Market Perspective for February 3, 2017

Following the prior week’s breakout to new all-time highs, investors took profits over the past few days as major technology companies stalled. Nevertheless, January’s strong unemployment report and President Trump’s statements regarding Dodd-Frank lit a spark on Friday and erased most of the week’s losses. The major averages rallied to new all-time highs on Friday, with the Dow once again surpassing the 20,000 mark as both regional and global banks traded sharply higher.

As expected, the Federal Reserve, Bank of Japan (BoJ) and Bank of England left interest rates unchanged this week. The BoJ raised its economic growth forecast as the country’s manufacturing sector and exports are showing signs of recovery. While the Bank of England announcement was similarly uneventful, the British Parliament voted to invoke Article 50, paving the way for Britain’s exit from the European Union.

Personal Income and Outlays reflected a faster- than-expected consumer spending rise in December. Incomes met the forecast 0.3 percent rise. Pending home sales recovered last month to post a 1.6-percent increase. The Dallas Fed Survey reached a 6-year high. The Case-Shiller Home Price Index for November increased 5.3 percent, slightly higher than consensus estimates. Chicago Purchasing Managers’ Index (PMI) missed analysts’ expectations by 6 percent. Light vehicle sales for January were down slightly from December, but higher than expected.

For the third consecutive week, the oil inventory report showed a larger-than-expected increase in stockpiles. The price of West Texas Intermediate Crude rose slightly more than 1 percent this week to remain near $54 per barrel. Manufacturing PMIs were much stronger than expected in January. At 56, the ISM manufacturing Index shows continued growth in factory output for the fifth consecutive month. The Markit PMI confirmed the results, coming in at 55. Weekly unemployment claims figure dropped as expected. Finally, the January jobs report came in higher than anticipated. The economy created 227,000 new jobs. Analysts had forecast 175,000 new positions last month. The overall unemployment rate edged higher to 4.8 percent, a positive sign as discouraged workers rejoin the labor force.

Earnings were solid this week. Apple (AAPL) climbed more than 7 percent after the company reported strong iPhone 7 sales. Volatility in the energy sector hurt earnings and revenues at Exxon Mobil (XOM), weighing on the sector. Pfizer (PFE) remained unchanged despite missing earnings, revenue, and profit expectations. Merck (MRK) shares rose 4 percent despite missing sales forecasts.  The entire sector rallied after an industry meeting with President Trump.

Shares of United Parcel Service (UPS) fell 10 percent following lower-than-expected earnings and revenues. UPS also lowered its future guidance, and weighed heavily on the Dow Jones Transportation Index.

Visa (V) shares jumped 5 percent on Friday after the company announced earnings and revenues that topped Wall Street estimates.

Afterhours Thursday, shares of Amazon (AMZN) sold off 5 percent after the firm reported a revenue miss.  The online retailer also issued disappointing future guidance.

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