Market Perspective for November 6, 2017

November has been one of the best months for equities over the past several decades and the S&P 500 and Dow Jones Industrial Average have risen every day thus far.

Monday’s rally was led by consumer cyclicals, technology and energy. Oil rallied on instability in Saudi Arabia. Crude oil rallied above $57, the highest it has been since July 2015. Energy service stocks Schlumberger (SLB) and Baker Hughes (BHGE) saw substantial single digit moves on Monday.

The 10-year Treasury yield fell to near 2.3 percent on Monday, the lowest since mid-October. Three-month Libor closed at 1.39 percent last week as markets priced in a December rate hike. The Federal Reserve will lift interest rates to a range of 1.25 to 1.50 percent. Floating-rate funds benefited, with Virtus Seix Floating Rate (SAMBX) hitting a new all-time high.

Economic data will be very light this week. The September Job Openings and Labor Turnover Survey (JOLTS) and the University of Michigan’s Consumer Sentiment survey for early November are due. Weekly oil inventory and rig counts could have outsized impact given tensions in Saudi Arabia.

Chinese economic data out this week will include October trade, inflation and money supply data. The producer price index is expected to slow from 6.9 to 6.6 percent year-on-year. Producer prices unexpectedly accelerated in September with lending. The Chinese National Congress delayed deleveraging efforts in October, but credit growth should resume its slowdown. Industrial commodities such as copper, steel, iron ore and aluminum are highly sensitive to the Chinese economy.

October was the best month for the U.S. dollar in 2017. Political and economic developments were bearish for the euro and yen. The rally in oil weighed on Monday, but the dollar is up thus far in November.

iShares U.S. Home Construction (ITB) dipped last week on news the mortgage interest deduction would be limited to $500,000, but it rallied on Monday after House Republicans were reportedly tweaking the bill to win over some dissenters. President Trump’s visit to Japan proved positive for the defense sector as iShares U.S. Aerospace & Defense (ITA) crept higher. Japanese stocks rallied on Monday. The Nikkei is trading at its highest level since 1996.

Shares of Amazon (AMZN) rallied more than 1 percent on Monday and provided most of the lift for the consumer discretionary sector.

Chipmakers rallied last week after Broadcom (AVGO) made a $103-billion offer for Qualcomm (QCOM). The two firms are the fourth- and fifth-largest companies (by market capitalization) in iShares U.S. Semiconductors (SOXX). This week, Nvidia (NVDA), the second-largest holding in SOXX, will report earnings.

Priceline (PCLN), CVS Health (CVS), Marriot International (MAR), Emerson Electric (EMR), Twenty-First Century Fox (FOX), Humana (HUM), Regeneron (REGN), Rockwell Automation (ROK), Disney (DIS), Astrazeneca (AZN), Johnson Controls (JCI), ArcelorMittal (MT) and J.C. Penney (JCP) will also report.

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