Market Perspective for September 25, 2017

Equities opened in the red on Monday due to weakness in the technology sector. Apple (AAPL), Amazon (AMZN) and Google (GOOGL) slipped more than 1 percent. Facebook (FB) fell more than 3 percent, and Netflix (NFLX) more than 4 percent. West Texas Intermediate crude climbed near its May 2017 high of $52. Healthcare, consumer staples and utilities also rose in early trading.

New homes sales for August will be out on Tuesday. Economists anticipate 588,000, up from 571,000 in July. Pending home sales are due on Wednesday. The consensus forecast calls for a 1.1-percent rise in August durable goods. Core capital goods orders in August are also expected to reflect an increase. The third and final revision to second-quarter GDP will be released on Thursday. Economists have predicted growth accelerated by 0.1 percentage points, to 3.1 percent.

Last week we saw a surprisingly strong initial claims number. Analysts predicted 302,000 new unemployment claims, but the actual number was 259,000. Claims are expected to rise to 270,000 this week.

Friday’s updated GDP report will include personal income, consumer spending and inflation data for August. The University of Michigan’s consumer sentiment survey data will also be available on Friday.

Instability in European politics following tumultuous elections in Germany and Italy spilled over into currency markets, with the euro weakening versus the U.S. dollar. A short-term pullback in the euro looks likely as we head into October.
Biotechnology and pharmaceutical shares rallied on Monday, but weakness in healthcare providers weighed on the sector.
The defense sector pulled back on Monday after climbing into short-term overbought territory last week. iShares U.S. Aerospace & Defense (ITA) declined on Monday, despite North Korean threats. iShares MSCI South Korea (EWY) declined on Monday as well.

1-month Libor is approaching its 2017 high, while 3-month Libor is at a new high of 1.33 percent. A Fed rate hike would lift the funds rate to 1.25 to 1.50 percent. Speculators in the futures market lifted the odds of a December rate hike to 73 percent last week. Virtus Seix Floating Rate High Income (SAMBX) pushed back to its 52-week highs last week. Thompson Bond (THOPX) is also at 52-week highs.

Micron Technology (MU) and Nike (NKE) will report earnings on Tuesday. Analysts forecast $1.73 per share at Micron and $0.48 from Nike. In the year-ago quarter, Micron lost $0.05 per share. The stock has gained 58 percent in 2017, more than double the return of iShares Semiconductors (SOXX). Nike has underperformed the consumer discretionary sector, gaining 6.0 percent versus 10.8 percent for SPDR Consumer Discretionary (XLY). The underperformance in 2017 has caused NKE to slip to number 11 in XLY.

ConAgra (CAG), Accenture (ACN), Blackberry (BBRY), RiteAid (RAD) and KB Home (KBH) are also scheduled to report this week.

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