Market Perspective for June 30, 2017

Broad market indexes rebounded slightly on Friday, but fell on the week as the overdue rotation out of technology stocks and into primarily financials and healthcare sectors continued. SPDR Financial (XLF) gained 3.18 percent, while SPDR Technology (XLK) fell 2.66 percent. The technology sell-off represents a normal pullback within a bull market; XLK is still up 14.21 percent year-to-date.

The healthcare sector continues to benefit from the tech correction. SPDR Healthcare (XLV) is up 15.84 percent year-to-date after last week’s biotechnology and pharmaceuticals gains.

Financials have also outpaced other sectors in recent weeks. All 34 large banks solidly passed Federal Reserve stress tests on Wednesday, and immediately announced share buybacks and increased dividends. Zions Bank (ZION) plans to triple its dividend by 2018, while J.P. Morgan (JPM) will hike its dividend by 12 percent, starting with the third-quarter payment. Shares of SPDR S&P Regional Banking (KRE) gained 3.87 percent on the week.

Both the Conference Board and the University of Michigan consumer confidence surveys increased, despite negative expectations. The third and final estimate of first-quarter GDP growth was also higher- than-expected at 1.4 percent and double the initial 0.7-percent estimate. Consumer spending and exports drove the upward revision. Personal income grew 0.4 percent in May, also better-than-expected, and core PCE inflation fell 0.1 percent.

Walgreen’s (WBA) terminated its merger with Rite Aid (RAD) this week. Instead of merging the two firms, Walgreen’s will instead buy more than 2,000 stores for $5.2 billion in cash. This deal must also meet regulatory approval, but the hurdles are lower. Rite Aid shares fell more than 30 percent from high to low this week. Walgreen’s rallied on the news.

KB Home (KBH) lifted the homebuilder sector with an earnings beat and raised guidance. Paychex (PAYX) beat profit and sales estimates, but disappointed on guidance. Shares fell to a new 2017 lows. Monsanto (MON) joined KBH at a new 52-week high after it beat estimates and affirmed its forecast for 2017 earnings.

The U.S. Dollar Index broke out of its short-term trading range to a new 2017 low. The 10-year Treasury yield rose to 2.3 percent as European bond yields spiked.

Oil prices bounced this week and energy stocks rallied. The move reversed some of the prior week’s losses, but crude oil remains in a clear short-term bearish trend.

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