Market Perspective for January 26, 2018

Equities hit new all-time highs this week, despite a weaker dollar and GDP miss. The Nasdaq led with a 2.31-percent gain. Earnings drove the market higher. Netflix (NFLX) reported strong subscriber growth and shares rallied nearly 25 percent on the week. Shares of Intel (INTC) and AbbVie (ABBV) also rose double-digits on Friday following strong earnings.

Healthcare was the best performing sector, led by biotechnology acquisitions and strong earnings Biogen (BIIB). SPDR S&P Biotech (XBI) gained 8.18 percent this week. SPDR Healthcare (XLV) rose 3.51 percent.

The fourth-quarter GDP growth rate missed expectations of 3 percent by 0.4 percent.  There was strong consumer spending in the report. Personal consumption increased 3.8 percent, versus 2.2 percent in Q3. By itself, this consumption was responsible for 2.6 percent growth in GDP. Nonresidential fixed-asset investment increased 6.8 percent, up from 4.7 percent in Q3. Rising imports shaved 2 percent from GDP growth, and trade produced an overall drag of 1.1 percent.

Other economic data was solid this week. The flash manufacturing PMI for January rose slightly from December, while the services PMI eased slightly. Weekly jobless claims fell to 233,000. New home sales declined to 625,000 from last month’s revised 689,000. Durable goods orders increased 2.9 percent in December, well above the 0.9 percent consensus estimate.

The 10-year Treasury yield opened higher on Monday but failed to extend its gains during the week. It finished at 2.66 percent. SPDR Utilities (XLU) gained 2.10 percent as interest rates paused.

Even though the dollar weakened substantially this week, domestic shares outperformed. SPDR S&P 500 (SPY) gained 2.20 percent and iShares MSCI EAFE (EFA) increased 1.51 percent. iShares MSCI Emerging Markets (EEM) did benefit, rallying 3.25 percent.

Crude oil started the week with a very brief dip before rallying. West Texas Intermediate crude oil finished the week above $66 a barrel.

Although stocks were strong this week, we saw continued profit taking in some industrial subsectors. The Dow Jones Transportation Index fell 1.59 percent. Most of the weakness was in the airline sector. U.S. Global Jets (JETS) fell 4.74 percent.

Caterpillar (CAT) earned $2.16 per share in the last quarter, well ahead of the $1.79 forecast. 3M (MMM) beat earnings, revenue and increased guidance for this year. Starbucks (SBUX) missed earnings estimates, but it became the latest company to announce higher worker pay thanks to tax reform. General Electric (GE) also missed estimates, sending shares to a new 52-week low.

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