Month: July 2018

Equities moved higher on Monday with interest rates after Barclays hiked its second-quarter GDP growth estimate to 5.3 percent. The 10-year Treasury yield saw its largest one-day gain since mid-May.

This week will be light on economic data, but not on impact. Friday will bring the first estimate of second-quarter GDP. The Atlanta Federal Reserve will provide and update Thursday. It currently forecasts 4.5 percent growth. The economist consensus is at 4.3 percent. The New York Fed’s Nowcast model lowered its estimate last Friday to 2.69 percent. It’s highest forecast for this quarter was 3.26 percent on June 1.

Long-term bonds fell on Monday as economic forecasts were raised. iShares Barclays 20+ Year Treasury (TLT) declined 1.18 percent on the day.

Bank stocks followed interest rates higher. SPDR S&P Regional Banking (KRE) climbed 1.30 percent. SPDR Financial (XLF) rose 1.20 percent, by far the best performer. SPDR Technology (XLF) gained 0.51 percent.

Existing home sales increased at an annualized pace of 5.38 million in June, meeting forecasts. New home sales for June will be out on Wednesday. The flash PMIs for July will be out on Tuesday. Thursday will see durable goods and capital equipment orders for June. The University of Michigan’s consumer sentiment survey will be out on Friday.

The U.S. Dollar Index rallied on Monday, trading 1 percent below its 52-week high. The index has traded in a tight range of about 1.5 percent over the past two months. The dollar gained versus the euro and some emerging markets on Monday, while it weakened versus the yen.

Earnings season is in full swing this week. Companies that are scheduled to report this week combine for over $1 trillion in market capitalization. Overall, 35 percent of the S&P 500 Index will deliver earnings this week. The current rate of blended growth (reported earnings plus outstanding estimates) is 20.8 percent.

Google (GOOGL), Illinois Tool Works (ITW), Philips (PHG), Haliburton (HAL), TD Ameritrade (AMTD), Ryanair (RYAAY), AT&T (T) Verizon (VZ), 3M (MMM), Texas Instruments (TXN), United Technologies (UTX), Eli Lilly (LLY), Lockheed Martin (LMT), Biogen (BIIB) and Sherwin-Williams (SHW) are among the big names reporting in the first half of the week.

Later in the week we’ll hear from Facebook (FB), Visa (V), Boeing (BA), Coca-Cola (KO), PayPal (PYPL), GlaxoSmithKline (GSK), Gilead Sciences (GILD), United Parcel Service (UPS), Qualcomm (QCOM), Amazon (AMZN), Intel (INTC), Mastercard (MA), Royal Dutch Shell (RDS.A) Anheuser-Busch (BUD), Amgen (AMGN), McDonald’s (MCD), Altria (MO), Exxon Mobil (XOM), Chevron (CVX), Merck (MRK) and Abbvie (ABBV).

Transportation stocks led market performance this week with strong earnings reports from airlines and railroads. The Dow Transports climbed 1.85 percent. The Russell 2000, rose 0.58 percent.

Retail sales increased 0.5 percent in June and May’s growth was revised higher to 1.3 percent, making for an impressive two-month growth figure. Industrial production increased 0.6 percent and capacity utilization hit 78.0 percent.

The homebuilders’ confidence index held steady at 68. The volatile home starts figure missed estimates in June, but building permits remained strong. Weekly jobless claims fell to 207,000. Adjusted for population, this is by far the lowest weekly jobless claim figure of the past 50 years.

Federal Reserve Chairman Jerome Powell’s confident testimony combined with the stronger U.S. dollar pummeled gold. SPDR Gold Shares (GLD) declined 0.87 percent.

United Continental (UAL) advanced 12.22 percent this week following its earnings beat. CSX Corp (CSX) rallied 7.34 percent. The U.S. Global Jets ETF (JETS) climbed 2.62 percent.

Financials continued to advance throughout the week. SPDR Financials (XLF) gained 2.11 percent following solid earnings from Bank of America (BAC), Morgan Stanley (MS) and a buyback announcement from Berkshire Hathaway (BRK.A). Bank of America, Morgan Stanley and J.P. Morgan (JPM) all gained more than 4.5 percent this week. Berkshire Hathaway is the number-one holding in XLF at 11.5 percent of assets. It gained 3.23 percent on the week.

Industrials also performed well on the week. SPDR Industrial (XLI) rose 0.94 percent and SPDR Consumer Staples (XLP) rallied 0.23 percent. SPDR S&P Regional Banking (KRE) advanced 2.68 percent on the broader financial rally. First Trust Nasdaq ABA Community Bank (QABA) climbed 2.97 percent.

Netflix (NFLX) fell more than 10 percent at one point this week following its earnings announcement. Although it beat earnings estimates, it missed on subscriber growth. It also lowered third-quarter subscriber growth estimates in light of what appears to be at least a temporary slowdown in growth. Netflix finished the week above its lows, but down 8.78 percent.

General Electric (GE) lost 5.47 percent this week despite beating earnings estimates. Profits fell 30 percent from last year. Microsoft (MSFT) gained 0.80 percent this week after it beat earnings and revenue estimates. The software giant also lifted revenue guidance.

The Dow Transports outperformed over the past week after rail and air transportation stock beat earnings. CSX Corp (CSX) far exceeded earnings estimates. Analysts expected $0.86 per share in earnings, but the company delivered 17 percent more with $1.01 per share. Other rail stocks such as Union Pacific (UNP); which reports tomorrow morning; rallied in sympathy. United Continental (UAL) also beat estimates and raised guidance. Shares gained 13 percent on the week.

The Nasdaq and Russell 2000 are already at all-time highs and the S&P 500 Index could soon follow them, but the Dow is still caught in a trading range, but should be on track to follow them higher. The first step will be for SPDR DJIA (DIA) to exceed its February high of $255.21, which only requires a gain of 1.4 percent.

Financials and industrials have had a clear edge in sector performance over the past week. Transportation stocks drove industrials higher on Wednesday. Financials popped following strong earnings results from Morgan Stanley (MS). Berkshire Hathaway (BRK.A), a major component in many financial ETFs, also rose strongly on Wednesday.

Smaller sectors lagged this week, led to the downside by energy stocks. Crude oil fell more than 5 percent from its Friday high. The smaller decline in energy stocks indicates investors see crude rebounding in days and weeks ahead.

Airlines and chief supplier Boeing (BA) pulled the industrial sector higher over the past week. Also lifting the sector was the defense subsector. Last week, President Trump negotiated an increase in defense spending by NATO allies. Since NATO allies rely on U.S.-manufactured weapons systems, higher defense spending in Europe will boost defense contractors’ bottom lines.

Medical devices and biotechnology pulled the healthcare sector higher this week. The broader sector has also benefited from strong earnings at Johnson & Johnson (JNJ).

Technology performed well this week. Software and semiconductors drove the sector.

The consumer discretionary sector climbed this week thanks to the ongoing rally in Amazon (AMZN). The gain in Amazon alone accounted for about 93 percent of XLY’s increase, and contributions from the second- and fourth–largest holdings (Home Depot and Disney) pushed that combined contribution over 100 percent. The third-largest holding, Netflix (NFLX), weighed on results. The company missed subscriber growth estimates by a large margin and lowered third-quarter subscriber growth estimates align with the slower growth. Shares fell more than 10 percent before rebounding

The S&P 500, MSCI EAFE and MSCI Emerging Markets ETFs performed similarly over the past week, even as the U.S. dollar strengthened and emerging market currencies weakened.

China has greatly influenced emerging market weakness over the past month. Over the past three weeks, it has traded sideways. In Wednesday trading, it failed to make a new low. There’s clearly some support around the $42 for iShares China Large-Cap (FXI). If this holds, an extended rebound in emerging markets is likely. If not, we could see weakness resume.

Two other funds to keep an eye on are VanEck Local Currency Bond (EMLC) and WisdomTree Emerging Market Currency (CEW). China is a key driver of EM performance, but the U.S. dollar also plays a major role. As long as CEW and EMLC are rising, odds are iShares MSCI Emerging Markets (EEM) will follow.