Month: May 2018

The Russell 2000 Index flirted with a new all-time high on Monday. Energy and healthcare were the strongest sectors. Utilities and real estate lost ground as traders sold rate-sensitive stocks.

Crude oil opened the week above $70 a barrel. Bulls are looking for a rally past $73.25, an advance that would open up triple-digit price targets for the bulls.

Analysts forecast a 0.3-percent increase in April retail sales and a 0.5-percent rise in sales ex-autos.

April industrial production is expected to rise 0.6 percent. Economists see weekly jobless claims at 215,000, close to last week’s 211,000.

The homebuilder confidence index for May, as well as housing starts and building permits for April will be out this week.

Several Fed officials will speak this week. Congress will hold hearings on Richard Clairda, President Trump’s nominee for vice chairman at the Fed, along with Michelle Bowman, a nominee for one of the open governor seats. Both would be voting members. The odds of a June rate hike are 100 percent in the futures market.

Chinese fixed-asset investment, real estate investment, home prices and industrial production for April will be out this week. European industrial production, inflation, and first-quarter GDP, as well as Japan’s first-quarter GDP will also be out this week.

Interest rates rose on Monday. The 10-year Treasury traded at 2.99 percent, the 30-year at 3.12 percent. Short-term rates such as one- and three-month Libor, along with the 2-year Treasury, have held steady for several weeks. With the Fed expected to raise rates in less than a month, short-term rates could begin rising this week.

Home Depot (HD) will also report earnings; analysts are looking for $2.06 per share, an increase of 23 percent over last year.  Cisco (CSCO) is expected to deliver 9 percent earnings growth.

Retail earnings will include Macy’s (M), J.C. Penney (JCP), Children’s Place (PLCE) and Nordstrom (JWN). Campbell Soup (CPB) and Deere & Co. (DE) will also report this week.

Analysts forecast 13 percent earnings growth for Wal-Mart (WMT) this week.

Equities rallied strongly this week, led by a 2.68-percent gain in the Nasdaq. SPDR Financials (XLF) advanced 3.67 percent, while SPDR Utilities (XLU) retreated 2.17 percent. The 10-year Treasury yield traded above 3 percent on Wednesday before finishing the week at 2.97 percent.

Energy was the best performing sector this week after President Trump announced the United States would exit the Iran nuclear deal, paving the way for new sanctions. West Texas Intermediate crude touched $72 a barrel in Thursday trading before settling back. SPDR Energy (XLE) gained 3.90 percent. Technology and industrials were also strong. SPDR Industrials (XLI) and Technology (XLK) rallied 3.39 and 3.37 percent. iShares U.S. Aerospace & Defense (IAT) climbed 4.35 percent.

The National Federation of Independent Business’ small business confidence index for April reflected increasing optimism. The Job Openings and Labor Turnover Survey reported 6.6 million job openings in March, a substantial increase of 0.5 million from February.

Consumer confidence held steady in early May according to the University of Michigan survey. Consumers’ assessment of current conditions dipped slightly but were offset by rising expectations. Initial claims for unemployment held near four-decade lows at 211,000. The 4-week moving average of initial claims is at a 39-year low.

Consumer and producer inflation rose less than expected in April, lifting stocks midweek. Strong employment data lifted the odds of a fourth rate hike in the futures market from 44 to 47 percent. 

The U.S. Dollar Index was flat on the week after hitting a new high for 2018. The index has gained more than 3 percent in the past three weeks. Argentina accepted an IMF bailout this week, but the peso resumed its slide on Friday.

Investors sold $3.7 billion of emerging-market funds over the past week, the most since the end of 2016.  Global X MSCI Argentina (ARGT) fell 3.55 percent, iShares MSCI Turkey (TUR) 2.84 percent.

SPDR S&P 500 (SPY) advanced 2.57 percent on the week, iShares MSCI EAFE (EFA) 1.20 percent and iShares MSCI Emerging Markets (EEM) 2.09 percent.

Disney (DIS) rallied this week after strong earnings. Comic book movies helped drive results. SPDR Consumer Discretionary (XLY) gained 0.84 percent.

Anheuser-Busch (BUD) wasn’t the medicine the consumer staples sector was looking for. The brewer missed first quarter earnings forecasts even as global sales beat expectations. Shares fell 2.44 percent on the week, SPDR Consumer Staples (XLP) slid 0.36 percent.

The other big earnings report came from chipmaker Nvidia (NVDA). Shares gained 6.53 percent this week and helped pull iShares PHLX Semiconductors (SOXX) higher by 4.22 percent. Even though the company crushed earnings and revenue forecasts, shares declined from their highs on the week after management forecast a large decline in cryptocurrency miner demand.

Volatility has been steadily declining since the February high. A break below 14 on the VIX would be bullish for stocks.

Technology and industrials have led large sector performance this week, followed by financials. 

Energy also outperformed following President Trump’s decision to scrap the Iran nuclear deal. Crude oil prices spiked above $70 ahead of the news, and remained high with an unexpected decline in crude oil inventory. We would not be surprised to see a modest pullback in crude prices over the coming weeks.

The utility sector was by far the week’s worst performing sector as the 10-year interest rate hit 3 percent again on Wednesday.

Energy exploration and service subsectors (XOP and XES in the chart below) have underperformed the overall sector since 2014.

As oil steadily rises and clears $70 a barrel, the fear of a decline back into the $50s or $40s fades and could lead to a reversal of fortune for energy-related equities.

The 10-year Treasury rallied above 3 percent, but remains below the 3.05 percent level that technical traders are waiting for. A bullish breakout above this level would benefit financial markets.

While long-term U.S. Treasury yields are rising, German bond yields are still very low due to continued quantitative easing in Europe.

Argentina raised interest rates to 40 percent and it accepted an IMF bailout this week after its currency tumbled.

WisdomTree Emerging Currency (CEW) broke the uptrend in place since 2016.

Emerging-market stocks are also threatening a break of their uptrend since 2016.

SPDR S&P 500 Index (SPY) has strongly outperformed iShares MSCI Emerging Markets (EEM) since the end of March. It has also performed well versus iShares MSCI EAFE (EFA) since the dollar rally began in April.