Market Perspective for May 19, 2017

The S&P 500 Index closed above 2400 for the first time, but ended the week at 2,381.73 after rebounding from Tuesday’s dip.  Major indexes rebounded quickly after the sell-off to finish the week essentially flat.  The Nasdaq closed on Friday at 6,083.70, down 0.60 percent for the week. The Dow Jones Industrial Average rallied back to 20,804.84, losing 0.40 percent on the week.   Rate hike odds fell to a low of 65 percent on Wednesday and have since rebounded back to 73 percent.

Economic data was strong this week. Housing starts rose 0.7 percent to an annualized pace of 1.172 million in April. Building permits increased 5.7 percent to 1.229 million and Homebuilder confidence hit 70 in May. April industrial production climbed 1.0 percent, double the estimate. Capacity utilization also exceeded expectations at 76.7 percent. Weekly initial unemployment claims were 232,000. The New York Fed’s manufacturing survey fell to -1.0 in May, but the Philly Fed’s survey climbed to its second-highest year-to-date reading of 38.8.

Chinese fixed-asset investment, industrial production, and real estate investment in April point to a slowing economy. In Japan, first-quarter GDP exceeded expectations of 1.7 percent with 2.2 percent growth. Oil prices rebounded above $50 this week after Russia and Saudi Arabia sparked optimism ahead of the next OPEC meeting.

The U.S. Dollar Index slipped below 98 as the euro and yen strengthened. A weaker currency was positive for multi-nationals in the first quarter. iShares MSCI EAFE (EFA) climbed 1 percent this week with currency moves.

Brazil dented emerging-market funds on Thursday when its president was linked to an ongoing corruption investigation. Only last year, Brazil removed its sitting president and the head of its Chamber of Deputies for corruption. iShares MSCI Brazil (EWZ) declined 16 percent, while iShares MSCI Emerging Markets (EEM) fell 1.7 percent on the day as Brazil currently comprises 6.7 percent of EEM’s assets.

Target (TGT) blew past estimates of $0.91 with $1.21 per share. Wal-Mart (WMT) earned $1.00 per share, 4 cents better than estimates. Same-store sales climbed 1.4 percent and e-commerce grew 63 percent. Gap (GPS) beat on earnings and revenue. Same-store sales also increased 2 percent versus a forecast decline of 0.2 percent. Children’s Place (PLCE), beat estimates and raised guidance. Ralph Lauren (RL) beat sales and earnings forecasts. L Brands (LB) met expectations, but same-store sales declined 9 percent.

Shares of Cisco (CSCO) fell 7 percent on Thursday after the company beat earnings estimates, but lowered guidance and announced 1,100 layoffs. Semiconductor supplier Applied Materials (AMAT) beat estimates and raised its guidance well above Wall Street estimates. Chinese e-commerce giant Alibaba (BABA) missed on earnings, but easily beat revenue estimates, sending shares higher.

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