Month: October 2018

Major indexes declined this week as traders tested lows.

Financials and industrials underperformed on the week. The dip in stocks weighed on interest rates, sending financials lower. Disappointing earnings reports from 3M (MMM) and Caterpillar (CAT) hit the industrial sector.

Utilities and consumer staples rallied strongly. A decline in oil prices amid a decline in share prices hit the energy sector particularly hard.

The U.S. Dollar Index climbed more than 1 percent this week. EU officials have threatened to pull support for Italy’s financial system. European financial shares are down more than 5 percent this week and pulled the MSCI EAFE lower than emerging markets.

Long-term govt bonds outperformed on the week, but they’ve seen a very small bounce. Investors have been bidding up utilities and real estate on the expectation of lower rates, but the market isn’t delivering yet despite the dip in the stock market. On Friday, the government will announce third-quarter GDP growth.

Inflation has been elevated for many months with higher energy prices, but as of Wednesday, crude oil was not far above January 2018 prices. The average price for October will be over $70 a barrel and that should ensure elevated inflation for the month. If crude were to stay closer to $66 a barrel in November, however, crude oil year-on-year gains would collapse from 40 percent in October to 15 percent in November.

The U.S. dollar was strong this week against the euro and emerging-market currencies. It was steady versus the yen. The euro underperformed many emerging market currencies.

China’s stock market was a relative outperformer this week following a major government rescue effort. Many companies and major shareholders pledged shares as collateral on loans worth trillions of yuan and borrowers are getting the equivalent of margin calls as prices hit multi-year lows. Other major EMs such as Brazil, Russia and India all moved lower on the week.

Equities were mixed on Monday. SPDR Technology (XLK) gained 0.83 percent and SPDR Financial (XLF) slid 2.17 percent. The Nasdaq index performance with an increase of 0.26 percent.

Third-quarter GDP growth will be out on Friday. The consensus forecast calls for 3.4 percent. The Atlanta Federal Reserve predicted 3.9 percent as of Monday. Their model’s final estimate will be out on Thursday.

Flash manufacturing PMIs are due on Tuesday. U.S. manufacturing PMIs improved in September while China and Europe weakened.

New home sales for September will also be out on Tuesday. Analysts see sales easing very slightly to an annualized pace of 620,000 from August’s 629,000.

The odds of a December rate hike stood at 84 percent on Monday. The market puts the odds of another hike by June 2019 at 80 percent.

The U.S. Dollar Index rallied 0.32 percent on Monday with Brexit troubles weighing on the pound and Italy weighing on the euro. Gold slipped 0.22 percent in response. Crude oil only managed to gain a nickel on the day.

Halliburton (HAL) beat earnings expectations on Monday, but its stock fell 3 percent on the day with the broader energy sector. The oilfield services company lowered fourth-quarter guidance to a range of 37 to 40 cents, below Wall Street’s consensus of 47 cents. After the bell, Zions Bancorp (ZION) reported earnings of $1.04 per share in the prior quarter, beating by 8 cents. Shares fell 3.45 percent in regular hours trading, but rebounded 2 percent following the announcement.

Caterpillar (CAT), 3M (MMM), Biogen (BIIB), McDonald’s (MCD), Illumina (ILMN), Lockheed Martin (LMT), Regions Financial (RF), Harley-Davidson (HDI) and Capital One Financial (COF) will report on Tuesday.

Advanced Micro Devices (AMD), Boeing (BA), Ford (F), Hilton (HLT), Boston Scientific (BSX), Illinois Tool Works (ITW), Freeport-McMoRan (FCX) and Equifax (EFX) will report on Wednesday.

On Thursday, investors will hear from Amazon (AMZN), Comcast (CMCSA), Baidu (BIDU), Celgene (CELG), Bristol-Myers (BMY), ConocoPhillips (COP), American Airlines (AAL) and CME Group (CME).

Colgate (CL), Phillips 66 (PSX), Charter Communications (CHTR), Rockwell Collins (COL), Goodyear (GT) and Moody’s (MCO) will close out the week.

Value stocks resumed leadership this week and the Dow Jones Industrial Average gained 0.39 percent to lead all major indexes. The Nasdaq lost 0.63 for the week as semiconductors weighed on Friday.

SPDR Consumer Staples (XLP) and SPDR Utilities (XLU) rallied 4.45 and 3.08 percent. SPDR Financials (XLF) and SPDR Healthcare (XLV) advanced 0.89 and 0.44 percent. SPDR Technology (XLK) declined 1.16 percent. iShares PHLX Semiconductor (SOXX) shed 2.10 percent.

Federal Reserve minutes confirmed officials’ plan to raise rates beyond the “neutral rate.” The odds of a December rate hike rose to 84 percent. Treasury yields rose as well, with the 10-year briefly trading above 3.20 percent mid-week. The 52-week high is 3.25 percent.

September retail sales matched August’s growth rate of 0.1 percent but missed estimates. Sales-ex autos fell 0.1 percent.

The Empire State index, the New York Fed’s measure of manufacturing in its territory, climbed in October. The Philly Fed’s manufacturing index also rose in October. These reports comport with improving manufacturing PMIs for September.

Job openings remained steady at 7.1 million in August. Initial claims for unemployment were 210,000, meeting expectations and down from the prior week’s 215,000.

The homebuilder confidence index rose in October with thanks to rising demand. Housing starts, building permits and existing home sales were all slightly below estimates.

Chinese economic data showed continued slowing. The Chinese government reported GDP growth of 6.5 percent in the third quarter, the slowest result in a decade. Fixed-asset investment and retail sales for September reflect China’s shrinking growth rate.

The U.S. dollar climbed against the euro this week. The European Commission didn’t reject Italy’s budget, but it said it was against EU rules. A confrontation could escalate on October 31, when Italy’s parliament votes on the budget. SPDR S&P 500 (SPY) gained 0.09 percent on the week. It outperformed iShares MSCI EAFE (EFA) and iShares MSCI Emerging Markets (EEM), which fell 0.14 and 1.49 percent, respectively.

Banks delivered solid earnings this week, following up on last week’s strong reports. Bank of America (BAC) beat forecasts by 4 cents. Goldman Sachs (GS) and Morgan Stanley (MS) also beat. American Express (AXP) also beat and had one of the best stock performances within the sector.

Netflix (NFLX) smashed estimates and shares jumped after hours, but weakness in tech pulled the stock down on the week.

Johnson & Johnson (JNJ), UnitedHealth Group (UNH) and Abbot Labs (ABT) all beat earnings. Proctor & Gamble (PG) surprised investors with a very strong earnings report. Shares popped 8.8 percent on the day and boosted consumer staples performance.