Market Perspective for June 25, 2018

Equities opened the week lower as losses in the Chinese market were followed by declines in Europe and then the United States. The Dow Jones Industrial Average bounced off its 200-day moving average.

Technology led the market lower with SPDR Technology (XLK) sliding 2.08 percent. SPDR Utilities (XLU) and Consumer Staples (XLP) rallied 1.66 and 0.50 percent. Some of this rotation may be seasonal as investors position for the second-half of the year. June was the only down month for technology in 2017.

New home sales rose to an annualized pace of 689,000 in May, beating expectations and April’s figure. Sales were 8.8 percent higher than year-ago levels. Over the past 10 years, only November 2017’s figure of 712,000 was higher. Later this week, the government will release durable goods orders, advance trade in goods and pending home sales for May. Economists forecast a 1.3-percent decline in durable goods and see the trade deficit in goods climbing to $69.2 billion. Initial claims for unemployment should remain near multi-decade lows. The final estimate of first-quarter GDP growth should match the prior 2.2 percent estimate.

Overseas data this week will include Eurozone inflation and Australian new home sales. China will release its manufacturing and service PMIs after the markets have closed on Friday.

Crude oil was steady on the day at $68 a barrel. The 10-year Treasury yield eased to 2.88 percent amid declining equities. The U.S. Dollar Index declined slightly as the euro and yen strengthened, but it gained against a broad basket of emerging-market currencies.

Homebuilder Lennar (LEN), Bed, Bath & Beyond (BBBY), General Mills (GIS), Paychex (PAYX), RiteAid (RAD), Accenture (ACN), KB Home (KBH), Nike (NKE) and Walgreen’s (WBA) will report earnings this week.

 

Market Perspective for June 22, 2018

The Russell 2000 Index gained 0.10 percent this week. The other indexes declined as emerging markets weighed on global equities.

Utilities, energy and consumer staples were the best performing sectors this week. SPDR Utilities (XLU) advanced 2.4 percent, Energy (XLE) 1.4 percent, and Consumer Staples (XLP) 0.1 percent. OPEC voted to increase oil production by 700,000 barrels per day on Friday. Crude oil jumped more than $3 per barrel to near $70 as investors had priced in a rise of 1 million bpd or more. SPDR S&P Oil & Gas Exploration & Production (XOP) and similar energy subsector ETFs gained 3 to 5 percent.

SPDR Industrials (XLI) fell 3.3 percent. Caterpillar (CAT) and Boeing (BA) lost ground on the week as trade tensions escalated globally. General Electric (GE) was removed from the Dow Jones Industrial Average. It was the only surviving original member of the index. Since the Dow is a price-weighted index, GE’s slide into the low teens meant its weighting in the index fell to just 0.4 percent. Walgreen’s (WBA) will replace it.

The Supreme Court opened the door for states and localities to tax online retailers. Amplify Online Retail (IBUY) fell 1.4 percent on Thursday following the ruling. It was down 0.8 percent on the week. SDPR Technology (XLK) fell 1.3 percent on the week.

The manufacturing and services flash PMIs have eased in June but remain in expansion. Housing starts reached their highest level in more than a decade. Existing home sales declined 0.4 percent from April and 3 percent from year-ago levels. Initial unemployment claims fell to 218,000 and remain near four-decade lows. The Atlanta Federal Reserve kept its second-quarter GDP growth forecast at 4.7 percent.

The S&P 500 Index declined 0.8 percent on the week. iShares MSCI EAFE (EFA) and iShares MSCI Emerging Markets (EEM) declined 1.2 and 2.3 percent, respectively. The U.S. Dollar Index and emerging- market currencies were largely flat on the week, while the Chinese yuan declined.

Shares of FedEx (FDX) fell 8.3 percent this week. The firm beat on earnings and revenue and shares initially rallied on the strong results. The beat, however, was generated by the sale of a division and lower taxes, and operating results were slightly weaker than forecast.  Oracle (ORCL) slid 4.7 percent for similar reasons. It beat analyst profit and sales estimates, but stopped detailing its cloud revenue leading investors to suspect the firm may be hiding slowing growth. Micron Technology (MU) moved higher after it too beat earnings but lost 2 percent on the week as the overall semiconductor sector lost 3.6 percent.

 

 

Market Perspective for June 18, 2018

Equities opened the week lower after German Chancellor Angela Merkel faced dissent over migration policy. iShares MSCI Germany (EWG) fell 2 percent before recovering slightly during Monday trading. As a major component in international funds, the dip in the German market weighed heavily on foreign shares.

U.S. markets were much stronger. The Russell 2000 Index gained on the day. Other indexes saw small losses. Crude oil prices rebounded, and Utilities saw a small gain as long-term interest rates declined.

The National Association of Home Builders index dipped 2 points to 68 in June, but remains near two-decade highs. Economists were looking for a big increase to 78, but rising lumber costs weighed. For all of 2018 the confidence index has averaged 70. This is the highest average reading of all-time. Tuesday will bring new home starts and building permits for May, followed by existing home sales on Wednesday. The flash PMIs for June will also be out this week.

The U.S. Dollar Index rose this week due to a dip in the Canadian and Australian dollars. The greenback was flat against most emerging-market currencies. It saw a small gain versus the euro. Emerging-market ETFs slid more than 1 percent on the day. Over the past month, both iShares MSCI EAFE (EFA) and iShares MSCI Emerging Markets (EEM) have underperformed SPDR S&P 500 (SPY) by 5 percentage points. The rising U.S. dollar explains less than 2 percent of that performance gap.

Crude oil held above $65 a barrel on Monday, while natural gas prices were steady. Gold lost nearly $30 an ounce on Friday. It saw a small bounce on Monday.

FedEx (FDX) and Oracle (ORCL) will highlight earnings this week. Analysts expect FedEx will report 34 percent higher earnings versus last year, or $5.71 per share. They see earnings of $0.87 per share at Oracle, 6 percent higher than a year-ago.  Micron Technology (MU) is the other major report. Analysts forecast earnings growth of more than 100 percent as memory prices surged in the past year. FedEx, Oracle and Micron are major holdings in the transportation, software and semiconductor sectors. Kroger (KR), Darden Restaurants (DRI) and Blackberry (BB) will also report this week.