Market Perspective for May 26, 2017

The Federal Reserve minutes sent stocks to new all-time highs this week, as odds of a June rate increase rose to 88 percent.  The S&P 500 Index and the Nasdaq each achieved all-time highs, gaining 1.3 and 2.1 percent, respectively, for the week. The Dow Jones Industrial Average gained 1.3 percent.

First-quarter GDP growth was revised to 0.9 percent from 0.7 as higher exports and strong business and housing investment boosted estimates.  The flash PMI for May fell from 52.8 to 52.5, while the services PMI climbed from April’s reading of 53.1 to 54.0. Durable goods orders for April were stronger than expected as well.

Oil prices fell this week after OPEC voted to extend production cuts for nine months. Crude climbed as high as $52 a barrel before slumping to $48. SPDR Energy (XLE) finished the week near its 2017 low.

Housing data was weaker than expected in April. New homes sales climbed 0.5 percent from last year to an annualized pace of 569,000, but missed expectations. Existing home sales climbed 1.6 percent from last year to an annualized pace of 5.57 million homes, but also missed forecasts. Analysts attributed the slower growth to low inventory.

The 10-year Treasury yield was flat on the week at 2.2 percent. The U.S. Dollar Index firmed around 97. European shares ended nearly three months of outperformance versus the S&P 500.

Lowe’s (LOW) blamed weaker-than-expected housing data for its first-quarter earnings miss, although Home Depot (HD) reported solid results last week.Homebuilder Toll Brothers (TOL) also exceeded expectations. CEO Douglas Yearly reported the firm’s best spring sales in over 10 years. Earnings were 73 cents-per- share in the first quarter, up from 51 cents last year.

Medtronic (MDT) beat estimates, but guidance was weaker than expected. Analysts were looking for sales growth higher than the company’s 4 to 5 percent forecast.

Shares of Costco (COST) rallied more than 2 percent after its earnings report. Same-store sales climbed 5 percent, far better than the larger retail sector and analyst estimates. Earnings were 28 percent higher than year ago levels, and 13 percent higher excluding one-time items.

Shares of Amazon (AMZN) and Google (GOOGL) approached $1000 on Thursday and Friday. Utilities were the best performing sector despite rising rate hike expectations. Technology, consumer staples and healthcare were close behind.

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