Trump also rattled currency markets when The Wall Street Journal released comments from a Friday interview. Speaking about the U.S. dollar, Trump said, “Our companies can’t compete with them now because our currency is too strong. And it’s killing us.” Although there was no associated policy proposal, the U.S. Dollar Index tumbled more than 1 percent. This may be another example of short-term traders jumping on Trump comments and tweets, rather than considering the larger picture. On Friday, Trump will take the oath of office and deliver his inaugural address as the 45th president of the United States.

The European Central Bank will announce their latest interest rate decision Thursday. After extending the timeline for quantitative easing last month, no major changes are expected. Federal Reserve Chair Janet Yellen will speak before the Stanford Institute for Economic Policy on Wednesday.

Key economic reports this week include the Federal Reserve Beige Book, the December U.S. Consumer Price Index (CPI) and the domestic housing starts figure for December. In addition to the Empire State Manufacturing and Philly Fed Surveys, weekly crude inventory, mortgage application and unemployment claims data will be available this week.

The Empire State index came in lower than expected, but still indicated expansion. Analysts expect the Beige Book and Philly Fed Surveys will also show a slight decline in the pace of growth.

U.S. CPI is anticipated to have increased 0.3 percent in December, within the Fed’s target range. Analysts expect a rise in weekly mortgage applications as interest rates pulled back in January. Weekly oil inventories are forecast to show a slight decline while unemployment claims are expected to rise marginally. Economists anticipate domestic housing starts were 1.2 million in December.

Overseas, China will release GDP growth, fixed-asset investment, retail sales and industrial production on Thursday.

As another earnings season gets underway, investors will hear quarterly results from several major financial institutions as well as key technology and industrial companies. On Tuesday, Morgan Stanley (MS) beat consensus earnings estimates by 24 percent and beat revenue estimates, but shares fell along with the U.S. dollar as traders took profits on “Trump trades.” On Wednesday, Goldman Sachs is forecast to report consensus EPS of $4.82 on revenues of $7.72 billion. Like MS, Goldman is expected to benefit from the Trump effect stimulus and the postelection rally.

Many large regional banks are also set to report, including U.S. Bancorp (USB), Bank of New York (BK), M&T Bank Corp (MTB), Citigroup (C) and BB&T Corp (BBT). Analysts are looking for $1.12 per share and revenues of $17.3 billion from Citigroup.

UnitedHealth Group (UNH) delivered a solid earnings report on Tuesday before the bell, but shares fell with the market. The healthcare provider subsector enjoyed a 5-day rally last week as Congressional Republicans took the first step towards repealing the Affordable Care Act.

Video streaming service Netflix (NFLX) will also report on Wednesday. The consensus estimate is $0.13 per share in earnings along with revenues of $2.47 billion. Shares of the company have climbed to all-time highs ahead of the earnings release.

International Business Machines (IBM) is due to report Thursday and General Electric (GE) is scheduled for Friday. IBM is expected to report earnings per share of $4.89 on revenues of $21.69 billion. Analysts will be paying close attention to the success of the company’s continued restructuring efforts. At GE, falling earnings and revenues of $0.46 per share and $33.66 billion are expected.

Friday also brings earnings from Schlumberger (SLB), the oil services giant. In market cap weighted funds such as iShares US Oil Equipment & Services (IEZ), the firm is a major holding. In the case of IEZ, 19.8 percent. Analysts are looking for $0.27 per share, down from $0.65 last year.