Month: June 2018

The Federal Reserve hiked interest rates as expected today. The accompanying policy statement was more optimistic than in May on the economy.

The Dow Transports outperformed this week, signaling confidence in Industrials.

The Russell 2000 and Nasdaq hit new all-time highs, while the S&P 500 Index climbed above its March high.

Consumer discretionary, consumer staples and utilities led the S&P 500 higher this week. Healthcare extended its rally.

SPDR Healthcare (XLV) is below its March high, but a 4-percent advance would take Vanguard Healthcare (VHT) to a new high.
Pharmaceuticals weighed on the Healthcare sector until its bottom in May. Since joining the advance, however, the overall sector has outperformed the S&P 500 Index.

Consumer staples experienced a strong rally over the past week. It is still in a downtrend for the year, but it could break out in the coming week. The SPDR (XLP) and Vanguard (VDC) ETFs are 14 and 12 percent below the January highs. Fidelity Select Consumer Staples (FDFAX) is nearly 15 percent off its high for the year.

Technology continues to perform well. Software and cybersecurity subsectors have powered through volatility in 2018. As long as subsectors perform well, technology will maintain its spot as market leader.

Emerging and developed markets have underperformed in the past week. A flat U.S. Dollar Index and weaker EM currencies weighed on EM stocks. Local currency EM bond funds fell to a new 52-week low on Tuesday.

The Federal Reserve raised the Fed funds rates by 25 basis points today, to a range of 1.75 to 2.00 percent. Bonds have rallied all week as long-term interest rates were flat to lower. Government, high-yield, corporate and floating-rate funds all moved higher.

Defense stocks stabilized in 2018 after a strong run in 2017. Now the stocks are holding steady as fundamentals catch up with share valuations. Boeing (BA), the largest component of iShares U.S. Aerospace & Defense (ITA) is trading at a new all-time high. Defense contractors such as Lockheed Martin (LMT) and Northrop Grumman (NOC) have further to go.

Equities climbed across the board on Monday, led by strong rallies in consumer staples and energy shares. Utilities declined in the face of rising interest rates.

The Federal Open Market Committee (FOMC) meeting on Tuesday and Wednesday will highlight a busy week for economic data. The Fed is expected to hike the Fed funds rate 25 basis points to 2.00 percent, the second increase in 2018.

Small business confidence and the consumer price index will be out on Tuesday. Analysts forecast 0.2 percent headline inflation in May and 0.1 percent core inflation, with the 12-month CPI ticking up to 2.2 percent. Headline producer price inflation, out Wednesday, is forecast to rise 0.3 percent and core 0.2 percent.

Economists expect 0.4 percent growth in retail sales for May. The week will end with the initial June reading from the University of Michigan’s consumer confidence survey.

Overseas economic data will be heavy this week as well. The European Central Bank and Bank of Japan also meet. Both are expected to keep rates unchanged. Eurozone inflation will be out on Thursday. Economists predict a one-month increase of 0.5 percent, but for 12-month inflation to hold steady at 1.9 percent. Analysts forecast Chinese new loans, fixed-asset investment and industrial production for May will be similar to April figures.

The U.S. Dollar Index rose slightly on Monday. The greenback was stronger against emerging-market currencies after the Argentine peso fell to fresh 52-week lows despite last week’s mammoth $50 billion bailout from the International Monetary Fund (IMF).

Crude oil closed at $66 a barrel. Natural gas climbed to $2.95. It last traded above $3 in early February.

H&R Block (HRB), Caseys General Stores (CASY), and Lands’ End (LE) will highlight a light week for earnings news.

The Dow Jones Industrial Average ended a bout of relative underperformance this week and led major indexes with a 2.77-percent climb. The S&P 500 and Russell 2000 both climbed more than 1 percent.

The Nasdaq slipped early Friday after reports claimed Apple (AAPL) reduced orders with iPhone suppliers, but the Nasdaq Composite still finished the week with a gain of 1.21 percent.

SPDR Technology (XLK) rallied 0.83 percent this week. SPDR Consumer Discretionary (XLY), Financials (XLF) and Healthcare (XLV) climbed 3.17, 2.18 and 2.02 percent, respectively. SPDR Consumer Staples (XLP) rallied 2.36 percent. SPDR Utilities (XLU) declined 3.03 percent.

The U.S. Dollar Index retreated from recent highs this week, but the domestic market outperformed foreign shares nonetheless. SPDR S&P 500 (SPY) gained 1.68 percent and iShares MSCI EAFE (EFA) 0.59 percent, while iShares MSCI Emerging Markets (EEM) returned 0.00 percent. Currency volatility weighed on emerging markets. Argentina received a $50 billion bailout from the IMF on Thursday, but the peso fell to a fresh 52-week low on Friday. Brazil’s real fell sharply through Thursday trading, then erased most of its losses on Friday.

The 10-year Treasury yield saw a small gain on the week but failed to breach the 3.0 percent level. It closed at 2.94 percent. Falling credit risk lifted high-yield credit. iShares iBoxx High Yield Corporate Bond (HYG) gained 0.55 percent. Rising Libor rates ahead of next week’s Federal Reserve meeting lifted floating-rate bonds.

Crude oil had a volatile week but finished close to where it started. Natural gas prices fell about 3 percent. Copper gained 6 percent. This week’s move erased all of the losses in 2018 and left copper on the cusp of a new 52-week high.

The Atlanta Federal Reserve adjusted its second-quarter GDP Now growth forecast to 4.6 percent on Friday.  The New York Fed and economist consensus both forecast growth of more than 3 percent.  Job opening for April hit a new all-time high of 6.7 million. The ISM and Markit services PMIs beat expectations, signaling a stronger expansion in the economy’s largest sector. Initial claims for unemployment fell to 222,000 in the first week of June.