Market Perspective for January 27, 2017
The Dow Jones Industrial Average broke through the important psychological level of 20,000 on Wednesday and sustained those gains through Friday’s close. The S&P 500 Index reached 2,300 and the Nasdaq topped 5,600. Global stocks rose with the U.S. averages. The pan-European STOXX 600 Index reached its highest level in more than a year. SPDR Financials (XLF) and Technology (XLK) both gained more than 1 percent. The SPDR Materials (XLB) rose more than 3 percent after Senate Democrats proposed $1 trillion in infrastructure spending as an olive branch to the Trump administration.
In response to the recent British High Court ruling on Brexit, Prime Minister Theresa May is fast-tracking Article 50 legislation through Parliament. The bill appears to have enough support to pass, with opposition Labour leader Jeremy Corbyn telling his members to vote for the bill. Defying dire predictions, the British economy grew faster than expected after its vote to leave the European Union. Preliminary data released Thursday suggests the U.K. was the fastest-growing G7 economy in 2016.
The Eurozone’s flash Purchasing Managers’ Indexes (PMI), released on Tuesday, hit a 69-month manufacturing high, while Japan reached a 34-month high and the U.S. a 22-month high, pointing to faster global economic growth in 2017.
New and existing home sales unexpectedly fell in December in response to higher mortgage rates and lower inventory. This was offset, however, by a 4-percent increase in mortgage purchase applications. As expected, the Richmond and Kansas City Fed Surveys showed sustained regional manufacturing and service sector growth. The weekly unemployment figures came in slightly higher than expectations at 259,000. While analysts had forecast a large draw, oil inventories rose by almost 300,000 barrels. Despite this, the price of oil rose above $54 per barrel before settling back. Gold, the U.S. dollar and Treasuries were lower on the week.
Fourth-quarter GDP growth, came in short of expectations at 1.9 percent. The consensus forecast was 2.2 percent. The trade balance was responsible for an estimated 1.7 percent of that miss. The market took the GDP report in stride, with barely a ripple in interest rates as investors turn their attention to 2017. Fixed investment increased 0.67 percent. This category includes residential and non-residential structures, as well as equipment and intellectual property. The prior five quarters were either negative (subtracting from GDP growth) or flat.
Overall, earnings were positive this week, reflected in the market’s advance to new all-time highs. Industrials, technology, materials, and consumer discretionary sector funds also made new all-time highs. Key revenue misses hurt both the energy and consumer staples sectors. Shares of McDonald’s (MCD) were steady this week after the company delivered earnings slightly ahead of analysts’ expectations. Procter & Gamble (PG) shares rose more than 2 percent on stronger-than-expected numbers. Johnson & Johnson (JNJ) reported earnings that beat estimates, but not revenues.
Verizon (VZ) shares fell after the company missed growth estimates, but shares of AT&T (T) rallied after meeting expectations, leaving the telecom sector flat. Starbucks (SBUX) fell on Friday after the firm disappointed investors. The company spent heavily on upgrading technology and overseas expansion.
On Wednesday, Boeing (BA) beat Wall Street forecasts and saw its share price rise more than 7 percent. Shares of Caterpillar (CAT) fell more than 2 percent as the company reported a record 49 straight months of declining sales. The company also cut its 2017 outlook, though shares gained on the week following the infrastructure trade. United Technologies (UTX) traded down and Honeywell (HON) up following earnings reports, but it was an overall up week for industrials. SPDR Industrials (XLI) hit a new all-time high after gaining nearly 2 percent.
Technology earnings were mostly positive. Google parent Alphabet (GOOG) fell after tax charges caused the company to miss earnings estimates. Microsoft (MSFT) beat estimates across the board and shares popped 2 percent. Intel (INTC) followed MSFT higher following a similarly strong report. Shares of EBay (EBAY) also rallied after it hit estimates and reported its best earnings growth in nearly 2 years.
Ford (F) reported an $800 million loss in the last quarter and did not provide clear guidance going forward. Shares fell following the news, but were up for the week.
Chevron (CVX) reported 22 cents versus expectations of 64 cents per share. Shares fell to near 2-month lows as a result. Earlier in the week, oil services giant Halliburton (HAL) beat estimates, while competitor Baker Hughes (BHI) missed. Colgate (CL) hit earnings, but missed sales estimates, sending shares down 6 percent.