Market Perspective for January 6, 2017

Healthcare and consumer discretionary sectors have continued to benefit from bullish market sentiment. Although the major indexes all gained on the week, they also remained in the tight trading range that started on December 12. The Dow Jones Industrial Average spent another week tantalizingly close to breaking the 20,000 level. The Nasdaq was the week’s best performer with a gain of more than 2 percent and a new all-time closing high.

SPDR Healthcare (XLV) and SPDR Consumer Discretionary (XLY) both rallied more than 2 percent. A rebound in biotechnology lifted healthcare, while Disney (DIS) and Nike (NKE) boosted XLY.

Oil markets rallied this week as Kuwait, Oman and Saudi Arabia implemented production cuts, though oil prices remained in the low $50 range. Oil hit $54 intraday on December 12 and has failed to close above $55, though it did breach that level intraday on Wednesday.

Economic data in the U.S. was broadly positive. U.S. manufacturing PMIs increased, with the ISM number hitting 54.7 and the Markit survey reaching 54.3 for December. The Atlanta Federal Reserve GDP Now model raised its fourth quarter GDP growth forecast to 2.9 percent from 2.5 percent. Domestic construction spending hit a 10-year high. The minutes from the last Federal Open Market Committee (FOMC) meeting shows Fed officials cautiously optimistic, that fiscal stimulus from Washington will boost economic growth. Motor vehicle sales blew past forecasts of 17.7 million annual sales and hit 18.4 million, the fastest pace since July 2005. Thanks to the December jump in sales, 2016 was another record year for the auto industry with 17.6 million vehicles sold.

First time jobless claims hit a 43-year low with only 235,000 initial claims. The December unemployment report showed 156,000 new jobs. This missed the forecast estimate of 178,000. The unemployment rate increased slightly to 4.7 percent, in line with expectations. Wage growth was faster than expected, climbing 0.4 in December versus the forecast 0.3 percent increase.

Manufacturing data from around the world was positive this week. The eurozone manufacturing Purchasing Managers’ Index (PMI) climbed to 53.7, beating the consensus forecast of 53.1 and the fastest growth rate in more than five years. China’a manufacturing PMI hit 51.9 and China’s services PMI reached a 17-month high. The U.K. manufacturing PMI figures hit a 2.5-year high. The country’s services data reached its best level in almost a year and a half.

Shares of Monsanto and Walgreens both moved higher following earnings reports. Monsanto (MON) topped forecasts, earning 21 cents per share versus an expected loss. Walgreens (WBA) reported mixed results. It beat earnings expectations, but missed analysts’ revenue forecast. The bigger news this week was the planned sale of 865 Rite Aid (RAD) stores to Fred’s Pharmacy (FRED), solidifying the deal’s approval by federal antitrust regulators.

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