Market Perspective for June 12, 2017

A major sector rotation may be unfolding as value outshines growth for the first time this year. The technology sector has significantly outperformed the broader market throughout this year’s rally, led by large-caps Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX) and Google (GOOGL). On Friday, those so-called FAANG shares fell sharply, while many small-cap tech stocks continued to climb. Many believe the shares were simply overvalued and due for a correction, while other analysts are planning for a long-term shift into other areas.

Despite the tech rout, financials, industrials, materials, energy, and healthcare all advanced last week. Financials gained 1.9 percent on Friday, extending a strong multi-day rally. The industrial sector surged on Monday morning after General Electric (GE) CEO Jeff Immelt announced his resignation. GE shares jumped 4 percent.

April wholesale inventories declined 0.5 percent, shaving second-quarter GDP growth estimates. This week’s data could either debunk or corroborate slower-than-expected growth. Economists expect flat May producer and consumer prices, but anticipate a 0.2-percent rise in core consumer prices. Retail sales are expected to be flat, with sales ex-autos up 0.2 percent. Analysts believe April business inventories fell 0.2 percent and May industrial production rose 0.2 percent. Building and housing permits for May are both expected to rise from April’s totals. Finally, analysts forecast a slight uptick in the University of Michigan’s consumer sentiment survey.

In China, new loans, fixed-asset investment, and industrial production for May are all expected to reflect a small slowdown from April’s pace. Economists forecast European industrial production jumped 0.5 percent in May, but inflation fell 0.1 percent.

Last week, the 10-year Treasury yield briefly fell below 2.15 percent, a new low in 2017. A break of that low will embolden bond bulls this week. The U.S. Dollar Index bounced from 96.5 twice last week. Although energy stocks bounced sharply on Friday, crude oil prices started the week at $46 and change, only about $1 off last week’s low.

The Federal Reserve is widely expected to hike the Fed funds rate by 25 basis points, to 1.25 percent on Wednesday.
This week will be light on earnings.

H&R Block (HRB) is expected to report $3.51 per-share on Tuesday. Analysts are looking for $0.57 per-share from Kroger (KR).

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