Month: July 2018

Economic data will be light this week. U.S. retail sales met expectations of 0.5 percent growth in June, but sales ex-autos beat forecasts at 0.4 percent. The government revised May’s growth from 0.8 to 1.3 percent.

In the wake of strong retail numbers, the Atlanta Federal Reserve hiked its GDP Now model’s GDP growth estimate from 3.9 to 4.5 percent. The Blue Chip Economist consensus has risen throughout July and stands at 3.7 percent. Next Friday, the Bureau of Economic Analysis will release its first estimate of second-quarter GDP.

Later this week, industrial production for June, the homebuilders index for July, housing starts and June building permits will be available later this week.

Crude oil opened sharply lower on Monday and hit $68 a barrel amid reports Saudia Arabia is shipping more oil to the United States. Last month, President Trump asked the Saudis to help stop the rise in oil prices. Last week, he said he might release oil from the strategic petroleum reserve to halt rising gasoline prices.

The 10-year Treasury yield rose slightly on Monday, while the U.S. dollar declined slightly versus major developed-market currencies. The greenback gained against emerging-market currencies, including the Chinese yuan.

Both Bank of America (BAC) and Blackrock (BLK) beat earnings estimates before the bell on Monday. BofA reported strong growth as well as success with cost cutting efforts.

Netflix (NFLX) disappointed investors with underwhelming subscriber growth. The stock lost 13 percent in after hours trading. They also issued weaker guidance for the third quarter. Netflix is a top 10 holding in many Internet and consumer discretionary funds and had gained nearly 150 percent over the past year.

On Tuesday, Johnson & Johnson (JNJ), UnitedHealth Group (UNH) and Goldman Sachs (GS) headline. Charles Schwab (SCHW), CSX Corp (CSX), Interactive Brokers (IBKR) and United Continental (UAL) also report.

Novartis (NVS), International Business Machines (IBM) and Abbott Labs (ABT) are the largest companies scheduled to report on Wednesday. American Express (AXP), Morgan Stanley (MS), U.S. Bancorp (USB), eBay (EBAY) and Alcoa (AA) will also report.

Microsoft (MSFT), Taiwan Semiconductor (TSM), Unilever (UN), SAP (SAP), Philip Morris International (PM), Union Pacific (UNP), Danaher (DHR), Intuitive Surgical (ISRG) and Bank of New York (BK) will report on Thursday.

General Electric (GE), Honeywell (HON) and Stanley, Black & Decker (SWK) will report earnings on Friday. Oil service funds will be in focus as Schlumberger (SLB) and Baker Hughes (BHGE) report. Major regional banks SunTrust Banks (STI), Regions Financials (RF) and Citizens Financial Group (CFG) will also report on Friday.

The Dow Jones Industrial Average and Nasdaq returned 2.30 and 1.79 percent, respectively, this week.  Technology, consumer staples and industrials were the best performing sectors, while utilities lagged due to rising rate hike expectations. Th S&P 500 trailed slightly, gaining nearly 1.50 percent.

SPDR Industrial (XLI) led sector performance with an increase of 2.20 percent. iShares North American Software (IGV) climbed 3.95 percent and SPDR Technology (XLK) increased 2.08 percent this week. SPDR Consumer Discretionary (XLY) gained of 2.08 percent, due to its 20 percent allocation in Amazon (AMZN), which rose 5.99 percent.

Small business optimism remained near all-time highs in June. Job openings slipped to 6.6 million but remained higher than the unemployed population. The quit rate increased to 2.4 percent, a 17-year high, indicating wage inflation could pick up as workers chase better opportunities. Weekly jobless claims fell back near 40-year lows at 214,000.

Earnings season kicked off this week with several large banks reporting. J.P. Morgan (JPM) and Citigroup (C) beat analyst estimates, but Wells Fargo (WFC) fell short. J.P. Morgan (JPM) earned $2.29 per share, 7 cents above the consensus forecast. Earnings rose 26 percent from last year. Citigroup earned $1.63 per share, beating forecasts by 7 cents. Citigroup missed on revenue by a very small amount, a mere $43 million on more than $18 billion.

Wells Fargo analysts were expecting earnings of $1.12 per share; it generated only $0.98 for the quarter. Mortgage banking fees fell 33 percent, non-interest income was stagnant, and expenses remain a concern despite falling this year.

PNC Financial Services (PNC) saw the best return on Friday after reporting 25 percent earnings growth. The bank reported a 3 percent rise in commercial lending, a core business for regional banks. Shares have gained more than 11 percent over the past year.

SPDR Financial (XLF) gained 1.16 percent for the week, while iShares U.S. Broker-Dealers (IAI) advanced 1.20 percent. We are increasingly bullish on financial stocks, especially small and regional banks.  Investors should consider adding SPDR Regional Banking (KRE).

The Nasdaq led last week’s broad rally as all major indexes advanced.

The Russell 2000 Index made a new all-time high over the past week. The Nasdaq is on the verge of a new high.

Technology led sector performance last week. The utilities rally ran out of steam, but consumer staples continued to outperform the broader market.

Healthcare performed strongly last week following Biogen(BIIB)’s highly-publicized Alzheimer’s drug trials. SPDR Healthcare (XLV) is off its high due to weakness in pharmaceuticals, but providers, biotech and medical devices are all on the cusp of new all-time highs.

SPDR S&P Regional Bank (KRE) and First Trust Nasdaq ABA Community Bank (QABA) both achieved new highs in June. Weakness has been concentrated in insurance. The largest holding in XLF is Berkshire Hathaway and it has underperformed this year.

J.P. Morgan (JPM), Citigroup (C) and Wells Fargo (WFC) will report earnings on Friday. Their reports could finally break XLF’s downtrend.

SPDR Industrial (XLI) broke its series of lower highs. Trade concerns have weighed on Boeing (BA) and Caterpillar (CAT).

Foreign shares rebounded over the past week and the U.S. dollar weakened, but the S&P 500 Index outperformed nonetheless.

The U.S. Dollar Index traded as low as 93.5 this week, down from a high of 95 in late June. Until the dollar breaches 95, it will remain in consolidation.

VanEck Local Currency Bond (EMLC) fell again on Wednesday as emerging-market currencies depreciated versus the U.S. dollar, led by a drop in the Chinese yuan.

China is a major component in most emerging market funds, but it plays a far greater role in EM economies. Although many financial pundits discuss the cost of a trade war in symmetrical terms, China is at far greater risk than the United States due to its position in the supply chain. All of the lost jobs and factories will come from China.

Equities opened the week on a strong note, led by a 1.31-percent Dow Jones Industrial Average rally. Financials, industrials, and energy strongly outperformed. Caterpillar (CAT) gained 4.11 percent and Boeing (BA) 2.17 percent. Tariffs took effect on Friday, but stocks in China, the U.S. and emerging markets have rallied since then.

SPDR S&P Bank (KBE) gained 2.30 percent on Monday. SPDR S&P Regional Banking ETF (KRE) gained 2.08 percent. Long-term interest rates held steady, but the odds of a fourth rate hike in December climbed 6 percent to 58 percent on Monday.

Small business optimism for June and the Job Openings and Labor Turnover Survey (JOLTS) are due on Tuesday. Inflation data for June comes on Wednesday and Thursday with the producer and consumer price indexes. Economists predict both the PPI and CPI rose 0.2 percent. A Federal Reserve measure of inflation indicates the CPI could surprise to the upside. Friday will bring the University of Michigan’s early report on July consumer confidence.

Chinese inflation data is expected on Monday night, with lending and trade data out later in the week. Canada’s central bank meets on Wednesday. Analysts predict the bank will hike its interest rate a quarter point to 1.50 percent.

The 10-year Treasury yield increased slightly on Monday to 2.86 percent. Crude oil climbed above $74 a barrel. The U.S. Dollar Index rallied slightly thanks to a weaker British pound, which fell amid resignations from British Prime Minister Theresa May’s Brexit team and Foreign Secretary on Monday. As of Monday, there was no sign of a leadership challenge from within May’s party. iShares MSCI United Kingdom (EWU) climbed 0.86 percent on the day.

Pepsi (PEP) will kick off second-quarter earnings season on Tuesday. Analysts forecast $1.52 per share in earnings. Delta Air Lines (DAL) will report on Thursday. J.P. Morgan (JPM), Citigroup (C) and Wells Fargo (WFC), along with PNC Financial Services (PNC) will report on Friday. These four banks account for 26 percent of SPDR Financial (XLF).