Market Perspective for August 18, 2017

Equities slipped this week on weakness in consumer discretionary shares and global geopolitical concerns. The Nasdaq slipped 0.64 percent, though technology hit a new all-time high on Wednesday and SPDR Technology (XLK) gained 0.05 percent for the week. Utilities led S&P 500 sector performance following a small decline in interest rates. SPDR Utilities (XLU) gained 1.41 percent on the week.

Retail sales rose 0.6 percent in July, sales ex-autos climbed 0.5 percent. Economists had forecast 0.4 percent growth for both. Amazon’s (AMZN) Prime Day sales lifted online retail to the fastest monthly growth since the holiday season. Retail sales are up 4.2 percent from July 2016.

Homebuilder and consumer confidence data were also strong. The homebuilder index hit 68, one of the highest readings over the past decade. The University of Michigan consumer sentiment survey jumped to 97.6 in August, up from 93.4 in June and above estimates of 94.8. The Empire state index of manufacturing activity hit 25.2 in August, well above July’s reading of 9.8. Weekly unemployment claims fell to 232,000, the lowest number since February.

GDP forecasts for the current quarter rose this week. The blue-chip economist consensus calls for 2.7 percent growth. The Atlanta Federal Reserve’s GDP Now model raised its estimate to 3.8 percent.

Major retailers Target (TGT), Home Depot (HD) and Wal-Mart (WMT) all reported strong earnings this week, though the threat of Amazon’s ever-increasing market share and declining brick-and-mortar sales subdued the sector. SPDR Consumer Discretionary (XLY) fell 1.79 percent on the week, while SPDR S&P Retail (XRT) declined 3.68 percent.

Energy funds fell to fresh 52-week lows this week. SPDR Energy (XLE) fell 2.53 percent, down 6.44 percent in August. SPDR Oil & Gas Equipment & Services (XES) declined to a new 18-month low. XLE and SPDR S&P Oil & Gas Exploration & Production (XOP), however, are still well above 2016 lows.

The U.S. Dollar Index advanced this week. The 10-year Treasury yield rose slightly and spent most of the week at 2.2 percent. Shorter maturities, such as at the 2-year Treasury yield, also rose. The odds of a December rate hike rose to 41 percent this week, up from 37 percent at the end of last week. Strong economic data lifted expectations.

Chinese economic data was weaker than expected last month. Credit growth and fixed-asset investment remains enviably high compared to developed markets, but growth slowed more than expected.

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