Month: October 2018

Stocks opened on Monday with strong buying in transportation, defense, industrials, consumer staples and small caps. The Russell 2000 led index performance on the day with a 0.42- percent advance. iShares U.S. Aerospace & Defense (ITA) gained 1.42 percent.

Retail sales increased 0.1 percent in September, missing forecasts, but matching August’s growth rate. Retail sales ex-autos fell 0.1 percent. Bars and restaurants, despite 7.1 percent higher sales, accounted for most of the miss. Online sales rose 1.1 percent.

The October Empire State index shows strong manufacturing activity picked up by the September PMIs carrying over into this month.

Industrial production for September, August job openings and the October homebuilders’ index will be out later this week.  Housing starts, building permits and existing home sales, all for September, will also be released. The minutes of the September Federal Reserve meeting will be out on Wednesday.

The U.S. dollar started the week lower, but West Texas Intermediate crude closed below $72 a barrel nonetheless. Natural gas extended its rally, rising another 3 percent. Gold extended gains, but failed to exceed last week’s high.

Earnings season will kick into high gear this week. Bank of America (BAC) beat forecasts by 4 cents and delivered strong growth metrics. Charles Schwab (SCHW), Goldman Sachs (GS), Morgan Stanley (MS), American Express (AXP) U.S. Bancorp (USB) and many regional banks will all report earnings this week. SPDR Financial (XLF) and SPDR S&P Regional Bank (KRE) will be most affected by these reports.

Communication services and Internet funds will also be under the microscope this week with Netflix (NFLX) reporting after the bell on Tuesday. Johnson & Johnson (JNJ) and UnitedHealth Group (UNH) will also report. Other healthcare stocks reporting this week include Abbot Labs (ABT), athenahealth (ATHN) and Intuitive Surgical (ISRG).

Alcoa (AA), PayPal (PYPL), WD-40 (WDFC), Proctor & Gamble (PG), Schlumberger (SLB), Kansas City Southern (KSU) and Honeywell (HON) are also slated to report this week.

It was a volatile week for stocks as technology shares led a market decline on Wednesday and Thursday. The S&P 500 index broke through its 50-day and 200-day moving averages before rallying and retaking the 200-day MA on Friday. The Nasdaq Composite also narrowly recovered its 200-day MA on Friday by 7 points. The Dow Jones Industrial Average bounced well above its 200-day MA, while the more volatile Russell 2000 Index closed below its 200-day MA. Oversold conditions this week indicate short-term selling has reached exhaustion.

 Although the Nasdaq led the selling, it led performance on the week following a strong technology rally on Friday. It lost 3.74 percent on the week. The Dow Transports fell 6.40 percent. The S&P 500 Index and Dow Jones Industrial Average declined 4.11 and 4.19 percent respectively, while the Russell 2000 Index slid 5.23 percent.

SPDR Consumer Discretionary (XLY) fell 3.35 percent, SPDR Healthcare (XLV) 3.41 percent and SPDR Technology (XLK) 3.79 percent. SPDR Financial (XLF) and Industrial (XLI) underperformed with losses of 5.61 and 6.37 percent. Technology and consumer discretionary are still trailing in the fourth quarter, while financials and healthcare are leading the larger sectors.

Defensive sectors outperformed by a wide margin this week. SPDR Utilities (XLU) fell only 1.27 percent, SPDR Consumer Staples (XLP) 1.98 percent.

iShares MSCI Emerging Markets (EEM) fell 1.47 percent, iShares MSCI EAFE (EFA) 3.85 percent and SPDR S&P 500 (SPY) 4.10 percent. The U.S. Dollar Index weakened by 0.30 percent and slightly more versus emerging market currencies.

Small-business confidence eased from its all-time high in September but remains near the 45-year high. Producer prices rose 0.2 percent in September, as expected. Both the headline and core CPI missed expectations again in September, rising only 0.1 percent. The Atlanta Federal Reserve hiked its GDP growth forecast for the third quarter to 4.2 percent this week.

Market gyrations this week overshadowed a strong start to earnings season. J.P. Morgan (JPM) delivered $2.34 per share, better than the $2.25 expected. Rising interest rates lifted returns on the bank’s assets and net interest margin increased to 2.51 percent from 2.46 percent in the prior quarter. Citigroup (C) also beat estimates, while Wells Fargo (WFC) missed by a penny.  Delta Air Lines (DAL) earned $1.80, better than the $1.74 consensus forecast. Increased travel and higher fares offset rising fuel costs. Shares gained 4.7 percent on Thursday and Friday following the report.

Technology and transportation pulled the markets lower this week. The Dow Jones Industrial Average and S&P 500 Index continued to benefit from exposure to outperforming value sectors.

Short-term selling has been heavy this week.

Technology has weakened with semiconductors as trade and cybersecurity threats in China have escalated. Financials and healthcare were strong outperformers.

Investors opted for utilities amid the decline in stocks, despite rising interest rates. Consumer staples also benefited, while materials lagged.

Financial funds were strong nearly across the board this week. Small and regional banks have outperformed with rising rates and widening spreads.

Technology saw broad weakness across its subsectors.

Value stocks have underperformed consistently as technology outperformed.

The U.S. Dollar Index weakened slightly on the week as the euro bounced from lows last week, but the U.S. markets still outperformed foreign shares by a considerable margin.

Bond yields pulled back on Monday and Tuesday, but they spiked on Wednesday. Long-term government bonds rebounded strongly mid-week and then faded. However, rising credit risk weighed on markets. Floating-rate funds remain among the strongest performing class of fixed income amid rising rates.

Dividend funds are outperforming the market as investors hold value stocks. iShares Core High Dividend (HDV) gained on the week. Low-volatility and high dividend funds in conservative blue chips are seeing their best relative performance in several months.

Some low-volatility funds are up on the week due to heavy utilities exposure. USMV has bested these funds, at times by a considerable margin, with a more diversified portfolio. It is best to stick with diversified low-volatility funds with rates still in an uptrend.