Month: June 2018

The Nasdaq led sector performance over the past week as both the Nasdaq Composite and the Nasdaq 100 (tracked by Invesco QQQ) made new all-time highs. The Russell 2000 Index also pushed to a new high after breaking out in mid-May.

Both the S&P 500 and Dow Jones Industrial Average have trailed the Nasdaq.

Technology led the week’s rally, followed by consumer discretionary, although 40 percent of its gains came courtesy of Amazon (AMZN). Financials spiked on Wednesday after the 10-year Treasury yield rallied towards 3 percent.

Materials outperformed among the smaller S&P 500 sectors. Utilities lagged as rising interest rates reignited selling.

The 10-year Treasury yield rebounded last week. There will likely be resistance at the psychological level of 3 percent.

The Federal Reserve is expected to hike interest rates next week. Libor has priced in the move.

High-yield bonds outperformed last week. Strong economic data lowered credit risk. Floating-rate funds held steady, while bonds with more interest rate risk and less credit risk declined.

Healthcare stocks have underperformed in 2018, but with small caps and technology leading the market higher, the sector has room to catch up. Small- and mid-cap biotech, medical devices and healthcare providers are at new all-time highs. Only pharmaceuticals and large-cap biotechnology shares have lagged.

Rising interest rates and strong economic growth are beneficial to lenders, but the overall financial sector also has room to accelerate. Like healthcare, smaller financial institutions are trading at new all-time highs. Large-banks and brokers are near their highs, while insurance has lagged.

Industrials is another sector below its high, but its small-cap components are at new highs.

Consumer staples has also struggled over the past 2 years, but small-cap consumer staples are at an all-time high.

Small-cap utilities are outperforming large-caps, but rising interest rates are weighing heavily.

Solar stocks have performed well over the past year with rebounding energy prices. China, however, slashed investment for the rest of 2018. Chinese solar makers led the decline early in the week, while U.S., Canadian and European shares led the decline on Wednesday.

Emerging markets outperformed in the past week. EM currencies, however, remain under pressure. Brazil’s real fell to a fresh low versus the dollar. The Indian central bank surprised with a rate hike as the rupee trades near its lows for the year. In China, the central bank pumped a large amount of liquidity into the credit market as rising defaults and a wave of maturing debt pressured yields. A rebound in emerging markets will require a sustained reversal in U.S. dollar strength. The U.S. dollar weakened over the past week, but thus far looks like a normal pullback following a very strong rally.

The spread between U.S. and German 10-year bonds widened again this week after economic data reflected strength in U.S. economy versus Europe in May. Bond investors are selling Italian bonds and buying German bonds. This widening spread provides support for the U.S. dollar as it attracts investment into U.S. treasuries.

Equities opened higher on Monday following last week’s strong economic data. Technology, consumer discretionary and consumer staples led the market higher, while rising interest rates weighed on utilities.

This will be a light week for economic data. Factory orders dipped 0.8 percent in April, slightly below forecasts of a 0.5 percent contraction. Services PMIs and the April Job Openings and Labor Turnover Survey will be released on Tuesday, and the April trade deficit on Wednesday. It will gain more attention than usual with potential tariffs on Chinese imports looming.  Chinese trade data for May will be out on Friday. The G-7 will meet at the end of the week.

The Atlanta Federal Reserve lifted its forecast for second quarter GDP growth to 4.8 percent on Friday following the employment report. In addition to strong labor markets, the Atlanta Fed anticipates stronger consumer spending and fixed-asset investment this quarter.

The European Central Bank reduced purchases of Italian bonds as the new government was forming in May. Italian bonds tumbled during this process. The ECB purchased less Italian and French debt last month to offset a rise in maturing German debt.  Officials from each side in the Italian coalition government have criticized the ECB’s decision.

Crude oil prices opened the week below $65 a barrel. The 10-year Treasury yield climbed to 2.93 percent. The U.S. Dollar Index opened the day lower, but recovered nearly all of its losses by the end of trading.

Palo Alto Networks (PANW), Dell Technologies (DVMT), Brown Forman (BF.A), Okta (OKTA), Broadcom (BRCM), J.M. Smucker (SJM) and Vail Resorts (MTN) will headline a light week for earnings.

 

The Russell 2000 Index hit a new all-time high this week and the Nasdaq closed within 0.5 percent of its all-time high. The Nasdaq led major indexes with a gain of 1.78 percent. Technology was the best performing sector. SPDR Technology rallied 2.41 percent. SPDR Energy (XLE) rose 1.92 percent.

May’s employment report beat expectations with 223,000 net new jobs. The unemployment rate fell to 3.8 percent. There were 905,000 new full-time jobs created, a record for this Millennium. Wage growth beat expectations, hitting 0.3 percent in May and 2.7 percent in the past year. Education, healthcare, retail and construction were among the sectors with the most job creation.

Strong employment data lifted the 10-year Treasury bond yield to 2.90 percent. The 30-year finished at 3.05 percent. Both yields were down on the week.

Home prices increased 6.5 percent on the year (through March 2018) according to the Case-Schiller index. Consumer confidence rose in May according to the Conference Board’s survey. Current confidence hit a 17-year high. Consumer spending increased 0.6 percent in April.

The government revised first-quarter GDP growth down 0.1 percentage point, to 2.2 percent. The economist consensus and both the New York and Atlanta GDP models all forecast growth of at least 3 percent in the current quarter.

Core inflation was 0.2 percent in April, in line with estimates. Over the past 12 months, it has increased 2.0 percent, at the bottom of the Fed’s target range for inflation. Construction spending increased 1.8 percent in April, a reversal from March’s 1.7 percent drop and ahead of estimates of 1.0 percent.

The manufacturing PMIs for May showed a resilient manufacturing sector. The Markit survey was down very slightly, while the ISM survey rose. Both showed solid growth in new orders and production. Auto sales were strong as well. Car buyers shrugged off higher gas prices, with sales of pick-up trucks, SUVs and crossovers strong across domestic and foreign automakers.

While domestic markets remained strong, the European manufacturing sector weakened in May. Political turmoil dinged European markets this week. The euro ended up flat on the week, but iShares MSCI Italy (EWI) finished lower.  Deutsche Bank (DB) fell 8.38 percent on the week after the Federal Reserve put its U.S. operations on its watch list.

The S&P 500 Index increased 0.54 percent this week and the U.S. Dollar Index was flat. iShares MSCI EAFE fell 0.34 and iShares MSCI Emerging Markets (EEM) slid 0.22 percent. WisdomTree Emerging Currency (CEW) declined 0.37 percent as Brazil’s currency became a new source of emerging market weakness. Nationwide strikes by truckers and oil workers forced the CEO of Petrobras (PBR) to step down. iShares MSCI Brazil (EWZ) dropped 3.87 percent this week. Petrobras tumbled 20.22 percent.