Month: November 2017

Major indexes declined over the past week as transports and technology pulled back from a lengthy bull run.

Consumer discretionary rallied over the past week, led by utilities and consumer staples. SPDR Utilities (XLU) is up 19 percent this year.

Energy shares sold off this week with oil prices. Strong production and inventory data in the U.S. pushed the price of West Texas Intermediate crude back to a $55 handle.

The August rally in energy shares is still in effect, but another down day or two could break the uptrend.

International stocks have outperformed domestic stocks in 2017, but the advantage in broad funds ended in May, when SPDR S&P 500 (SPY) surpassed iShares MSCI EAFE (EFA).

Emerging markets peaked versus domestic shares in August. Compared to the developed EAFE, emerging markets have underperformed since September. Asian emerging markets were among the best performers this year, but they also appear to be topping (relative to the S&P 500).

Chinese economic data was weak in October. Fixed-asset investment slowed. The current rate of investment growth is consistent with the end of prior slowdowns, not the start. Emerging markets and commodities could be in for a rough 2018 if Chinese growth continues to slow. iShares China Large-Cap (FXI) fell more than 1 percent in Wednesday trading, but has remained in a clear uptrend since the February 2016 low.

Copper remains near its 52-week high, but copper miners (COPX), Steel (SLX), and coal (KOL) stocks are turning over. SPDR Materials (XLB) has paced the broader market in 2017 and hasn’t suffered even a minor correction this year. The largest drawdown was in July and August, when it fell about 4 percent. Positive sentiment could offset the weaker Chinese data in the weeks ahead, but the risk of a pullback in materials is rising.

Pharma led healthcare subsectors over the past week amid Pfizer’s (PFE) rumored interest in Bristol-Myers (BMY) and Biogen (BIIB).

Biotech has almost fully reversed its June breakout. iShares Nasdaq Biotechnology (IBB) should bottom in the $290 to $305-dollar range, an area that has provided support going back to the summer of 2016.

General Electric (GE) announced its long awaited dividend cut of 50 percent on Monday. Although the move was telegraphed, there was heavy selling on Monday and Tuesday as capitulation selling kicked in.

The slide in GE shares weighed on SPDR Industrials (XLI). GE fell 12.6 percent from the Friday close before rebounding. XLI lost roughly 0.6 percent as a result.

Equities traded flat on Monday as early General Electric (GE) weakness offset gains in consumer stocks. CEO John Flannery announced a 50 percent cut to GE’s dividend with a plan to refocus the company on the core divisions of healthcare, power and aviation. Proctor & Gamble (PG), Wal-Mart (WMT) and McDonald’s (MCD) extended gains from last week.

The U.S. Dollar Index opened the week higher against most major currencies. The British pound weakened on Monday. The 10-year Treasury yield started the week near 4 percent, but bond investors have turned to the high-yield bond market, where the interest rate spread over treasuries has increased in the past two weeks. Crude oil approached $57 a barrel on Monday.

Consumer price inflation for October will be out on Wednesday. Economists are looking for a 0.1- percent increase in headline CPI and a 0.2-percent increase in core CPI. Core producer prices are expected to rise 0.2 percent. Retail sales will also be available on Wednesday. The consensus forecast calls for a 0.2 percent increase ex-autos. Industrial production and capacity utilization, housing starts and building permits for October, and the November NAHB home builders’ index will also be released.

China’s new loans for October were below expectations. Money supply data also showed a credit slowdown. Copper initially shrugged off the news on Monday morning, but it gave up nearly all its gains as the day wore on. Later this week, the Eurozone and Japan will announce third-quarter GDP growth. CPI data for the Eurozone and Canada is also due.

Cisco (CSCO) and Applied Materials (AMAT) will headline tech earnings this week. The analyst consensus for Cisco calls for $0.55 per share, the same as a year ago. Applied Materials is expected to report $0.90 per share, up from $0.66 last year. Retail earnings will also heat up with Target (TGT) reporting on Wednesday, followed by Wal-Mart (WMT) on Thursday. L Brands (LB), Sally Beauty (SBH), Children’s Place (PLCE), Advance Auto Parts (AAP), Ross Stores (ROST), Best Buy (BBY), Gap (GPS), Abercrombie & Fitch (ANF), Foot Locker (FL). Tyson (TSN), JD.com (JD) and Netease (NTES) will also report.

The Nasdaq led the week’s index performance with a 0.20-percent decline as the broader market entered a consolidation phase. Broadcom’s (AVGO) $100 billion offer for Qualcomm (QCOM) and a positive report from Nvidia (NVDA) boosted the tech sector. iShares U.S. Semiconductors (SOXX) advanced 0.26 percent. SPDR Consumer Staples (XLP) advanced 2.18 percent.

Futures market speculators raised the odds of a December rate hike to 100 percent following the Fed’s November 2nd meeting and investors fully priced a rate hike into financial stocks. Short-term traders took profits. SPDR Financials (XLF) declined 2.61 percent.

This week was light on economic data. Initial claims for unemployment remain near 44-year lows. The University of Michigan’s Consumer Sentiment survey for early November declined slightly from October’s high.

Crude oil held above $57 this week following political volatility in Saudi Arabia. U.S. oil production hit a new all-time high, but crude finished the week at $56 and change. SPDR Energy (XLE) gained 1.40 percent on the week.

Foreign currencies bounced mid-week versus the U.S. dollar. The 10-year Treasury yield rebounded near 2.4 percent on Friday. Despite the weaker dollar, the S&P 500 Index extended its lead on the MSCI EAFE Index. Over the past two months, the S&P 500 has climbed 5 percent versus a 2.5 percent gain in the MSCI EAFE.

Nvidia (NVDA) earned $1.33 versus estimates of $0.95. CVS Health (CVS) earned $1.50, 2 cents better than forecasts. Twenty-First Century Fox (FOX) met expectations, but shares rallied on rumors it may sell most of its assets to Disney (DIS). Shares of Disney also climbed on the week. SPDR Consumer Discretionary (XLY) benefited from strength in media shares and rose 0.72 percent.

The Nasdaq was lifted by Apple (AAPL), Qualcomm (QCOM), Advanced Micro Devices (AMD) and Intel (INTC) over the past week.

The financial sector rallied sharply in September and October before experiencing a pullback over the past week as markets priced in an almost certain December rate hike.

Long-term interest rates fell over the past week. The Federal Reserve only controls short-term interest rates. There’s no sign of a sustained breakout in long-term rates. The 10-year Treasury yield is near a 3-year high, but remains in a long-term downtrend. Low-duration funds have continued to perform well while corporate bonds have benefited from stable long-term rates.

Weakness in transports has weighed on the industrial sector, while the aerospace & defense subsector has traded sideways. President Trump’s visit to Asia is going smoothly and North Korea has kept itself off the front page.

Homebuilders slipped last week in response to the House GOP tax bill proposal to cut the mortgage interest deduction from $1 million down to $500,000.

The oil market experienced higher volatility this week after Saudi Arabia’s corruption. West Texas Intermediate crude oil climbed above $57 for the first time since July 2015. The spike faded on Wednesday after U.S. production hit a new all-time high, reversing a very brief plunge that followed Hurricane Harvey. The next stop for the bulls is $60 a barrel, while the bears want to see crude back below $55.

Energy equities followed crude higher to levels last seen in July 2015. The next upside target for SPDR Energy (XLE) is $75.

The commodities rally has remained in effect, though physical commodity and equity prices have slowed the ascent.  Chinese inflation and loan data for October will be out later this week. Economists expect both will slow. Rising interest rates will weigh on the property market moving forward. New home prices in major cities are already showing signs of topping. Real estate drives Chinese GDP growth, and in turn demand for many industrial commodities such as copper.

The U.S. Dollar Index extended its rally last week, despite rising interest rates and a small rally in the Japanese yen.  Weakness in the euro underpinned U.S. dollar strength.

The Canadian and Australian dollars both indicate short-term tops.

Emerging markets are also tied to Chinese demand and show a similar topping pattern. WisdomTree Emerging Currency Strategy (CEW) has a downside target of $18.40.

Biotech and pharma rallied this summer. Biotech has held its gains, even accounting for an earnings season dip following a couple of misses by large-cap firms. The same cannot be said of the pharma sector. The long-term chart reflects the difference.