Market Perspective for March 10, 2017

The major indexes were flat on the week following Friday’s strong jobs report. 235,000 new jobs were created in February, compared to the 190,000 forecast. The unemployment rate stayed at 4.7 percent despite more workers entering the labor force. The underemployment rate fell from 9.4 percent to 9.2 percent. Average hourly wages increased 0.2 percent.

On Wednesday, West Texas Intermediate Crude fell 5 percent and eventually hit $48 later in the week. Energy stocks lost about 3 percent on the week. In 2017, weekly inventory has consistently been well above 2016 levels.

The Federal Reserve will almost certainly hike interest rates next week. The 10-year Treasury yield briefly climbed above 2.6 percent. Overseas, the Royal Bank of Australia and the European Central Bank (ECB) held interest rates steady this week. Additionally, the ECB will continue its quantitative easing program even though Eurozone inflation has reached the 2 percent target.

Japanese fourth-quarter gross domestic product (GDP) figures came in above expectations at 1.2 percent. The latest Chinese Consumer Price Index (CPI) along with the Producer Price Index (PPI) readings showed a reduction in consumer inflation while factory prices rose 7.8 percent year-on-year.

With 99 percent of S&P 500 companies reporting, the earnings growth rate for Q4 2016 is 4.9 percent. Brick-and-mortar retailers still face stiff competition from online retailers as well as changes in consumer buying habit. Urban Outfitters (URBN) fell 3 percent on Wednesday after disappointing sales and revenues. Express, Inc. (EXPR) also reported numbers below analysts’ expectations. Shares of the company fell nearly 12 percent on the news. The selling pressure in retail spread to Dick’s Sporting Goods (DKS) despite the company’s solid quarterly results. DKS sales and earnings surpassed expectations, but shares fell 7 percent. SPDR S&P Retail (XRT) fell to a new 2017 low on Thursday.

Higher mortgage rates and slow sales hampered the performance of Hovnanian (HOV). Shares were down 8 percent on the week. Despite the lower results this week, analysts raised their overall bottom-up earnings per share estimates for the current quarter. It’s also an outlier report for the industry, which generally beat sales and earnings estimates this reporting season. Housing industry data remains strong as well. This week’s employment report showed solid job gains in residential construction. iShares U.S. Home Construction (ITB) hit a new 52-week high on Friday.

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