Month: March 2017

Markets pulled back slightly this week as traders rotated out of interest rate bets following last week’s hike. On Tuesday stocks saw the largest one day sell-off in 2017. The S&P 500 Index fell 1.4 percent for the week, though year-to-date returns are still approaching 4 percent.  The Nasdaq and Dow Jones Industrial Average lost 1.2 and 1.5 percent, respectively.

Several officials also discussed shrinking the balance sheet by the end of this year. The Fed’s balance sheet grew from approximately $900 billion ahead of the 2008 financial crisis to $4.5 trillion by the end of quantitative easing. Many bonds held by the Fed are short-term such as $1.4 trillion in U.S. Treasuries with maturities of less than 5 years. Currently, the Federal Reserve reinvests proceeds into new bonds, keeping the balance sheet steady, but it could slowly reduce the balance sheet over time by not repurchasing bonds.

Existing home sales were lower than expected, primarily due to low inventory, but new home sales hit a seven-month high. The Kansas City Fed Manufacturing Survey smashed expectations with a reading of 20 (any number above zero indicates expansion). Initial unemployment claims hit 258,000, slightly higher than economists’ forecasts. The figure is still well below the 300,000 level that signals full employment and a strong labor market.

Weekly oil inventory increased by nearly 5 million barrels last week, significantly higher than forecast estimates. Domestic shale oil production also continues to offset OPEC cuts. West Texas Intermediate Crude fell below $48 a barrel.

Durable goods orders increased 1.7 percent in February, slightly higher than expectations. Core capital equipment orders fell 0.1 percent. Flash PMIs for Japan and the U.S. showed a slight decline, while Europe’s saw a surprise uptick. All three are above 50, signaling expansion in manufacturing. In the United Kingdom, the Brexit process will formally begin on March 29.

General Mills (GIS) reported its seventh straight month of declining sales, sending shares down slightly more than 2.5 percent. FedEx (FDX) also missed forecast earnings estimates, citing higher fuel costs last quarter. Management maintained full-year guidance, but shares dipped on the week.

Nike (NKE) fell 6 percent after missing sales expectations and lowered future guidance. Shares of Micron Technology (MU) popped 11 percent on Friday following better-than-expected results. The cyclical semiconductor sector is currently in an uptrend, with strong demand pulling chip prices higher.

The Nasdaq remains the strongest index this year. In contrast, small-caps are the weakest segment. The Russell 2000 Index has been underperforming since early December.


While one-month Libor held steady this past week, three-month Libor climbed to 1.16 percent. The 2-year, 5-year and 10-year Treasury yields all fell. The 10-year yield remains in a trading range between 2.3 and 2.6 percent.

Transportation is down more than 6 percent this month, though FedEx (FDX) delivered positive guidance for 2017, and maintained its earnings target of $11.85 to $12.35 in this fiscal year.

A dip in high-yield continued to spill into short-duration and floating-rate funds, although the declines in floating-rate funds are very mild. Thompson Bond (THOPX) resumed its uptrend as short-term interest rates declined.



A bottom in the dollar is not likely until Congress takes up tax reform in April. The very near-term support is at 99.5 on the U.S. Dollar Index. A break below could push the dollar down about 2 percent to 97.
The euro also could signal further dollar weakness in the coming weeks as FXE approaches its 2017 high. After bottoming in late December, the euro has been in a short-term bullish pattern.


Emerging markets pulled back with U.S. markets. Russia and Brazil have dragged on emerging market funds. China has been steady, moving in line with EEM. India remains the strongest market among the BRICs.


Oil inventory increased by 5 million barrels last week, well above the 2.8-million barrel estimated. Shale oil producers keep cutting costs and raising production despite the small dip in prices. Energy equities slipped to a new 2017 low in the wake of the inventory news. Although natural gas prices have rebounded, they followed the energy sector lower.




Consumer staples and utilities were the best performing sectors this week, as falling interest rates led traders back into rate-sensitive sectors.


Dividend funds continue to perform well versus the broader market. Growth-oriented funds, such as VIG, have held up better than high-yield funds, such as HDV, going back to February. The most growth-oriented funds, such as WisdomTree U.S. Quality Dividend Growth (DGRW) have performed the best this year.

SOXX is up 12 percent more than SPDR Technology (XLK) over the past 6 months. The semiconductor sector has benefited from the development of automated cars. Intel (INTC) recently purchased Mobileye (MBLY), jumping into the automated driving industry.

Bullish sentiment continued into Monday as investors took last week’s rate hike in stride. The momentum for domestic and overseas economic growth continues to signal higher prices for stocks. The S&P 500 Index has risen seven of the past eight weeks.

Over the long term, stock indices and interest rates trend in the same direction. Strong economic conditions lead to higher interest rates as well as higher growth and earnings. The markets advanced during the previous five interest rate hikes. Since 1986, the stock market has returned an average of 9.2 percent growth in the three years following an initial rate hike.

Investors believe the Fed will gradually raise rates at a more regular pace. The odds of a June hike are 60 percent; September odds are 80 percent.

February existing and new home sales will highlight a light week of data. Analysts forecast a slight decrease in existing home sales, but an increase in new home sales. Tight inventory should bolster prices. Economists expect a 1.5 percent increase in February durable goods orders, which will reinforce the Fed’s upbeat economic outlook.

Initial unemployment claims are expected to remain at historic lows. On Thursday, the Kansas City Fed Manufacturing Survey is expected to reflect a slight increase in activity.

Flash PMIs for March are due at the end of the week. Several nations, including the United States, United Kingdom, Japan and China are at or near multiyear highs. In the U.K., Prime Minister Theresa May will invoke Article 50 on March 29, formally beginning Britain’s exit from the European Union.

The House of Representatives will vote on a reform of the Affordable Care Act. The bill will free up roughly $340 billion that the GOP needs for tax cuts and reform.

General Mills, FedEx, Nike, and Micron Technology will announce earnings this week. General Mills (GIS) will report Tuesday before the market open. Consensus estimates are for earnings per share (EPS) of $0.71 based on revenues of $3.82 billion. FedEx (FDX) is expected to deliver EPS of $2.62 on revenues of $15 billion after Tuesday’s closing bell. Analysts believe the company rebounded from last quarter’s slight miss.

Nike (NKE) will also report after the bell Tuesday. Analysts forecast earnings of $0.52 per share on revenues of $8.45 billion. Micron Technology (MU) will report after the bell Thursday. The company has seen robust demand and pricing power over the past year.

Markets rallied after the Federal Reserve’s interest rate hike. The central bank also indicated it would raise rates two additional times this year. Basic materials, utilities, technology, industrials, and consumer staples led the market following the rate hike. The Nasdaq rose to within a quarter percent of its all-time high, the Dow Jones Industrial Average and the S&P 500 came within 1.5 percent of their highs.

The U.S. Producer Price Index (PPI) rose 0.3 percent in February, exceeding forecasts. The year-over-year gain was the largest in five years. The Consumer Price Index (CPI) increased 0.1 percent, as expected. The Empire State and Philly Fed manufacturing surveys showed continued economic growth in their respective regions. The March national homebuilders’ survey reached a 12-year high, reflecting confidence in the sector. February housing starts were slightly above expectations. Retail sales figures were slightly lower than the forecast of 0.2 percent.

Unemployment claims were below estimates. Initial claims have been below 300,000 for 106 straight weeks, the longest streak since 1970. The Job Openings and Labor Turnover Survey (JOLTS) for January showed a marginal increase in the number of people voluntarily changing jobs, while job openings increased from the December figure.

As expected, the Bank of Japan (BoJ) and the Bank of England (BoE) held their benchmark interest rates unchanged. The BOJ will continue its easy money policy to spur the country’s recent economic growth. The British central bank took a cautious approach as it awaits a formal Brexit. The upper chamber of parliament and the Queen gave final approval for Prime Minister Theresa May to begin the process of exiting the European Union. She’s expected to invoke Article 50 at the end of March. The People’s Bank of China (PBoC) raised borrowing costs 25 basis points with the Federal Reserve.

Tech giants Oracle (ORCL) and Adobe Systems (ADBE) delivered earnings this week. ORCL jumped almost 10 percent after beating expectations with its cloud-based business model. Shares of Adobe rose close to 5 percent after earnings and revenue topped forecasts. It also benefited from growth in its cloud-based businesses. Dollar General (DG) remained flat despite better-than-expected sales. Tiffany & Co. (TIF) shares climbed 2 percent on Friday after demand in Asia boosted sales.

Investor optimism remains high.  FactSet research reported eighteen consecutive weeks of inflows to equity ETFs for the week ending March 9^th.  This indicates the market still has momentum and the bull market should continue.  The spread in sector performance is becoming increasingly relevant.  If you are looking for the sectors that are rapidly gaining ground, you should read a recent copy of my Global Momentum Guide.  Each week, we track several hundred sector and international funds, providing you the information to trade actively.  To read a recent issue, please click here. If you choose to subscribe, you next issue will be delivered first thing Monday morning.