Market Perspective for January 20, 2018

U.S. equities pushed on to new records this week despite profit-taking in some of the best performing sectors. The Nasdaq and Dow Jones Industrial Average both increased 1.04 percent to lead the major indexes. The Dow Transports fell 0.60 percent following a 20-percent gain over the past two months.

Healthcare and consumer staples were the best performing sectors this week. Healthcare providers and medical devices lifted SPDR Healthcare (XLV) 1.87 percent. Staples were strong across the board. Shares of Proctor & Gamble (PG), Coca-Cola (KO), Pepsi (PEP), Philip Morris (PM), Wal-Mart (WMT) and Colgate-Palmolive (CL) all increased at least 2 percent. SPDR Consumer Staples (XLP) advanced 2.45 percent on the week.

General Electric (GE) weighed on industrials. The company took a $6.2-billion charge on an insurance unit. This news rekindled concerns and shares fell to a new 52-week low.

Industrial production hit a new all-time high in December, exceeding the prior peak set in 2014. The home builders’ confidence index remained near its 18-year high. Jobless claims fell to a new 44-year low of 220,000.

The International Energy Agency sent oil prices modestly lower on Friday after predicting U.S. shale production will rise to a peak of 10.4 million barrels per day in 2018. This will move the U.S. ahead of Saudi Arabia, behind Russia’s 10.9 million bpd.

The U.S. Dollar Index hit a new 3-year low this week and the euro a 3-year high. PowerShares U.S. Dollar Bullish (UUP) fell 0.25 percent. iShares MSCI EAFE (EFA) gained 0.86 percent, same as SPDR S&P 500 (SPY). Domestic shares outperformed developed markets after backing out currency effects, a sign that developed markets are not assuming global leadership. In contrast, iShares MSCI Emerging Markets (EEM) rallied 1.88 percent, while WidsomTree Emerging Market Currency (CEW) only increased 0.02 percent.

The 10-year Treasury yield also hit a new 3-year high. Treasury, corporate, investment-grade and high-yield bonds all fell on the week. Floating-rate funds gained ground. PowerShares Senior Loan (BKLN) increased 0.26 percent.

The financial sector dominated earnings. Shares of Citigroup (C), Bank of America (BAC) and Comerica (CMA) lifted the banking sector with earnings beats this week. Morgan Stanley (MS), M&T Bank (MTB), BB&T Corp (BBT), KeyCorp (KEY) also exceeded analyst estimates. Several companies beat estimates, but reported much lower net earnings because of taxes on repatriated earnings. International Business Machines (IBM) reported its first quarterly revenue growth in nearly 6 years this week, but shares fell on 2018 earnings guidance that was slightly below analyst expectations.

Goldman Sachs (GS) Goldman beat on net profit estimates for the quarter, but a one-time tax hit resulted in a net loss. Apple (AAPL) said it would repatriate most of its overseas earnings. The tax hit will be roughly $38 billion. Apple said it would invest some of the money in the U.S. and hire as many as 20,000 new employees.

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