Year: 2017

Strong November employment and tax reform have exerted upward pressure on stock prices this week. SPDR DJIA (DIA) led the index ETFs.

The week’s best performing large sectors were healthcare and technology.

Pharmaceuticals and biotech have lifted the healthcare sector over the past week.

SPDR S&P Pharma (XPH) is approaching its 2017 high. Healthcare providers are trading near their 52-week high.

Social media and software shares led technology, while semiconductors weighed on the sector. First Trust Nasdaq Technology Dividend (TDIV) has bolstered sector performance.

The telecom sector remains in a downtrend, but the two largest holdings in iShares U.S. Telecommunications (IYZ) both rallied last week. Verizon (VZ) achieved a new all-time on Tuesday.

A rebounding U.S. dollar, rising interest rates and tax reform benefit U.S. equities. Over the past month, SPDR S&P 500 (SPY) has opened a healthy lead on developed-market stocks, while emerging markets have fallen. SPY now has the potential to outperform both EEM and EFA on the year. A slide in Chinese shares has also weighed on EM returns over the past month.

Retail stocks have enjoyed a strong rally over the past month, but shares remain in a multi-year downtrend. If a more substantial bull rally is underway, SPDR S&P Retail (XRT) will crack $46.

Online retail is rallying with XRT, however, the relative price of XRT has outperformed since the start of November.

The Federal Reserve hiked interest rates today, as anticipated. The bond market expects the next increase in June 2018.

As the bond charts below reflect, the yield curve is flattening as short-term rates catch-up with long-term rates. The breakout in the 5-year yield is an early sign that long-term rates will move higher, with attention now focusing on the 10-year.

Financial stocks have broken out with the 5-year yield.

The Dow Jones Industrial Average and S&P 500 Index opened at new all-time highs on Monday ahead of Wednesday’s Federal Reserve meeting. The Federal Open Market Committee will hike interest rates by a quarter point this week. The market has already discounted this move.

Job openings hit 6.0 million in October, down from 6.2 million in September. Producer prices are due on Tuesday, with forecasts calling for 0.4 percent inflation in November. China reported a slowdown in its PPI, from 0.7 percent in October to 0.5 percent last month. Economists forecast a 0.4 percent increase in consumer prices and 0.2 percent in core CPI.

Weekly jobless claims are expected to remain below 240,000. Analysts see November retail sales rising 0.4 percent and 0.7 percent ex-autos. The flash manufacturing PMIs for December are due this week, along with industrial production and capacity utilization for November.

China reported a surge in November new loans. Analysts expected 800 billion yuan in new lending, but banks lent out more than 1.1 trillion. Fixed-asset investment and industrial production data will be out later this week. The European Central Bank will meet on Thursday. Investors expect it will hold rates steady at zero percent.

West Texas Intermediate crude opened the week at $57 per barrel. SPDR Energy (XLE) opened strong on Monday and is approaching its 2017 high, set in early November. Strong production in the United States is keeping a lid on prices domestically, but Brent oil rose to a 2-year high after a pipeline in the North Sea was shut for leak repair. Repairs could take several weeks.

The U.S. Dollar Index dipped in overnight trading. The greenback has remained in an uptrend since September. Emerging markets bounced on Monday, but as a group, have underperformed the S&P 500 Index since September. Most of the underperformance came in the past two weeks as Chinese shares sold off.

This week will be light on earnings. Oracle (ORCL), Adobe (ADBE), Costco (COST), Pier1 Imports (PIR) and ABM Industries (ABM) will be the largest companies reporting.

Equities turned higher mid-week. The Dow Jones Industrial Average rose 0.48 percent on the week, the Nasdaq climbed 0.14 percent. The small-cap Russell 2000 slipped 1.05 percent.

SPDR Financials (XLF) rose 1.56 percent to lead the major sectors. SPDR Industrials (XLI) followed with a gain of 1.49 percent. SPDR Utilities (XLU) slid 0.96 percent, iShares U.S. Telecommunications (IYZ) 4.01 percent.

Weekly jobless claims fell to 236,000 beating expectations by 4,000. 228,000 new jobs were created in November, better than consensus forecast of 200k. Unemployment held steady at 4.1 percent. Wage growth was 0.2 percent, less than the 0.3 percent expected. Manufacturers hired 31,000 new workers and the unemployment rate in that sector slid to 2.6 percent. Restaurants and bars hired 18,900 workers in November, retail 18,700.

Wholesale inventories fell 0.5 percent in October, likely due in part to hurricanes. Because this dip was expected, it didn’t impact fourth quarter growth forecasts. The University of Michigan’s consumer sentiment survey fell to 96.8 in early December. It missed forecasts of 99. Most consumers said current conditions improved, but they became less optimistic about the future. The shift was mainly concentrated in high tax states that are set to lose state and local tax deductions under tax reform.

The U.S. Dollar Index rose every day this week. Fundamental factors such as tax reform are working in the greenback’s favor. Political turmoil surrounding Brexit boosted the dollar versus the British pound. EU officials sent the pound lower after saying a trade deal is unlikely by March 2019. The Canadian central bank held interest rates steady and the loonie tumbled in response. Both the euro and yen also weakened versus the dollar.

The S&P 500 Index outperformed the MSCI EAFE for the eighth time in eleven weeks. At one point this summer, iShares MSCI EAFE (EFA) was beating the SPDR S&P 500 (SPY) by 7 percentage points. That lead is down to 2 percent as we head into year-end. Only one month ago, iShares MSCI Emerging Markets (EEM) had a 16 percentage-point lead on SPY. That lead was cut in half over the past two weeks as Chinese shares slumped. EFA rose 0.01 percent this week, EMM 0.22 percent.

Crude oil settled into the mid-$50 range this week, spending most of the time between a $56 and $58 handle. Strong Chinese import demand and a potential strike in Nigeria kept prices from drifting lower. SPDR Energy (XLE) fell 0.57 percent.

Earnings news was mixed this week. Shares of Broadcom (AVGO) and Toll Brothers (TOL) fell after delivering results. Autozone (AZO), American Eagle Outfitters (AEO), lululemon (LULU) and Dollar General (DG). Shares of H&R Block (HRB) rose sharply.