Month: October 2017

Equities touched new all-time highs in early Monday trading before easing. Technology, utilities and energy were the best performers on the day.

The minutes from the Federal Reserve meeting will be released this week. The Fed opened the door to a December rate hike with that meeting. Interest rates have been rising steadily since mid-September. The odds of a December hike are near 90 percent in the futures market.

The Job Openings and Labor Turnover Survey (JOLTS) will be out on Wednesday. Economists forecast 6.2 million job openings in August. September inflation data will be released on Thursday and Friday. Economists see 0.4 percent producer price inflation and 0.7 percent consumer price inflation, due primarily to higher oil prices. The core CPI is only forecast to rise 0.2 percent. September retail sales are expected to have grown 2.0 percent and 0.8 percent ex-autos. Auto sales have far exceeded initial estimates as consumers in Texas and Florida replaced storm-damaged cars. The University of Michigan’s initial consumer sentiment survey for October is expected to be 95.0, down slightly from September’s 95.1 reading.

West Texas Intermediate crude fell from near $53 last week to $49 and change. Energy-related equities dipped late last week, easing overbought conditions. A further pullback is likely this week.

The U.S. Dollar Index fell on Monday, but the dollar rose against emerging market currencies. Turkey’s diplomatic confrontation with the United States resulted in a suspension of non-immigration visas. The Turkish lira fell as much as 4 percent on the day. iShares MSCI Turkey (TUR) declined 4.66 percent. iShares MSCI Spain (EWP) climbed 0.46 percent on the day after Catalonia tabled its decision to declare independence.

General Electric (GE) fell nearly 4 percent on Monday. GE has lost 23.9 percent this year and XLI has gained 16.9 percent. A leadership shake-up was blamed for the move. Chairman Jeff Immelt retired three months early from his position as chairman along with two vice chairs last week. CFO Jeffrey Bornstein announced his departure as well. Wall Street analysts interpreted the departures as bad news for the company, possibly signaling a poor earnings report is coming.

Earnings season kicks off this week. On Wednesday, BlackRock (BLK), Delta Air Lines (DAL) and Fastenal (FAST) will report. They’re expected to report earnings of $5.58, $1.54 and $0.50 per share, respectively. On Thursday, Citigroup (C) and J.P. Morgan (JPM) will release earnings. Analysts forecast $1.30 per share from Citi and $1.67 from J.P. Morgan. Domino’s (DPZ) will deliver the same day, with expectations of $1.22 per share, well above year-ago earnings of $0.96. Friday will bring more mega bank earnings from Bank of America (BAC) and Wells Fargo (WFC). Consensus forecasts call for $0.45 per share at BofA and $1.03 at Wells. Regional banks PNC Financial Services (PNC) and First Horizon (FHN) will also report. Analysts expect double-digit earnings growth from both.

The Nasdaq hit a new all-time high this week, while The Dow Jones Industrial Average gained 1.65 percent as financials and industrials both hit new 52-week highs. Within those sectors, iShares U.S. Broker Dealers (IAI) advanced 1.66 percent and iShares U.S. Aerospace & Defense (ITA) climbed 2.24 percent. Materials and technology also reached new highs this week.

September’s employment report was positive, despite missed expectations. The economy shed 33,000 jobs last month due to hurricane damage, versus a forecast gain of 75,000. The Atlanta Federal Reserve trimmed its third quarter growth forecast to 2.5 percent as a result.

935,000 new full-time jobs were created versus only 81,000 part-time last month, the biggest one-month increase in full-time jobs since the 1990s. Additionally, workers are moving into the labor force at an accelerating rate. The labor force participation rate climbed to 63.1 percent.

Auto sales crushed expectations at a pace of 18.6 million as cars damaged by hurricanes were replaced. Manufacturing and service PMIs were also higher than expected. The ISM Manufacturing survey hit 60.8 percent. The services survey climbed to 59.8.

Long-term interest rates held steady this week, with only Friday’s jobs report pushing the 10-year yield briefly as high as 2.4 percent before it settled back. Three-month Libor has been rising since the Fed’s meeting in September. Floating rate funds hit new 52-week highs as investors priced in rising yields.

Energy stocks pulled back this week, as we had anticipated. SPDR Energy (XLE) declined 0.74 percent. Crude oil finished the week 5 percent lower. The materials sector remains strong. SPDR Materials (XLB) rallied 1.94 percent, but may be overbought.  Both steel and coal ETFs slid 0.5 percent on Friday.

Healthcare rose 1.42 percent on the week. SPDR S&P Biotech (XBI) finished the week 1.5 percent away from its all-time closing high. Pharma was the best performer on the week with SPDR S&P Pharma (XPH) returning 2.63 percent.

Catalonia’s independence referendum weighed on Spanish bonds and stocks, as well as the euro. iShares MSCI Spain (EWP) fell 2.64 percent on the week. CurrencyShares Euro Trust (FXE) declined 0.73 percent. The region could declare independence on Monday.

Monsanto (MON), Pepsi (PEP) and Costco (COST) reported earnings this week. Monsanto shares closed down on the week. Pepsi shares dipped after it beat on earnings, but missed on revenue. Costco beat earnings, but investors worried about falling margins and a decline in membership renewal rates. Shares fell 5.97 percent on Friday.

Equities pushed to record highs again this week. Strength in financials benefited small caps, while technology underperformed.

Industrials, financials and materials all hit new 52-week highs.

Within financials, the banking sector (S&P Bank Index) made an important breakout.

SPDR Technology (XLK) versus SPDR S&P 500 (SPY) reflects tech underperformance in September. Semiconductors hit a new 52-week high, but large-cap tech stocks such as Apple (AAPL), Google (GOOGL), Oracle (ORCL) and Amazon (AMZN) have pulled the broader sector lower.

The U.S. Dollar Index bottomed in September and has since advanced about 3 percent. UUP should rally to the midpoint of the prior trading range, around $25.

Biotech shares moved higher this week, cementing leadership over the healthcare sector.

Energy was overbought last week and finally started rolling over in the past few trading sessions.

Financials, industrials, materials and technology all hit new 52-week highs during Monday trading, and all sectors except energy, which dipped with oil prices, opened higher.

Manufacturing strengthened in September. The Markit and ISM manufacturing PMIs both increased to 53.1 and 60.8, respectively. The ISM reading was the strongest since 2004. China’s manufacturing PMI hit a 5-year high, and Germany saw its highest reading since 2011.

U.S. construction spending increased 0.5 percent in August, beating expectations. Analysts predict motor vehicle sales reached an annualized pace of 17.1 million in September as drivers started replacing cars damaged by hurricanes. Jobless claims are expected to reflect a slow decline from post-hurricane increases to 265,000 initial claims last week. Friday’s unemployment report is also expected to show a slower pace of job growth in September. The consensus forecast calls for 70,000 new jobs. Economists believe the unemployment rate held steady at 4.4 percent.

Industrial metals rebounded on Monday with China’s markets closed for vacation. Iron ore has suffered its worst month in over a year in September due to Chinese weakness. While metals rebounded, crude oil fell more than $1 a barrel. Gasoline prices broke lower on Monday as well. U.S. Gasoline (UGA) fell to a new post-hurricane low.

Homebuilder Lennar (LEN) will report earnings on Tuesday. Analysts expect $1.01 per share. iShares U.S. Home Construction (ITB) hit a 52-week high on Monday. Lennar is the second-largest holding in the fund, accounting for 9.9 percent of assets. Payroll processor Paychex (PAYX) will also report on Tuesday and is also expected to report flat earnings growth.

Tech investors will look for a rebound in Apple (AAPL) this week. Intel (INTC) jumped more than 2 percent in Monday trading and hit a new 52-week high. iShares Semiconductors (SOXX) followed it into record territory. Google (GOOGL) is still consolidating below $1000 per share.

The U.S. Dollar Index rallied to a six-week high. It could break out of a two-month basing pattern this week. Short-term technical indicators show the dollar at its most bullish since early March.

Catalonia’s independence referendum weighed on iShares MSCI Spain (EWP), sending shares down more than 2 percent. The euro has also declined.

Monsanto (MON) and Pepsi (PEP) will report on Wednesday. Analyst expect a loss at Monsanto, and a small earnings increase at Pepsi. Retail Costco (COST) will report on Thursday. Shares fell sharply in the wake of Amazon’s (AMZN) Whole Foods buyout. Analysts are looking for $2.01 per share versus $1.77 a year ago.