Month: September 2017

Small-caps drove the stock market to new all-time highs this week. The Russell 2000 Index gained 2.78 percent. The S&P 500 Index saw a smaller increase of 0.68 percent. SPDR Financials (XLF) climbed 1.65 percent on the week, and SPDR S&P Regional Banks (KRE) advanced 4.30 percent.

In the futures market, the odds of a December rate hike were still over 70 percent on Friday. The 10-year Treasury yield climbed above 2.3 percent, up from 2.2 percent last week.

Rising interest rates pushed the U.S. dollar to a 2-month high. Currency weakness was concentrated in emerging markets, led by a decline in the Chinese yuan. WisdomTree Emerging Currency (CEW) fell 1.40 percent. iShares MSCI Emerging Markets (EEM) is down 1.26 percent.

Durable goods orders in August increased 1.7 percent, better than expectations. New home sales data was weaker than expected, but investors brushed off the news. iShares U.S. Home Construction (ITB) gained 4.46 percent on the week and hit a new 52-week high. Initial claims for unemployment were 272,000 the week prior, in line with expectations. Second-quarter GDP growth was revised higher to 3.1 percent, also matching expectations.

Energy rallied, but signs of weakness appeared late in the week. SPDR Energy (XLE) climbed 1.87 percent. West Texas Intermediate crude closed above $50 for the second week, but shares remain heavily overbought.

Micron Technology (MU) beat earnings estimates by 15 percent this week. iShares Semiconductors (SOXX) hit a new 52-week high on Friday. Nike beat estimates by 19 percent, but shares fell after revenues in North America reportedly fell.
Biotechnology rallied 1.14 percent this week. Healthcare providers advanced 1.88.

Equities opened in the red on Monday due to weakness in the technology sector. Apple (AAPL), Amazon (AMZN) and Google (GOOGL) slipped more than 1 percent. Facebook (FB) fell more than 3 percent, and Netflix (NFLX) more than 4 percent. West Texas Intermediate crude climbed near its May 2017 high of $52. Healthcare, consumer staples and utilities also rose in early trading.

New homes sales for August will be out on Tuesday. Economists anticipate 588,000, up from 571,000 in July. Pending home sales are due on Wednesday. The consensus forecast calls for a 1.1-percent rise in August durable goods. Core capital goods orders in August are also expected to reflect an increase. The third and final revision to second-quarter GDP will be released on Thursday. Economists have predicted growth accelerated by 0.1 percentage points, to 3.1 percent.

Last week we saw a surprisingly strong initial claims number. Analysts predicted 302,000 new unemployment claims, but the actual number was 259,000. Claims are expected to rise to 270,000 this week.

Friday’s updated GDP report will include personal income, consumer spending and inflation data for August. The University of Michigan’s consumer sentiment survey data will also be available on Friday.

Instability in European politics following tumultuous elections in Germany and Italy spilled over into currency markets, with the euro weakening versus the U.S. dollar. A short-term pullback in the euro looks likely as we head into October.
Biotechnology and pharmaceutical shares rallied on Monday, but weakness in healthcare providers weighed on the sector.
The defense sector pulled back on Monday after climbing into short-term overbought territory last week. iShares U.S. Aerospace & Defense (ITA) declined on Monday, despite North Korean threats. iShares MSCI South Korea (EWY) declined on Monday as well.

1-month Libor is approaching its 2017 high, while 3-month Libor is at a new high of 1.33 percent. A Fed rate hike would lift the funds rate to 1.25 to 1.50 percent. Speculators in the futures market lifted the odds of a December rate hike to 73 percent last week. Virtus Seix Floating Rate High Income (SAMBX) pushed back to its 52-week highs last week. Thompson Bond (THOPX) is also at 52-week highs.

Micron Technology (MU) and Nike (NKE) will report earnings on Tuesday. Analysts forecast $1.73 per share at Micron and $0.48 from Nike. In the year-ago quarter, Micron lost $0.05 per share. The stock has gained 58 percent in 2017, more than double the return of iShares Semiconductors (SOXX). Nike has underperformed the consumer discretionary sector, gaining 6.0 percent versus 10.8 percent for SPDR Consumer Discretionary (XLY). The underperformance in 2017 has caused NKE to slip to number 11 in XLY.

ConAgra (CAG), Accenture (ACN), Blackberry (BBRY), RiteAid (RAD) and KB Home (KBH) are also scheduled to report this week.

The Russell 2000 joined the Dow Jones Industrial Average, Nasdaq and S&P 500 when it exceeded its old high on Friday. The Russell 2000 was the strongest index this week with a 1.33-percent rise. The Dow and S&P 500 saw smaller gains, while the Nasdaq slipped after hitting a new high on Tuesday.

SPDR S&P Regional Banking (KRE) rallied 10.1 percent over the past 11 trading sessions. iShares U.S. Aerospace & Defense (ITA) gained 3.97 percent this week. It has risen for seven consecutive sessions.

Apple fell 5.0 percent this week and dragged the technology sector with it. Consumer discretionary also moved lower as Amazon (AMZN) declined.

Japanese and European central banks are still engaged in quantitative easing. The next important shift will come when the ECB changes its quantitative easing policy. Investors expect details at the October meeting. Currently, the ECB is buying $60 billion a month in bonds. It is approaching legal limits on how much debt it can own in a single country, which will force it to reduce government bond purchases. Until the ECB changes policy, the effects of the Fed’s policy on world financial markets will be limited.

Housing starts slowed slightly in August, but building permits increased. iShares U.S. Home Construction (ITB) made a new intraday 52-week high.

Unemployment claims tumbled to 259,000 last week. Economists expected the number to stay near 300,000 in the wake of Hurricanes Harvey and Irma, but almost half of the decline came from Texas.

FedEx (FDX) earned $2.51 adjusted for one-time items in the prior quarter, well below forecasts of $3.09 and down from $2.82 a year ago. The company blamed a cyberattack, Hurricane Harvey and higher-than-expected merger costs. It also lowered guidance for 2018. Investors bid shares up 2 percent, nonetheless, sending FedEx to a new all-time high.